Quote: (05-04-2014 07:14 AM)Vicious Wrote:
Tail Gunner has tried pulling up that conspiracy site as a legitimate source before. Like most conspiracy kooks they get some things right but end up adding so much of their own conjecture that in the end most of their "resources" are garbage. The notion that the government can lie about inflation while the rest of the world's economies wouldn't catch on is hilarious.
Personally I say it's not really worth arguing with someone that is not using the same figures that everyone else recognizes.
I am not sure why this concept is so difficult to understand. The government began calculating inflation in a different manner in the midst of two different recessions to make economic conditions appear better than they actually were. Here is an excerpt from the web site, which is run by an actual economist:
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The CPI chart on the home page reflects our estimate of inflation for today as if it were calculated the same way it was in 1990. The CPI on the Alternate Data Series tab here reflects the CPI as if it were calculated using the methodologies in place in 1980. In general terms, methodological shifts in government reporting have depressed reported inflation, moving the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living.
The new formula for calculating inflation purposely excludes those items that increase the most during bouts of inflation: such as food and energy. As mentioned by Beserk, it also excludes housing. All economists recognize these changes to the formula made over the years.
Here is an excerpt from a random article that I just pulled up off the web (the term "core items" means a component of the current inflation formula):
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Nevertheless, food and energy prices have increased at a much quicker pace than core items. Food prices increased at nearly twice the rate of core inflation over the past year, rising 1.8 percent compared to the core inflation rate of 1 percent for the year ending in January.
But that's nothing compared to fuel costs. "The big culprit has been energy prices, which are up 7.3 percent" over the same time frame, says Hampel.
http://www.bankrate.com/finance/personal...ink-1.aspx
So, food prices increased almost twice as much as those items included in the current inflation formula and fuel costs rose 7.3 times as much. So, do you think that not including those items in the current inflation formula might be a problem for those on a budget?
Another question: when fuel costs rise by 7.3 percent, do you think that might affect the price of anything that might need to be transported? -- which, of course, means almost everything else that you buy.
BTW: the current inflation formula also uses a substitution component. That was not the case under the old formulas. For example, if the price of steak doubles from $5 to $10 per pound, the formula assumes that people will substitute hamburger, which might be $3 per pound. So, using the current formula under that scenario, inflation has actually decreased because the formula simply assumes that people are now buying $3 hamburger instead of $10 steak -- when, in actuality, then are still buying steak at the higher cost. You just can't make this stuff up.
Economists typically use food to explain this concept (as I did), even though food is excluded from the current CPI formula. If you want more information, see section six of this document, which describes this craziness from the perspective of the proponents of this process:
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They will substitute away from chicken and toward ham . Given the conditions described in the problem, they will find themselves buying no chicken at all. Since they are indifferent between two chickens (which now cost $10) and one ham (which now costs $ 7), they could buy 25 hams and 10 steaks and be just as well off as before .
The "cost of living," here meaning the cost of maintaining the same standard of living , will have risen from the initial $230 to $7 (25 hams) + $8 (10 steaks) = $175 + $80 = $255.
If we use this new cost of living to create a "cost of eating" index, we would report an index of:
Price of basket giving same utility
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Price of consumption basket in the BASE year
http://www.pitt.edu/~mgahagan/Bern7.htm
WTF! Will they really buy no chicken? What if they really like chicken? What if they are Jewish and cannot eat pork? What if most of the population is wealthy enough to buy exactly what they want to eat, so they fail to exercise their right to substitute foods despite the rising cost of chicken. Has inflation not increased? Seriously? WTF! Is that real life?
So, do yourself a favor. Stop labeling everything a conspiracy -- and learn to think for yourself. And when someone like myself comes along and tells you the truth, try to extend the benefit of the doubt and do your own research before applying the conspiracy label.