Williams’ Shadow Statistics – Thoughts?

[bubba99]

I have read the various primers on Shadowstats, and I agree with most of the methodology, and criticisms of changes to basic numbers like employment, and inflation. The governments methodology is seriously flawed and shadow stats points out where.

It must be hard for bureaucrats to argue with a straight face that inflation should be reduced for factors like the greater pleasure derived from digital readouts on a washer, or MTBE in gasoline from the pump. Even harder is the buyers choice benefit from selecting hamburger when steak gets too expensive. Even worse is removing the “volitle” food and energy impact on inflation. This would only be good for someone who is starving and freezing in the dark. Food and energy are integral to survival. The geometric weighting of cost increases is so prone to political manipulation, it renders the quality of the entire CPI suspect.

The 7% adder to CPI suggested by John Williams seems to be much closer to what I experience at the store. The employment numbers sare likewise better in shadowstats than from the BLS. I had no idea that 80% of the employment number was a population model with a 150k upward bias each month.

Take away the political crap and un-employment is closer to the range of 10 to 13 percent. The higher numbers are way closer to the impact I see on american college graduates who cannot obtain career types of employment in our so called 4.5% unemployment market.

[bubba99]

Daniel,

I follow the argument about using more health care, but if I must pay 15% more for my coverage this year than last, and each visit is 10% more expensive because of higher demand, and CPI says it is only 3%, what is the other 12%?

Is the suggestion that Joe Middle Class does not experience the other 12% increase, or that the benefit of the insurance is now 12% greater to him – so no effect on CPI?

Another question stems from your statement that “most people don’t fully grasp what the CPI measures; it measures changes in the price of the SAME goods or services”. Did you not know that it no longer measures the same bread basket of goods? That various supstitutions and geometric weightings and other inclusions since 1980 prevent it from measuring the SAME goods?

[bubba99]

Daniel,

I follow the argument about using more health care, but if I must pay 15% more for my coverage this year than last, and each visit is 10% more expensive because of higher demand, and CPI says it is only 3%, what is the other 12%?

Is the suggestion that Joe Middle Class does not experience the other 12% increase, or that the benefit of the insurance is now 12% greater to him – so no effect on CPI?

Another question stems from your statement that “most people don’t fully grasp what the CPI measures; it measures changes in the price of the SAME goods or services”. Did you not know that it no longer measures the same bread basket of goods? That various supstitutions and geometric weightings and other inclusions since 1980 prevent it from measuring the SAME goods?

[bubba99]

Daniel,

I follow the argument about using more health care, but if I must pay 15% more for my coverage this year than last, and each visit is 10% more expensive because of higher demand, and CPI says it is only 3%, what is the other 12%?

Is the suggestion that Joe Middle Class does not experience the other 12% increase, or that the benefit of the insurance is now 12% greater to him – so no effect on CPI?

Another question stems from your statement that “most people don’t fully grasp what the CPI measures; it measures changes in the price of the SAME goods or services”. Did you not know that it no longer measures the same bread basket of goods? That various supstitutions and geometric weightings and other inclusions since 1980 prevent it from measuring the SAME goods?

[bubba99]

Daniel,

I follow the argument about using more health care, but if I must pay 15% more for my coverage this year than last, and each visit is 10% more expensive because of higher demand, and CPI says it is only 3%, what is the other 12%?

Is the suggestion that Joe Middle Class does not experience the other 12% increase, or that the benefit of the insurance is now 12% greater to him – so no effect on CPI?

Another question stems from your statement that “most people don’t fully grasp what the CPI measures; it measures changes in the price of the SAME goods or services”. Did you not know that it no longer measures the same bread basket of goods? That various supstitutions and geometric weightings and other inclusions since 1980 prevent it from measuring the SAME goods?

[bubba99]

Daniel,

I follow the argument about using more health care, but if I must pay 15% more for my coverage this year than last, and each visit is 10% more expensive because of higher demand, and CPI says it is only 3%, what is the other 12%?

Is the suggestion that Joe Middle Class does not experience the other 12% increase, or that the benefit of the insurance is now 12% greater to him – so no effect on CPI?

Another question stems from your statement that “most people don’t fully grasp what the CPI measures; it measures changes in the price of the SAME goods or services”. Did you not know that it no longer measures the same bread basket of goods? That various supstitutions and geometric weightings and other inclusions since 1980 prevent it from measuring the SAME goods?

[Daniel]

Oh, Joe Middle Class certainly experiences the 12% increase, no doubt about that. I’m arguing that it’s a fair increase (not inflation), because he’s fatter and older than he used to be, and he gets MRIs and CAT scans that he didn’t used to get.

So yes, in a nutshell, the overall cost of living is going up faster than the CPI, because people’s standards have gone up. They consume more of everything. Even if inflation were absolutely zero, people would still pay way more on health care now than 10 years ago, because they go to the doctor way more often and gobble pills like there’s no tomorrow.

That’s my main point: the increase in cost of living that people “feel” is not necessarily inflation. They do get more or better goods or services.

And on to your last point: of course they’re not the same goods as 20 years ago. They don’t make Oldsmobiles anymore. But as long as the change is continuous, the CPI makes sense. Let me give you an example: say the Olds Cutlass is in the CPI basket. It costs $11,000 in 1990, and same model costs $11,220 in 1991, so the 1991 CPI is 2%. But they stop making it in 1992. What to do now? Answer: change the car to a Camry. But a Camry costs much more (say, $14,420) in 1992, is that fair? Answer: find out how much the same model Camry cost in 1991 and use that info. If the Camry was $14,000 in 1991, then the 1992 CPI is 3%. Joe Middle Class, who bought a Cutlass in 1991 and a Camry in 1992, feels a much bigger price increase than 3%, but he changes from one car to another. Only 3% is inflation. The rest is improvement.

[Daniel]

Oh, Joe Middle Class certainly experiences the 12% increase, no doubt about that. I’m arguing that it’s a fair increase (not inflation), because he’s fatter and older than he used to be, and he gets MRIs and CAT scans that he didn’t used to get.

So yes, in a nutshell, the overall cost of living is going up faster than the CPI, because people’s standards have gone up. They consume more of everything. Even if inflation were absolutely zero, people would still pay way more on health care now than 10 years ago, because they go to the doctor way more often and gobble pills like there’s no tomorrow.

That’s my main point: the increase in cost of living that people “feel” is not necessarily inflation. They do get more or better goods or services.

And on to your last point: of course they’re not the same goods as 20 years ago. They don’t make Oldsmobiles anymore. But as long as the change is continuous, the CPI makes sense. Let me give you an example: say the Olds Cutlass is in the CPI basket. It costs $11,000 in 1990, and same model costs $11,220 in 1991, so the 1991 CPI is 2%. But they stop making it in 1992. What to do now? Answer: change the car to a Camry. But a Camry costs much more (say, $14,420) in 1992, is that fair? Answer: find out how much the same model Camry cost in 1991 and use that info. If the Camry was $14,000 in 1991, then the 1992 CPI is 3%. Joe Middle Class, who bought a Cutlass in 1991 and a Camry in 1992, feels a much bigger price increase than 3%, but he changes from one car to another. Only 3% is inflation. The rest is improvement.

[Daniel]

Oh, Joe Middle Class certainly experiences the 12% increase, no doubt about that. I’m arguing that it’s a fair increase (not inflation), because he’s fatter and older than he used to be, and he gets MRIs and CAT scans that he didn’t used to get.

So yes, in a nutshell, the overall cost of living is going up faster than the CPI, because people’s standards have gone up. They consume more of everything. Even if inflation were absolutely zero, people would still pay way more on health care now than 10 years ago, because they go to the doctor way more often and gobble pills like there’s no tomorrow.

That’s my main point: the increase in cost of living that people “feel” is not necessarily inflation. They do get more or better goods or services.

And on to your last point: of course they’re not the same goods as 20 years ago. They don’t make Oldsmobiles anymore. But as long as the change is continuous, the CPI makes sense. Let me give you an example: say the Olds Cutlass is in the CPI basket. It costs $11,000 in 1990, and same model costs $11,220 in 1991, so the 1991 CPI is 2%. But they stop making it in 1992. What to do now? Answer: change the car to a Camry. But a Camry costs much more (say, $14,420) in 1992, is that fair? Answer: find out how much the same model Camry cost in 1991 and use that info. If the Camry was $14,000 in 1991, then the 1992 CPI is 3%. Joe Middle Class, who bought a Cutlass in 1991 and a Camry in 1992, feels a much bigger price increase than 3%, but he changes from one car to another. Only 3% is inflation. The rest is improvement.

[Daniel]

Oh, Joe Middle Class certainly experiences the 12% increase, no doubt about that. I’m arguing that it’s a fair increase (not inflation), because he’s fatter and older than he used to be, and he gets MRIs and CAT scans that he didn’t used to get.

So yes, in a nutshell, the overall cost of living is going up faster than the CPI, because people’s standards have gone up. They consume more of everything. Even if inflation were absolutely zero, people would still pay way more on health care now than 10 years ago, because they go to the doctor way more often and gobble pills like there’s no tomorrow.

That’s my main point: the increase in cost of living that people “feel” is not necessarily inflation. They do get more or better goods or services.

And on to your last point: of course they’re not the same goods as 20 years ago. They don’t make Oldsmobiles anymore. But as long as the change is continuous, the CPI makes sense. Let me give you an example: say the Olds Cutlass is in the CPI basket. It costs $11,000 in 1990, and same model costs $11,220 in 1991, so the 1991 CPI is 2%. But they stop making it in 1992. What to do now? Answer: change the car to a Camry. But a Camry costs much more (say, $14,420) in 1992, is that fair? Answer: find out how much the same model Camry cost in 1991 and use that info. If the Camry was $14,000 in 1991, then the 1992 CPI is 3%. Joe Middle Class, who bought a Cutlass in 1991 and a Camry in 1992, feels a much bigger price increase than 3%, but he changes from one car to another. Only 3% is inflation. The rest is improvement.

[Daniel]

Oh, Joe Middle Class certainly experiences the 12% increase, no doubt about that. I’m arguing that it’s a fair increase (not inflation), because he’s fatter and older than he used to be, and he gets MRIs and CAT scans that he didn’t used to get.

So yes, in a nutshell, the overall cost of living is going up faster than the CPI, because people’s standards have gone up. They consume more of everything. Even if inflation were absolutely zero, people would still pay way more on health care now than 10 years ago, because they go to the doctor way more often and gobble pills like there’s no tomorrow.

That’s my main point: the increase in cost of living that people “feel” is not necessarily inflation. They do get more or better goods or services.

And on to your last point: of course they’re not the same goods as 20 years ago. They don’t make Oldsmobiles anymore. But as long as the change is continuous, the CPI makes sense. Let me give you an example: say the Olds Cutlass is in the CPI basket. It costs $11,000 in 1990, and same model costs $11,220 in 1991, so the 1991 CPI is 2%. But they stop making it in 1992. What to do now? Answer: change the car to a Camry. But a Camry costs much more (say, $14,420) in 1992, is that fair? Answer: find out how much the same model Camry cost in 1991 and use that info. If the Camry was $14,000 in 1991, then the 1992 CPI is 3%. Joe Middle Class, who bought a Cutlass in 1991 and a Camry in 1992, feels a much bigger price increase than 3%, but he changes from one car to another. Only 3% is inflation. The rest is improvement.

[gandalf]

Factors to consider, in terms of inflationary pressure:

A. Rise in productivity, real wage growth and earnings
B. Changes in consumer expectations regarding pricing
C. Currency devaluation and fluctuations in money supply
D. Leveraged creation of wealth through asset bubbles

Improvements to underlying goods and services would be reflected in productivity and subsequent real wage growth. Earnings growth is non-existent outside the boardroom. (GDP is overstated?)

The other three factors, B, C and D are clearly in evidence. What Williams is saying is, with respect to CPI as a measure of inflation, the variance with economic reality is mostly likely a result of:

E. Bias introduced by changing reporting methodology

His explanations sounds fairly rational to me. What am I missing?

[gandalf]

Factors to consider, in terms of inflationary pressure:

A. Rise in productivity, real wage growth and earnings
B. Changes in consumer expectations regarding pricing
C. Currency devaluation and fluctuations in money supply
D. Leveraged creation of wealth through asset bubbles

Improvements to underlying goods and services would be reflected in productivity and subsequent real wage growth. Earnings growth is non-existent outside the boardroom. (GDP is overstated?)

The other three factors, B, C and D are clearly in evidence. What Williams is saying is, with respect to CPI as a measure of inflation, the variance with economic reality is mostly likely a result of:

E. Bias introduced by changing reporting methodology

His explanations sounds fairly rational to me. What am I missing?

[gandalf]

Factors to consider, in terms of inflationary pressure:

A. Rise in productivity, real wage growth and earnings
B. Changes in consumer expectations regarding pricing
C. Currency devaluation and fluctuations in money supply
D. Leveraged creation of wealth through asset bubbles

Improvements to underlying goods and services would be reflected in productivity and subsequent real wage growth. Earnings growth is non-existent outside the boardroom. (GDP is overstated?)

The other three factors, B, C and D are clearly in evidence. What Williams is saying is, with respect to CPI as a measure of inflation, the variance with economic reality is mostly likely a result of:

E. Bias introduced by changing reporting methodology

His explanations sounds fairly rational to me. What am I missing?

[gandalf]

Factors to consider, in terms of inflationary pressure:

A. Rise in productivity, real wage growth and earnings
B. Changes in consumer expectations regarding pricing
C. Currency devaluation and fluctuations in money supply
D. Leveraged creation of wealth through asset bubbles

Improvements to underlying goods and services would be reflected in productivity and subsequent real wage growth. Earnings growth is non-existent outside the boardroom. (GDP is overstated?)

The other three factors, B, C and D are clearly in evidence. What Williams is saying is, with respect to CPI as a measure of inflation, the variance with economic reality is mostly likely a result of:

E. Bias introduced by changing reporting methodology

His explanations sounds fairly rational to me. What am I missing?

[Author]

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