The Crash Course - Chris Martenson [59]
Over the years, the BLS has expanded the use of hedonic adjustments and now applies these adjustments to everything: DVDs, automobiles, washers, dryers, refrigerators, and even college textbooks. Hedonics now adjusts as much as 46 percent of the total CPI, and if recent plans to apply hedonics to health care are approved, this percentage will jump to well over half.
What would happen if you were to strip out all the fuzzy statistical manipulations and calculate inflation the way we used to do it? Luckily, John Williams of shadowstats.com has done exactly that, painstakingly following these statistical modifications over time and reversing their effects.7 If inflation were calculated today the exact same way that it was in the early 1980s, Mr. Williams has determined that it would be roughly 8 percentage points higher than currently reported, which is an enormous difference.
The higher inflation readings offered by Mr. Williams comport better with the economic news than do the (much) lower government readings. They fit better with the observation that most people have had to borrow more and were able to save less over time—because their real income was actually a lot lower than reported. It explains why the elderly on fixed incomes have been having a harder and harder time making ends meet. A higher rate of inflation is consistent with weak labor markets and growing levels of debt, two stubborn features of the current economic landscape. This higher rate of inflation matches up well with the observed rates of monetary growth throughout the 1990s and early 2000s. So many things that were difficult to explain under the low-inflation readings offered by the government suddenly make sense when we adopt a higher rate of inflation into our mental framework. We can either conclude that we are misperceiving all of those other things, or conclude that the inflation reading is the skewed statistic.
The social cost to this self-deception is enormous. For starters, if inflation were calculated the way it used to be, Social Security payments, whose cost of living adjustment (COLA) increases are based on the CPI, would be 70 percent higher than they currently are.8
Because Medicare increases are also tied to the woefully understated CPI, hospitals are receiving lower Medicare reimbursements than they otherwise would and are increasingly unable to balance their budgets, forcing many communities to choose between closing their hospitals and cutting off service to Medicare recipients. A little harmless fibbing and self-deception is one thing; losing your only community hospital is quite another. These are a few of the grave impacts in our daily lives that result from living with a statistically tortured CPI.
But aside from paying out less in entitlement checks, politicians gain in another very important way by understating inflation.
Gross Domestic Product (GDP)
Gross domestic product (GDP) is how we tell ourselves that our economy is either doing well or doing poorly. In theory, the GDP is the sum total of all value-added transactions within our country in any given year. Just like the CPI (inflation measure), the GDP measure has been so twisted and tweaked by government statisticians that it no longer tells a recognizable version of the truth. As before, there was no sudden, secret adjustment where GDP slipped off the rails; it has been stealthily and systematically debased under every presidential administration since the 1960s, like an old house with a thriving termite colony.