Tuesday, April 26, 2011

Inconvenient Math

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"Inflation is taxation without legislation"  - Milton Friedman

"We must not take our economic strength for granted.  That is why it is critical to pay down the debt -- to keep inflation and interest rates low"  - Bill Clinton

"The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation"  - Vladimir Lenin

You know that when I start quoting Milton Friedman, Bill Clinton and Vladimir Lenin in the same post - it's gonna get weird pretty quickly.

Let the weirdness begin...

Have you noticed that the 'stuff' you buy costs more than it used to?

Ever wonder why it's only YOU who notices it? 

Don't get me wrong, I'm sure that your friends, family and neighbors share 'your pain' , but do the folks in the Federal Government who are paid to track stuff like 'Inflation' feel it too?

In a word, 'No'.   

The Feds, in a desire to MANAGE your pain, 'tweaks' the information it publishes hoping that you won't look under the covers for yourself.  (You may find bed bugs down there...  And bed bugs are OOOOGEY!) 

I heard a report a while back which stated that the CPI Inflation rate was just .1% for the month of November, 2010.  According to the
Bureau of Labor and Statistics, inflation for the first eleven months 2010 was a paltry 1.1%.

This of course, begs the question:  If your costs (like mine) keep going up, how can Inflation be so low?  A 1.1% inflation rate assumes that $1,000 worth of goods and services on January 1, 2010 would cost you, on average, $1,100 on November 30th, 2010. 

How do you like the Math so far??? 

Have your costs been relatively FLAT all year?

"Bad American, you must not ask impertinent questions!  Accept what you are told - ve have vays of calculating CPI which you cannot possibly understand!  Don't ask questions, ve will tell you what you need to know!"

So, what DO you need to know?

How about the following?:

*  The CPI Inflation rate currently includes neither FOOD nor ENERGY.  Why?  According to the BLS, the prices of food and energy are much too volatile (Translation:  They go up WAY too fast) to include in the calculation.  But doesn't a large percentage of your take home pay go towards these two items?  Yes, it does, but don't think about it because it doesn't 'compute' in the CPI. 

*  If the price of an automobile goes up 10% in a given year but it is more fuel-efficient, the BLS calculates this increase in fuel-efficiency into the ongoing operating cost of the car, bringing its 'cost' down.  So even though the cost of the vehicle is MORE, this cost is not represented in the CPI calculation.  I'm not entirely sure how this would work since the BLS folks said that they do not include energy costs in the calculation - but don't worry, they've made it work somehow...

Okay, so is there any sanity out there?

Um, No. 

I found an article online from the folks at Time who declared "2010, A Year of No Inflation".  That's funny considering that driving your car (Gasoline UP 7.9%), feeding your family (Food UP 1.7%), heating your home (Fuel UP 3.9%) and clothing yourself and your kids are ALL up dramatically in 2010 - but since MOST of these costs are not included, they don't really matter (to the Federal Government).  The above percentage increases above are from the BLS CPI November 2010 Report.

So why would the Government want to keep the reported CPI low?

*  Marketing 101:  If you tell people something long enough, they might just believe it - keeping the public's perceived rate of inflation LOW is good, right?

*  Marketing 102:  Since many govermental expenses are tied to CPI (Social Security benefits for one), the Feds are REDUCING their expenses by under-reporting increases in the Consumer Price Index.  Why pay someone a cost of living increase of 7.5% when you can get away with a 1.1% increase annually?  It's a 'numbers' thing.

*  Marketing 103:  The Federal Government has 'Veracity Issues' to begin with.  When something works for you, stick with it.  Go ahead, LIE, you've been doing it for years.

So what if you included the costs omitted by the Federal Government in calculating CPI?  Well, things track a bit differently. 

In a chart provided by ShadowStats.com, the RED line represents the CPI numbers published by the BLS.  Alternatively, the BLUE line includes the cost increases associated by inclusion of Energy, Food, and Housing. 

Given these additional variables the Annual Consumer Inflation Rate appears to be somewhere in excess of 7.5% for the period of January through November, 2010 vs. the 1.1% Inflation rate touted by the Bureau of Labor and Statistics.   blog post photo

I guess that if we were being honest with each other (US and the FEDS) we would put the 2010 Inflation Rate in excess of 7.5% for the year.   Will we ever be honest with each other?

Nah.  What fun would THAT be?

In governing, HONESTY is over-rated.

Given that gas and food are continuing their skyward ascent, anyone want to place a bet as to what 2011's official "Inflation Rate" will be?  As for me, I'm going with 1.6%

If the Bureau of Labor Statistics can make stuff up, shoot, I can too. 
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