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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: Peter Dierks who wrote (71200)	1/23/2015 11:32:38 AM
From: LLCF	Respond to of 71588

Yep, it's been going on for a long time... like the hedonic pricing used in the bogus inflation stats. Manufacturing hopefully will return some day: Message 29900119

To: Peter Dierks who wrote (71200)	1/31/2015 2:06:52 PM
From: TimF	Read Replies (1) \| Respond to of 71588

Their inflation estimates don't pass the laugh test. Both in terms of the actual prices (they would have inflation at 1970s level in the years before the start of the recession if you use their 1980 based alternative stat), and in terms of what they would mean for real GDP data, where at least if you use their 1980 inflation adjustments, then there really hasn't been any growth since the Reagan administration (and that's in GDP not per capita GDP). A lesser objection is that I disagree with their stance on hedonic adjustment. To give one example a car today isn't not equivalent to a car from 1980. Make no adjustments and the entire increase in nominal price is inflation, but really you are buying a different (and normally much better) product. As for their unemployment stats - The U6 stats already count employed people as unemployed. U3 is the headline unemployment rate. U4 adds in "discouraged workers". U5 adds "marginally attached" workers. Both are groups of people that aren't actively working for jobs. But they aren't fully and by choice removed from the work force, and they aren't working. I could see using something like U3, U4 (Not adjusted 5.8% Seasonally adjusted 6.0%), or U5 (6.7% or 6.9% when seasonally adjusted), as the "real unemployment rate". (Of course then when you compare with past years you should also use U4 or U5 for those years, not compare to previous U3 stats.) U6. Includes involuntarily part time workers. It can make sense to track and be concerned about those people's situation but they aren't unemployed. The U6 stats are those too high to represent an unemployment rate. They could be considered the "unemployed and underemployed rate" (With underemployed referring only to hours, not to people who work on a job that pays very low compared to their skills or expectations.) Without a subscription (and possibly even with one), I can't get the full details of Shadowstats methodology, but they apparently count involuntarily part time works as unemployed, and people who gave up looking for a job a long time ago and have essentially completely left the workforce. The later seems a dubious group to count as unemployed (and even if they where to be counted I'd want more information on who is really being counted). The former (also counted in U-6) are employed, not unemployed.

To: Peter Dierks who wrote (71200)	1/31/2015 2:09:31 PM
From: TimF	1 Recommendation Recommended By DuckTapeSunroof Read Replies (1) \| Respond to of 71588

Be Sensible About 'Alternate Inflation' Sites like ShadowStats just don't make sense. By Stan Veuger Oct. 17, 2014 \| 12:15 p.m. EDT In 2007, President Barack Obama had been a U.S. senator for two years and was running for president. While campaigning in Iowa, he admitted: “I don’t pretend to know everything there is to know about agricultural issues." He then proceeded to ask the crowd, "Anybody gone into Whole Foods lately and see what they charge for arugula? I mean, they’re charging a lot of money for this stuff.” And indeed, to many people, price increases are upsetting! Just yesterday things were so cheap, yet today everything just seems so expensive. We call this inflation or perceived inflation. Some people perceive more inflation than others, and that makes sense: We all consume different bundles of goods, and if you’re unlucky, the things you like grow more expensive. My colleague Tim Carney, for example, claims that the price of everything he wants to buy instantly escalates. But some people overdo it. They have trouble abstracting from their grocery bills or they are trying to sell gold to unwitting senior citizens or they believe that Obama and the Federal Reserve must have debased the currency with all of their printing of the money. And they start believing that the government lies, that the Bureau of Labor Statistics sneakily manipulates inflation numbers. And they turn to websites like ShadowStats.com, where they see their suspicions confirmed. But are they right? Let’s go through it step by step. [SEE: Political Cartoons on the Economy] ShadowStats publishes “alternate” measures of inflation and pretends to do so by employing the methods the statistics bureau used to employ, that is, by ignoring the fact that we consume different goods and services now, and that an iPhone combines a broad variety of products that in 1980 were beyond the reach of kings and presidents. In particular, it claims to use the methods the bureau employed in 1980 and in 1990. It sounds like a challenge to reconstruct current-day inflation that way, but there is an easy fix for that. To construct the 1990-based alternate, it seems, one adds some 3.75 percentage points to the inflation rate. To construct the 1980-based alternate, it appears, one adds an increasing number to the inflation rate, where the number is more or less equal to the number of years that have passed since 1980, divided by 34. If that sounds arbitrary, it’s because it is. [SEE: Deficit and Budget Cartoons] But let’s think through the implications of these adjustments. If true inflation is higher than we think, it means that we can buy fewer things than we thought we could. If true inflation is higher than we think, a given increase in nominal gross domestic product translates into a smaller increase in real GDP than we thought. After all, nominal GDP just represents the sum of the prices of all of the goods we produce, while real GDP is the collection of goods and services that corresponds to this sum. How big are the changes implied by the ShadowStats adjustments to the inflation rate? I’ve helpfully calculated that and the results are shown in the graph below. The graph shows real GDP starting in 1980 as reported by the government and recalculated using the alternate inflation rates presented by ShadowStats. (Note that I'm using my best guess on the ShadowStats data, but their graphs are pretty clear as is the stark contrast illustrated.) The graph also shows that we are very poor. Using the 1980-based alternate inflation rate, for example, we are about half as rich now as we were around the time when then-Iraqi Leader Saddam Hussein invaded Kuwait – e.g., half the food, half the clothes, half the cards, half the cell phones, half the processing capacity, half the computer screen and half the floppy disks. usnews.com

To: Peter Dierks who wrote (71200)	1/31/2015 2:11:41 PM
From: TimF	Respond to of 71588

The Trouble With Shadowstats Often, when I talk about inflation being low, people who disagree tend to cite John Williams’ Shadowstats as evidence that price inflation is not low at all. Now, I don’t disagree with the idea that some people have experienced a higher level of price inflation than the CPI. Everyone experiences a different rate of inflation based on their purchasing habits, so by definition everyone’s individual rate will diverge from the official rate to some degree; some will be higher, and some will be lower. And I don’t disagree that rising food and fuel prices have been a problem for welfare recipients and seniors on a fixed income, etc, who spend a higher proportion of their income on food and fuel than, say, young professionals with a lot of disposable income. What I do disagree with is bad statistical methodology. Shadowstats is built on the belief that the Bureau of Labor Statistics changed their methodology in the 1980s and 1990s, and that if we were using their original methodology the level of inflation would be much higher. Shadowstats presents what they claim to be the original methodology. But Shadowstats is not calculating inflation any differently.They are not using the 1980s or 1990s methodology that they believe would be higher. All Shadowstats is doing is taking the CPI data and adding on an arbitrary constant to make it look like inflation is higher! This should be obvious from their data, which has the exact same curve as the CPI data at a higher level: In fact, according to James Hamilton of Econbrowser, John Williams admitted in 2008 that his numbers are just inflated CPI data: Last month I called attention to an analysis by BLS researchers John Greenlees and Robert McClelland of some of the claims by John Williams of Shadowstats about the consequences for reported inflation of assorted technical decisions made by the BLS. Williams asked me to update with a link to his response to the BLS study. I am happy to do so, along with offering some further observations of my own. You can follow the link to Shadowstats’ response to Greenlees and McClelland and judge for yourself, but my impression is that the response is more philosophical than quantitative. In a separate phone conversation, Williams further clarified the Shadowstats methodology. Here’s what John said to me: “I’m not going back and recalculating the CPI. All I’m doing is going back to the government’s estimates of what the effect would be and using that as an ad factor to the reported statistics.” Price changes and inflation are important topics, and constructing alternate measures of inflation is a worthwhile activity. Researchers at MIT have tried to do this with their Billion Prices Project, which measures price trends across a much, much larger range of products and locations than CPI: What the Billion Prices Project implies for Shadowstats is that the CPI is roughly correct, and there is no vast divergence between real-world price trends and the CPI number. Of course, maybe the 1980s and 1990s methodology would be different from the current numbers. It would be very interesting to compare the current CPI methodology with the older CPI methodologies and with the BPP data! But assessing this empirically would require someone to mine through the raw CPI data since the 1980s and recalculate the outputs with the real earlier methodology — a far longer, more difficult and sophisticated process than taking the CPI outputs and adding an arbitrary constant! azizonomics.com Also bls.gov Not that any measure of inflation is going to be very good, not matter how smart the people putting it together, how careful they are, or what methodology they are using. Inflation in practice is a very complex subject. In some ways the various forms of the CPI overstate inflation. Almost any measure is going to in some ways overstate it and in otherways understate it unless its so extreme that it does one or the other exclusively but to a huge extent. Message 29151421