Government Economic Data
Don’t Match Public Perceptions
ShadowStats’ John Williams to Moneynews
Wednesday, 10 Apr 2013 07:26 AM
By Glenn J. Kalinoski and David Nelson
ShadowStats’ John Williams to Moneynews
John Williams has reached a conclusion after more than 30 years as a
consulting economist: Public perceptions of what was happening were much
worse in terms of the economy and inflation than what was coming out of
the federal government.
“Looking at the details [and] looking at the history of the numbers,
what was evident is that you had a series of methodological changes that
have been made by the government over time that have put upside bias
into the economic statistics and downside by the inflation reporting,”
Williams told Newsmax TV in an exclusive interview.
When asked about the origins of the government compromising the data,
Williams mentioned one name: Alan Greenspan. Williams, who runs the web
site ShadowStats.com, said in the 1990s, the former Federal Reserve
chairman, among others, started talking about how the consumer price
index (CPI) overstated inflation.
Watch our exclusive video. Story continues below.
Editor's Note:A full, unedited
version of this interview is available exclusively to Financial
Braintrust Alliance subscribers. Visit www.fbtalliance.comfor more
information and to sign up.
The CPI measures changes in the price level of consumer goods and
services purchased by households. The CPI is defined by the Bureau of
Labor Statistics as "a measure of the average change over time in the
prices paid by urban consumers for a market basket of consumer goods and
services."
“[They said] if only we could get a more accurate number that reduced
the inflation rate, that would help balance the budget deficit because
it meant that the cost of living adjustments, for example, for Social
Security, would be less and changes were made.”
This is where Williams begins asking questions.
“If you asked them what’s wrong here? Why is the CPI overstating
inflation? The response would be … along the lines of, ‘If steak gets
too expensive people buy more hamburger. If they are buying more
hamburger, then their cost of living is less, but that’s not measured by
the CPI.’ That’s not how the CPI was defined," he said.
"There are all sorts of ways that you can define inflation, but if you
are defining inflation so that if steak goes up people are buying
hamburger instead of having to pay for steak, that’s no longer measuring
a constant standard of living and it made a significant difference in
the way the CPI was calculated.”
Williams also mentioned the implementation in the ’80s of something
called the Hedonic Quality Adjustment.
“They used computer models to guess at how prices were being affected by
… putting a digital readout on a washing machine instead of a mechanical
readout,” Williams said.
“They never made quality adjustments for the fact that a machine made 30
years ago lasted 30 years and that a machine made today lasts for only
10 years.”
The way inflation data is calculated directly impacts government reports
on gross domestic product (GDP), he said.
“[GDP is] reported on an inflation-adjusted basis, and that makes some
sense because if you are trying to see how the economy is going, you
really don’t want to be measuring ... the economy was up by 5 percent,
but that’s because prices were 5 percent higher, Williams said.
“They estimate inflation and they take it out of the GDP numbers. You
use a different inflation measure with [GDP] and it’s largely in the
Hedonic Quality Area. If you correct for the changes that have been made
there, it changes the whole economic reporting and it turns the economy
upside down.”