Phillip Patrick – D.C. Tries to Bury This Economic Fact Under a Mountain of Lies

By Phillip Patrick, for Birch Gold Group

The more I learn about the way the Bureau of Labor Statistics (BLS) calculates changes in the cost of living, the more astonished I am.

Just last week, the BLS released the latest inflation report and the Federal Reserve breathed a sigh of relief. The consumer price index (CPI) grew only 8.5% year-over-year, backing off its 9.1% peak the month before.

Well, not so fast. As my colleague Peter Reagan pointed out last week, the entire drop in inflation was due to plummeting gas prices.

So I decided to learn a little bit more about how inflation calculations are made, and what I learned really surprised me. I relied heavily on the great work of economist John Williams, who knows a lot more about this subject than I do.

I want you to know exactly how much this crucial economic metric has been corrupted by politics to the point it’s virtually meaningless.

Game #1: Let them eat cake

For centuries, prices were calculated in a very simple way:

1. Analyze what people buy
2. See what market prices are for those goods
3. Compare today’s prices to previous reports

Like most simple things, this method works.

Then, back in the 1980s, politicians made some changes to “improve” inflation calculations. For the first time in history as far as I can tell, they stopped measuring what people actually bought and started doing our shopping for us.

Official BLS numbers now include a fudge factor called “chained CPI,” which assumes that we’ll change our spending habits based on prices. Former Federal Reserve Chairman Alan Greenspan explained it this way: “as the price of steak rises, consumers would shift to hamburger.”

And presumably, when hamburger gets too expensive, we’d buy brown lentils (I ate a lot of brown lentils during my years at university!).

The point of this whole farce is to shift hypothetical purchases at the grocery store in order to make the headline inflation number look more politically acceptable.

This definitely reminds me of the likely-apocryphal exchange between Marie Antoinette and one of her chambermaids…

Marie Antoinette: Why are the Parisians rioting?
Chambermaid: Because, my lady, they cannot afford bread for their families.
Marie Antoinette: Why don’t they eat cake?

How do BLS economists know what you’re going to buy at the grocery store? Simple – they don’t.

It’s just one of the shell games they play with the numbers for political purposes. And it’s far from the only one!

Game #2: “Better” means “cheaper” (even when it doesn’t)

Okay, now this is absolutely hilarious.

Let’s say Apple comes out with a new model of iPhone. It has a longer battery life and more processing power. Its price, however, is the same as last year’s model (say $729).

Well, BLS and Fed economists estimate how much better the new phone is. (How? No idea.) Let’s say they decide the new model is 12% better. Since we’re getting an extra 12% performance in this year’s model of iPhone, even though the price is unchanged, the value has increased 12% – so, for CPI calculation purposes, they simply subtract 12% from the phone’s price – so the totally imaginary price for this upgraded iPhone becomes $641.52 – even though you can’t actually buy it for that much money.

Does this sound like a joke? It’s perfectly serious.

This guesstimate of an upgraded product’s imaginary price is called a “hedonic quality adjustment.”

John Williams offers another pair of absurd examples:

In an early example, the government mandated the use of a gasoline formulation that purportedly would improve auto emissions. That added ten cents per gallon to gasoline costs, but that cost was excluded from CPI calculations. The person filling his or her gas tank, however, suffered the actual out-of-pocket expense.

And, speaking of my university days, full-color pictures in my textbooks certainly didn’t lower my costs:

Text books, for example were modeled, where one pricing factor in the hedonic quality model was whether or not there were color pictures in a book. Unless the student was an art student, the concern usually was not over colored pictures, but rather along the lines of  “What is my out-of-pocket cost for textbooks this semester?”

These examples make it fairly clear that politically-appointed economists have absolutely no interest in calculating the actual prices you and I pay every day.

And when we look at housing, the difference between political projections and reality is astonishingly stark…

Game #3: Housing

Along with food and water, shelter is the foundation of Maslow’s Hierarchy of Needs. The BLS and Fed know that housing is crucial – housing costs make up 31.7% of CPI.

You’d think, for that reason alone, something as vital as housing prices would be accurately reflected in the Consumer Price Index, wouldn’t you?

Nope.

Analyst Wolf Richter has done a great job of documenting the difference between actual housing costs and the official numbers. Actual housing costs are shockingly understated by 150%:

Home prices rose some 20% year-over-year, while the official cost of shelter rose a mere 6.5%.

Is this a mistake? A miscalculation? An oversight?

No, it is not.

CPI is an imaginary number, invented by politicians for political purposes

Gaming the CPI and reporting artificially low and completely imaginary numbers is an ongoing, deliberate attempt to deceive the American people.

There are two main reasons for this:

1. It makes the administration’s economic policies seem more sensible and effective than they really are (“My Inflation Reduction Act has already cut the CPI by…”)
2. It slows down Social Security’s Cost of Living Adjustments (COLA), which incidentally helps keep the Social Security Administration solvent for just a little bit longer – maybe until 2035, as Peter Reagan reported back in June

Inflation is a major concern right now. The people I speak with, everyday Americans just like you, know they’re falling behind faster than they’re getting ahead. When I tell them they don’t know even half the story, they’re often aghast. Many of them find our comparison of inflation-resistant investments helpful.

Mostly, though, they’re interested in diversifying some of their hard-earned savings in an uninflatable, tangible asset whose value isn’t dependent on the economic malpractice both the BLS and the Fed seem to delight in. If you, like so many others, wish to add a safe haven to your savings, it’s easy to get started. Learn more about how to open your own gold IRA.

2022, bureau of labor statistics, Featured, federal reserve, inflation, phillip patrick