Reply to Big Mac inflation index is better than CPI

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Reply to "Big Mac inflation index is better than CPI"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Correct.  Look at the work of John Williams at shadowstats.com.  He runs the inflation numbers using the government’s own methodology that was used pre-1980.  This shows that in 2022, inflation actually peaked at around 17%, not 9% as we’ve been told.

Following the massive inflation of the 1970s, the government statisticians got together and determined that, “You know what?  It turns out we’ve been calculating inflation all wrong and that the true numbers are actually lower!  Isn’t that great news?!”  Among the changes they have made since then are that home prices are no longer used in calculating the CPI.  Now they use a nonsense metric called “owner’s equivalent rent,” which is basically just a survey question where they call random homeowners and ask how much they think they could rent their house for if they decided to do so.  [b]This was ostensibly done to remove the investment component of housing and focus only on the shelter cost, but the true reason was to be able to manipulate the numbers — imagine in the modern, data-driven world collecting information in this manner.[/b]

So, yes, basically just double the CPI and that will give you a more accurate assessment of the true inflation rate. And if you are shocked that the government would behave in this manner, wait until you hear about what’s going on in today’s “booming job market.”[/quote]

:roll:

This is an obviously economically sound reason. The investment value of real estate is investment, not consumption. Imagine in the modern, data-driven world *not* collecting data in this manner.[/quote]

I’m the PP. Of course the concept of separating investment from shelter cost is valid, but their methodology is deliberately flawed — you’re telling me there’s no better way to determine the change in shelter cost than the nonsense process I described above? Use the change in rents instead of home prices then. Or any other number of ways that this could be done.

Even before the rise of the tech behemoths, twenty years ago, Walmart used to order extra strawberry Pop Tarts in advance of snowstorms because their data showed that people gravitated especially to that flavor during very cold weather.  But the government can’t figure out a better way to determine the change in shelter cost than asking homeowners - who don’t rent out their house and may not have been in the rental market for decades - how much they think they could charge to rent out their house? Yeah, sure.  They do that because it’s a closed data source that can’t be checked and gives them lots of potentially erroneous information that they can use to manipulate the numbers as they see fit.[/quote]

It's so funny to me when people who have such limited information or understanding default to assuming nefarious intent or incompetence. I don't know anyone at BLS or CBO or the other agencies that gather and track this data. But I know a few people who do similar economic research. The idea that they "manipulate numbers as they see fit" or "can't figure out a better way" is assuming such bad faith that it astounds me. I know that these people are incredibly intelligent and diligent, and that all of them (except for maybe like 0.1%) would find fudging or obfuscating data to be anathema to everything they have worked for their entire lives.

The idea that these people who have trained and worked for 20+ years in the field are ignoring some super obvious thing that you, of course, know immediately, is so funny. Imagine me reading a short article about your work, and then walking in to your office and saying "you are such an idiot, doing X and Y this way! Only a fool would do it like that!". I'll bet these people have spent years trying to.improve and tweak the data and data collection to make it more accurate and robust. Of course they aren't perfect, they are human. And certainly at times organizational and political realities play a hand in holding back good work, I am sure.[/quote]

It's a systemic failure or incentives. 
Underreporting official inflation is always in favor of the short term benefit of the current President, who leads the BLS, so there is never an incentive to correct downward mistakes, only upward mistakes[/quote]

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