Uncle Miltie,
I wanted to get this out to you now; I just have time for a few comments on the fly; busy weekend
The article ‘Addressing misconceptions about the Consumer Price Index’ by John S. Greenlees and Robert B. McClelland lists what it labels as common misperceptions about the CPI and does a poor job of refuting them.
“that Social Security payments are indexed to a CPI that does not include food or energy”: Neither myself nor Williams has claimed that Social Security payments are indexed by a CPI that excludes food and energy.
“that the 1983 change in the way the BLS measures homeownership costs lowered the rate of increase of the CPI; “ The fact that the public often mistakenly believes this is understandable since both the media and the Fed point to core inflation to demonstrate how the effectiveness of monetary policy in keeping inflation low.
Recently the president of the NY Fed, William Dudley gave a
speech cheer leading for how low inflation is, in which he stated “The Fed looks at core inflation, which strips out volatile food and energy costs, to get a better sense of where inflation may actually be heading.”. Dudley then gave the example of how "Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,"
“that the 1983 change in the way the BLS measures homeownership costs lowered the rate of increase of the CPI;” As to the rent, see
Post # 11 here. I don’t have time to re-research this item now. IIRC under Reagan ‘rent equivalence’ was introduced to weight the actual costs of home ownership and purchase using ‘rent equivalence’.
“that the BLS lowers the CPI to reflect consumers’ substitutions of hamburger for steak;”:
This statement is the next best thing to a lie. It is downright misleading. The Boskin report, cited frequently by the BLS, actually uses the substitution of chicken for steak as one of its justifications for hedonics adjustments, quality adjustments, substitution adjustments using geometric weights. While the Boskin Report did not use the actual words hamburger for steak, the concept is the same! Reminds me of the renaming of man made global warming to climate change.
Here are some examples of the substitution effect, hedonics, and quality change in action:
A walk through of the adjustment to price of a new TV is found here
here.
A 27” CRT TV which is no longer available is replaced by its nearest equivalent a 42” flat screen. There is a –7.1% quality adjustment to the price used in calculating the CPI.
"A quality
adjustment has been made to gasoline prices used in the January CPI to account for the effects of the mandated introduction of reformulated gasoline in selected areas of the United States. The gasoline index rose 0.4 percent in January, following seasonal adjustment. Without the quality adjustment, it is estimated that this index would have increased 1.1 percent.."
There is a -.7% quality/hedonic adjustment of federally mandated changes to the price used in calculating the CPI
I recently had to replace an old refrigerator. I bought the closet equivalent which uses the new and more expensive federally mandated coolant that replaced Freon. There will be an -n% quality/hedonic adjustment of federally mandated changes to the price used in calculating the CPI.
Now in the real world, the consumer pays the full price of the flat screen tv, not the full price –7.1%. The consumer pays the full price for gasoline, not the full price of gasoline -.7%. I paid the full price of the new refrigerator, not the full price of the refrigerator –n%. When a consumer who normally buys steak, substitutes hamburger or chicken or Spam because the cost of steak has risen to the point where he can no longer afford it, inflation has lowered his standard of living.
Changes in taste, quality, and the substitution of lower priced goods for higher priced ones were once accommodated by periodic surveys and arithmetic weighting.
So it all boils down to a simple concept. Does the CPI reflect inflation or the Consumer Price Index as accurately as it did before the introduction of the soft metrics of substitution, hedonics, quality adjustment using geometric weighting. Reality based common sense says that it does not.
Now a word about the BLS and definitions.
Over time the BLS has changed the definition of the CPI from being a Consumer Price Index to being a ‘Cost of Living Index’.
Per the BLS, a Consumer Price Index measures a price change for a constant market basket of goods and services from one period to the next within the same city (or in the Nation, whereas a Cost of Living Index measures differences in the price of goods and services, and allows for
substitutions to other items as prices change.
In addition the BLS has its own special definition of a Cost-of-Living-Index’, to wit it accommodates for the substitution effect described in the Boskin Report. Perhaps a better word is Cost-of-Existing Index. Talk about what is the meaning of is!
IMO and experience Shadow Stats charts more closely represent inflation. Considering how the FDA and EPA, two government agencies that in theory are run on scientific considerations have been corrupted by political considerations, why would the BLS be exempt? The BLS is a unit of the Department of Labor, which is a cabinet department whose head serves at the pleasure of the current administration. It is staffed with the same ilk that staffs the EPS and FDA- career academics with no real life reference point.
Some of the relevant links are found
here and
here.
Re post #http://www.freerepublic.com/focus/news/2703730/posts?page=31#31 , it is a modification of
post #35 which is in response to
this post.
Reality Calls. Will check back.