Friday, December 21, 2012

Consumer Price Index - CPI

The Eastpointer

There is no Inflation.

By Richard E. Noble

I don't want to upset all you retired folks out there but I have found out that the Government has been lying to us about inflation.

I know ... I know, you are all shocked. You can't believe I could actually come right out and say the U. S. Government is lying. I am sure some of you think I should be charged with treason and sent to a foreign country to be tortured. I know to actually believe our government would lie is really hard to swallow. There must be some other explanation? Maybe it only appears that they are lying? Maybe I have misinterpreted the facts? Well, I'll let you be the judge.

Inflation is interpreted by the government as CPI. The CPI is the Consumer Price Index. This index was once calculated by comparing the prices of a certain group of goods and services from time to time and then estimating the increase or decrease in their costs. This task was performed by the BLS, the Bureau of Labor Statistics. As the cost of everything in this so called basket of goods and services kept rising, the government decided that something had to be done. Something had to be done because this method was costing the government too much money in cost of living adjustments to retirees, retired veteran’s pensions, Medicare payments, government employees, bond holders and whatever. So they appointed somebody named Boskin and instructed him to form a commission and study this problem.

If you are retired, receiving a pension, have your life's savings invested in government bonds, working under a government contract, or anything that is adjusted for inflation by somebody and you now find that you can only afford to buy half a tank of LP gas, or you can no longer afford to drive your car more than one block in any direction, or you are wondering if cat food can be consumed by humans, you can thank Michael Boskin and his Commission. He and his commission rearranged the methods for estimating the Consumer Price Index.

Mr. Boskin had some "overlooked" economic concepts that he brought into the CPI evaluation like; substitution, hedonics - quality estimations, geometric weighing, seasonal adjustments, along with the elimination of certain incalculable volatile variables like energy, food and local, state and federal taxes. So, for example, when the CPI was calculated without consideration for food, energy and taxes it was often found that there had been no inflation at all. Wow! Isn't that great?

So you ask; why is it that I don't have enough money to live on any more? Well, obviously you are still heating and cooling your home, eating food and paying your taxes. If you will just stop doing those things you will find that you have just as much money as you always had.

But just in case that wasn't enough to bail out the government, Mr. Boskin thought up a few other safety measures to guarantee that inflation didn't go up.

One of his measures he called "substitution." In other words if the price of beefsteak in our typical basket of goods went up from the last time that Mr. Boskin went shopping, he substituted hamburger; and if hamburger was too high he substituted chicken; and if all the meat was too high; he substituted vegetables; and if vegetables were too high one can imagine that Mr. Boskin would have us consumers check out the ingredients on a bag of Friskies. Then, of course, we don’t have to buy the name brand Friskies, we could buy Gritskies and we don’t have to buy Ritz Crackers we can buy Fritz or Blitz Crackers.

Next on Mr. Boskin's list of improvements was "hedonics" or quality compensations. Let's say that Mr. Boskin bought a TV for $329 on his previous expedition and then on his following survey the same model TV cost the exact same price. But the new TV had a better picture, was estimated to last 2 years longer, and due to improvements in technology it had a much better sound. Mr. Boskin figured that even though RCA chose not to charge us for these improvements the government had no obligation to be so generous. Mr. Boskin estimated, for example, that these improvements were worth in terms of quality enhancement, $135. He therefore calculated that a new TV didn't really cost the consumer $329 but only $194. As you can plainly see our CPI actually went down instead of remaining exactly the same.
But hedonics only seems to travel in one direction. If you personally don’t benefit from these new technological wonders because you have grown old and your vision and hearing have diminished or even if you didn’t need and don’t want the new and improved model, you still get billed by Boskin nonetheless.

I could explain to you Mr. Boskin's "geometric weighing" as opposed to the old antiquated arithmetic method and his seasonal adjustments but I don't really think it is necessary. I think that most of you out there will agree with me when I say that Mr. Boskin and the U.S. government who hired him are not simply spinning the truth but are really telling lies.

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