Lies, Damned Lies, and Statistics
So “Helicopter” Ben Bernanke was doing his usual bit in front of Congress this week, once again testifying that he’s going to maintain “exceptionally low levels of the federal funds rate for an extended period.” According to him, he can afford to do this because:
“Increases in energy prices resulted in a pickup in consumer price inflation in the second half of last year, but oil prices have flattened out over recent months, and most indicators suggest that inflation likely will be subdued for some time. Slack in labor and product markets has reduced wage and price pressures in most markets, and sharp increases in productivity have further reduced producers’ unit labor costs. The cost of shelter, which receives a heavy weight in consumer price indexes, is rising very slowly, reflecting high vacancy rates. In addition, according to most measures, longer-term inflation expectations have remained relatively stable. The range that most FOMC participants judge to be consistent with the Federal Reserve’s dual mandate of price stability and maximum employment.”
Hmm. Oil prices rising by roughly 43 bucks a barrel in less than a year doesn’t sound very “subdued” to me. Maybe I should have titled this post “how to hide inflationary numbers in one easy step.” See, when lying with statistics it’s always best to lump different ones together into an index, then manipulate the relative weighting and report the aggregate, like they do with the Consumer Price Index or CPI. The CPI works like this:
Say you own your own home and you pay a fixed rate mortgage. Then the cost of transportation goes up 20% (3.4 out of 100), food goes up 20% (3), medical care goes up 30% (1.8) and clothing goes up 10% (.4). This would increase the CPI to 8.6 but you lost 20% of your home value (like most of us did) which knocks 8.5 back off the CPI and SHAZAM. We get a reading of 0.1%, which on the surface looks “subdued.”
Know what else isn’t included in the CPI? Taxes. Isn’t that wonderful? They can raise your property taxes, sales tax, school taxes, income tax, etc. and none of this will affect the index one bit. Property taxes are especially insidious, as it increases the effective cost of the home and reduces the monthly amount a buyer can afford to pay for it, which then lowers the price you’ll be able to sell your home for.
Yay for more free money, I guess….
H/T Phil Davis