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Slicing and Dicing the Numbers

August 7, 2008 on 12:23 pm | In Main Category | No Comments

In the course of our day and lately more than ever, we find ourselves confounded by the government’s statistics for inflation. How exactly is it that food inflation rose at 5.6% over the last year when our own internal measure of inflation charts the rise at anywhere from 8-66% depending on the category? And as a side-quarrel, how can you dub something “core inflation” when you remove food and fuel from the mix?

Well, we may not be crazy after all. Kevin Phillips wrote a fascinating deconstruction of the government’s methods for measuring economic performance in last month’s Harper’s magazine. Here’s a taste:

Almost four decades have passed since the United States scrapped its last currency ties to precious metals. Our copper and nickel coinage still retains some metallic value, but not nearly enough for the purpose of currency tampering—the historic temptation of inflation-plagued or otherwise wayward governments, including, at times, our own. Instead, since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

You can read the rest of this fascinating article, here.