Hey, Inflation Truthers, Enough Already!

Congress is not engaged in a massive conspiracy to disguise rising prices. Really.

Relax: There's no monster.
National Journal
Matt Berman and Patrick Reis
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Matt Berman and Patrick Reis
Oct. 31, 2013, 5 p.m.

Uncle Sam’s num­ber crunch­ers re­por­ted Wed­nes­day that the Amer­ic­an eco­nomy is, for now at least, safe from in­fla­tion. But they’re ly­ing to you. And so is the Fed­er­al Re­serve Board, and the Mas­sachu­setts In­sti­tute of Tech­no­logy, and a pan-ideo­lo­gic­al co­ali­tion of the na­tion’s top eco­nom­ists.

Such is the view of the in­fla­tion-truth­er caucus, a Ron Paul-in­spired move­ment that in­sists Demo­crats, Re­pub­lic­ans, and the Fed are all col­lab­or­at­ing in a mass con­spir­acy to hide in­fla­tion — and swindle seni­or cit­izens out of their right­ful So­cial Se­cur­ity pay­ments in the pro­cess.

It’s great polit­ic­al mes­saging that al­lows the former Re­pub­lic­an House mem­ber and his ilk to push their pre­ferred mon­et­ary policy, all while ca­ter­ing to seni­ors and rip­ping in­to Pres­id­ent Obama’s eco­nomy. And the cru­sade is likely to re­sur­face this fall as Janet Yel­len seeks Sen­ate con­firm­a­tion as the Fed’s next chair­man. She plans to con­tin­ue the stim­u­lus-ori­ented easy-money policies of Chair­man Ben Bernanke, the policies the truth­ers blame for driv­ing a massive, al­though hid­den, ex­plo­sion in prices.

Just one prob­lem: It’s all non­sense. Five years in­to Bernanke’s money-print­ing cru­sade, a raft of fed­er­al and private re­ports show no sign of high in­fla­tion, and if prices were skyrock­et­ing, there’s no prac­tic­al way Con­gress could ever cov­er it up.

The stand­ard meas­ure of in­fla­tion — the Con­sumer Price In­dex — rose 0.2 per­cent in Septem­ber, and just 1.2 per­cent for the 12 months up to that point. That’s well be­low the Fed’s 2 per­cent-per-year tar­get, and oth­er fed­er­al in­dexes of in­fla­tion say the CPI is cur­rently over­es­tim­at­ing the rate at which prices are rising. But whatever fig­ures the gov­ern­ment churns out, Con­gress has little or no in­flu­ence over the fi­nal res­ult.

“Con­gress lets the stat­ist­ic­al agen­cies hire ex­perts, and they have the free­dom to choose the best meth­od­o­lo­gies avail­able,” said Keith Hall, a former Bur­eau of Labor Stat­ist­ics com­mis­sion­er and George W. Bush ad­min­is­tra­tion ap­pointee. “It’s def­in­itely not a con­spir­acy.”

The truth­ers of­ten point to changes in how the gov­ern­ment cal­cu­lates in­fla­tion as proof of an ef­fort to sup­press it. But the CPI meth­od­o­logy has seen no ma­jor changes dur­ing Bernanke’s ten­ure, said BLS eco­nom­ist Steph­en Reed, so even if one ar­gues that the stat­ist­ic­al agen­cies are im­prop­erly meas­ur­ing in­fla­tion, there’s no evid­ence they are ma­nip­u­lat­ing the num­bers to hide a Fed-driv­en in­crease.

Many of the at­tacks on the BLS in­fla­tion cal­cu­la­tions stem from a mis­un­der­stand­ing of what they’re meant to meas­ure, Hall said. The fig­ure is a com­pil­a­tion of data on tens of thou­sands of goods meant to rep­res­ent Amer­ic­ans’ av­er­age rate of con­sump­tion, so it’s un­sur­pris­ing that for any one in­di­vidu­al — or even any demo­graph­ic group — the meas­ure might not match up. “This is a cost-of-liv­ing in­dex that re­flects the av­er­age cost for every­body,” he said. “Many people, maybe most people, don’t ac­tu­ally con­sume those ex­act products.”

But Ron Paul is hav­ing none of it.

“There’s a def­in­ite plan by gov­ern­ments, joined in by both parties, to keep the CPI as low as pos­sible so that one group suf­fers over an­oth­er,” the Tex­an and un­rivaled spir­it an­im­al of the in­fla­tion-truth­er move­ment tells Na­tion­al Journ­al. As Paul sees it, an on­go­ing, cov­ert at­tack on seni­ors is ra­ging. Many be­ne­fits, in­clud­ing So­cial Se­cur­ity, are pegged to fed­er­al in­fla­tion in­dexes. By de­press­ing those rates, he says, law­makers can skimp on pay­ments to seni­ors without hav­ing to an­swer for it pub­licly.

Amer­ica’s con­cerns about in­fla­tion run deep. And Paul is not alone in his be­lief that in­fla­tion is dra­mat­ic­ally un­der­re­por­ted. Eco­nom­ic his­tor­i­an Ni­all Fer­guson called the CPI “bogus” back in 2011, writ­ing that “double-di­git in­fla­tion is back.” And at least one mem­ber of the Sen­ate Bank­ing Com­mit­tee, which will soon grill Yel­len, is on board: Re­pub­lic­an Tom Coburn of Ok­lahoma as­ser­ted dur­ing a hear­ing with Bernanke this sum­mer that in­fla­tion is well over 8 per­cent.

These kinds of num­bers aren’t com­ing out of thin air. The Amer­ic­an In­sti­tute for Eco­nom­ic Re­search has an in­fla­tion in­dex — dubbed the Every­day Price In­dex — that looks more closely at daily pur­chases, such as food and fuel. Its meas­ure has pro­duced eye-catch­ing in­fla­tion levels vastly high­er than the CPI. Steven Cun­ning­ham, AIER’s chief eco­nom­ist, says the BLS is do­ing good work without any con­spir­at­ori­al in­tent but that its in­dex fails to cap­ture every­day life.

The big reas­on for the dif­fer­ence between gov­ern­ment-meas­ured in­fla­tion and the in­sti­tute’s yard­stick is the com­par­at­ively vast num­ber of goods the gov­ern­ment is look­ing at com­pared with the EPI. The EPI’s smal­ler pool means that factors such as fuel-price in­creases have an out­sized im­pact on the meas­ure of over­all in­fla­tion. It also means, Cun­ning­ham ar­gues, that the meas­ure presents a more ac­cur­ate pic­ture of how price in­fla­tion is af­fect­ing Amer­ic­ans daily.

Some oth­er out­side meas­ure­ments of in­fla­tion, however, look a lot like the gov­ern­ment’s. MIT’s Bil­lion Prices Pro­ject, which tracks on­line prices, has mirrored the CPI since 2009. Based on per­son­al con­sump­tion ex­pendit­ures, the Fed­er­al Re­serve’s own pre­ferred meas­ure of in­fla­tion, Bernanke has the best in­fla­tion re­cord among Fed chiefs since World War II, Amer­ic­an En­ter­prise In­sti­tute eco­nom­ist Mark J. Perry wrote in Au­gust.

So what else would ex­plain the very real sense people have that prices for goods are boom­ing well over 2 per­cent an­nu­ally? “There’s prob­ably an ele­ment of hu­man nature where people no­tice things whose price is chan­ging a lot,” Hall said. “There are tens of thou­sands of prices in the CPI, but they might no­tice the five that are go­ing up.”

Or, as Bernanke told Coburn this sum­mer, the fact that wages are grow­ing at a slower pace than in­fla­tion could be to blame, as could the tend­ency to fo­cus on ex­tremes — something Ron Paul knows a bit about.

Catherine Hollander contributed to this article.
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