« Iraq Rejects Permanent US Bases | Main | Hucksters For Huckabee; Romney Turns Desperate »

Why Americans Hate Their Horrible Economy

I've felt for quite some time that the government's statistics about inflation and GDP growth are "cooked" to make the economy appear much better than it really is. In an interview with Barron's, Rudolph-Riad Younes, co-manager of the Julius Baer International Equity Fund (ticker symbol: BJBIX) explains why the inflation numbers that they are feeding us are pure bunk:

A: If there is one panacea, it is fixing the inflation index. At the Fed we need more courage and less politics, and we need to reverse many of the changes that were made in the early 1980s to the inflation index, beginning with the decision to remove house prices from it and replace them with equivalent rents.

Q: What is the problem?

A: Under this revision, inflation rates consistently have been below those of the past. For example, under the old method, inflation in the past 10 years would have ranged between 8% and 10%. Under the new method it has ranged between 2% and 4%. Had the inflation method been kept intact, inflation readings would have been 4% to 6% higher and, in response, interest rates would have been much higher. We would have grown more slowly during the boom, but avoided the bubbles and the ensuing bust.

It's difficult to understand why the government would not include home prices in their inflation index given the fact that the home ownership rate in the US is at 68.9%. At a minimum there should be a formula that uses home prices for 70% of its calculation and rents for 30%. But they didn't do that, they exclude home prices from the equation entirely.

I'm sure they had their justification for doing so (spare me trolling fact-checkers), but in the real world most people I know own their homes rather than rent and they have been hard hit by soaring real estate prices that have forced them to take out expensive mortgages in order to buy a home. It's inconceivable that any accurate measure of inflation would completely ignore the explosion in home prices that has occurred over the past 10 years.

So when government bureaucrats tell you that inflation is only 2% or 3% we should all realize just how easy it is to manipulate that number. A much better way to estimate inflation is to look at the prices of raw commodities (oil, corn, wheat, gold, silver, copper) in order to see where inflation is going.

Right-wing bloggers like Engram are fond of endlessly explaining how great the economy is and how stupid the American people are for not realizing that. He goes on to provide statistic after statistic that demonstrates how our the economy has never been better, and bemoan the fact that polls like this one regularly show that an overwhelming majority disapprove of Bush's handling of the economy. In this poll, 55% also believe the economy is getting worse while just 18% believe it's getting better.

So what gives? Are the American people just too stupid to realize how great the economy is as the right-wing blogosphere insists? Or maybe, just maybe, could the statistics created by the government bureaucrats be seriously flawed? Could inflation really be running around 8% annually? Could GDP growth for that matter be much less than what is being reported?

I think that has to explain it. The American people aren't given towards extreme pessimism. There's real pain out there that the right-wing blogosphere and the Republican candidates just don't get (and never will).

It's the economy stupid.

Note: Wizbang Blue is now closed and our authors have moved on. Paul Hooson can now be found at Wizbang Pop!. Please come see him there!

  • Currently 2.8/5
  • 1
  • 2
  • 3
  • 4
  • 5
Rating: 2.8/5 (5 votes cast)


Send e-mail tips to us:

[email protected]





Add to Technorati Favorites


Publisher: Kevin Aylward

Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

All original content copyright © 2007 by Wizbang®, LLC. All rights reserved. Wizbang® is a registered service mark. Wizbang Blue™ is a trademark of Wizbang®, LLC.

Powered by Movable Type 3.35

Hosting by ServInt

Ratings on this site are powered by the Ajax Ratings Pro plugin for Movable Type.

Search on this site is powered by the FastSearch plugin for Movable Type.

Blogrolls on this site are powered by the MT-Blogroll.

Temporary site design is based on Cutline and Cutline for MT. Graphics by Apothegm Designs.