5 ms·

> Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a por

> Another interesting thing that happened under Greenspan is how inflation is computed (hedonics, replacements, etc... conceptually, think "if I can't buy a porterhouse steak anymore, I'll get the lesser hanger", meaning inflation is underreported). Inflation calculations (in the US) did not happen under Greenspan, or under any other Federal Reserve chair, because the calculations are not done by the Fed, but by the Bureau of Labour Statistics (BLS: https://www.bls.gov/cpi/ https://www.bls.gov/cpi/). The 1990s change to the CPI were done under the auspices of the US Senate Boskin Commission: * https://en.wikipedia.org/wiki/Boskin_Commission https://en.wikipedia.org/wiki/Boskin_Commission * https://www.ssa.gov/history/reports/boskinrpt.html https://www.ssa.gov/history/reports/boskinrpt.html One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high. This is true in many (most?) countries: e.g., in Canada CPI is calculated by StatCan and various types are used by the Bank of Canada (BoC): * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D64_T9_V2 https://www.statcan.gc.ca/en/statistical-programs/document/2... * https://www.bankofcanada.ca/rates/indicators/key-variables/key-inflation-indicators-and-the-target-range/ https://www.bankofcanada.ca/rates/indicators/key-variables/k... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810025601 https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181002...

OnlineGladiator 3y ago
> One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high. How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.
- baronswindle 3y ago
  The way I read it, it’s actually the opposite of what you wrote. You suggested that the Fed relied on inflation numbers that it knew to be too low — i.e. that inflation was understated due to failure to account for substitution effects and the like. In fact, the Boskin commission concluded the opposite — i.e. that inflation figures were overstated in aggregate due to failure to account for things like quality changes and the substitution effect.
  - tsimionescu 3y ago
    No, they suggested it now relies on inflation numbers that it knows to be too low. They said that inflation numbers used to be more realistic, but they have recently been lower than real inflation that consumers experience.
- throw0101c 3y ago
  > How is this any different from saying they changed the methodology to make the numbers look better? Define "better": is a higher CPI better, or is a lower CPI better? Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being overstated.
  - OnlineGladiator 3y ago
    A lower CPI is better for the government because it makes it look like inflation is a smaller problem than it is. So you're agreeing with me - they changed it to make the numbers look better.
    - mrep 3y ago
      You didn't answer their question: Define "better": is a higher CPI better, or is a lower CPI better? Why is a lower CPI better for the government? In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?
      - OnlineGladiator 3y ago
        I did answer the question - I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Do you think it's better to report 5% inflation or 10% inflation? Regardless of what you report, the inflation is what it is. Modern politics is about pretending to solve problems, not actually solving them.
        mrep 3y ago
        > I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Let me guess, you think anything other than 0% inflation is "bad"?
        3y ago
transcriptase 3y ago
StatsCan under-reports to a hilarious degree. Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Let's see... if we run the numbers by dropping goods that are experiencing rapid inflation, and then weight things in a way that has no correlation with the increase in cost of living experienced by 99% of the population we get... oh look at that! 4.1%! Great news for the person who buys a new TV with their groceries every week!
- throw0101d 3y ago
  > Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Do you understand how StatCan calculates the CPI? What their methodology is? The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys: * https://www.statcan.gc.ca/en/survey/household/3508 https://www.statcan.gc.ca/en/survey/household/3508 As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D68_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D59_V4 https://www.statcan.gc.ca/en/statistical-programs/document/2... You can see the list of changes going back to 1913 at: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D70_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... Do you think the CPI should reflect reality—i.e., track what people actually buy—or be some arbitrary list of stuff that has no relevances to people's actually basket of goods (e.g., coal and lard were removed/replaced in 1956; 35mm film removed in 2013; video rental removed in 2015). It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%: * https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240319a-eng.htm https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5) * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000413 https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province) StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you: * https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015... Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski https://en.wikipedia.org/wiki/Alfred_Korzybski): * [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/ https://fs.blog/map-and-territory/ Or those of statistician George Box: * [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong https://en.wikipedia.org/wiki/All_models_are_wrong) > Great news for the person who buys a new TV with their groceries every week! If you don't like televisions being a part of the 2.25% of the CPI that is "Household equipment": * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... Then tell the average Canadian to stop buying televisions so that it does not show in spending surveys. If people stop consuming televisions it will stop being part of the Consumer Price Index, QED. Meanwhile Food is 11% of the CPI because that is on average what the average Canadian spends on their average basket of goods per the spending surveys that StatCan gets.
tsimionescu 3y ago
The OP and your reports agree: the Boskin committee changed the way inflation is calculated. The new way says there is less inflation than the old measure said. So, if the new measure is actually wrong, then inflation is underreported now, when it used to be correctly reported before. The Boskin committee believes it was overreported before and it is now correctly reported.
sob727 3y ago
You are absolutely correct that the BLS publishes CPI, but this still happened in the Greenspan era (and that's what I meant by "under Greenspan"). I remember reading (IIRC, in Bill Fleckenstein's book), that the Boskin commission was not free of interference and/or had an intent going in. Either way, especially in recent years, it's pretty clear that CPI has been a flawed metric. I remember this episode fondly: https://www.wsj.com/articles/SB10001424052748704893604576199113452719274 https://www.wsj.com/articles/SB10001424052748704893604576199...

OnlineGladiator 3y ago

> One of the conclusions was (AIUI) that the CPI then-methodology actually resulted in numbers too high. How is this any different from saying they changed the methodology to make the numbers look better? In my opinion the old methodology was better, but I realize this is a complex issue and there is no "correct" answer.

baronswindle 3y ago
The way I read it, it’s actually the opposite of what you wrote. You suggested that the Fed relied on inflation numbers that it knew to be too low — i.e. that inflation was understated due to failure to account for substitution effects and the like. In fact, the Boskin commission concluded the opposite — i.e. that inflation figures were overstated in aggregate due to failure to account for things like quality changes and the substitution effect.
- tsimionescu 3y ago
  No, they suggested it now relies on inflation numbers that it knows to be too low. They said that inflation numbers used to be more realistic, but they have recently been lower than real inflation that consumers experience.
throw0101c 3y ago
> How is this any different from saying they changed the methodology to make the numbers look better? Define "better": is a higher CPI better, or is a lower CPI better? Because the Boskin Commission found that the CPI numbers out of the BLS were too high and they changed the methodology to lower them after the Commission's report. Pre-Boskin CPI was being overstated.
- OnlineGladiator 3y ago
  A lower CPI is better for the government because it makes it look like inflation is a smaller problem than it is. So you're agreeing with me - they changed it to make the numbers look better.
  - mrep 3y ago
    You didn't answer their question: Define "better": is a higher CPI better, or is a lower CPI better? Why is a lower CPI better for the government? In what way does the CPI calculation translate to a "problem" and why does lower CPI = "smaller problem"?
    - OnlineGladiator 3y ago
      I did answer the question - I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Do you think it's better to report 5% inflation or 10% inflation? Regardless of what you report, the inflation is what it is. Modern politics is about pretending to solve problems, not actually solving them.
      - mrep 3y ago
        > I said a lower CPI is better for the government because it makes it look like inflation isn't as bad as it is. Let me guess, you think anything other than 0% inflation is "bad"?
        3y ago

transcriptase 3y ago

StatsCan under-reports to a hilarious degree. Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Let's see... if we run the numbers by dropping goods that are experiencing rapid inflation, and then weight things in a way that has no correlation with the increase in cost of living experienced by 99% of the population we get... oh look at that! 4.1%! Great news for the person who buys a new TV with their groceries every week!

throw0101d 3y ago
> Your rent went up by 30%, groceries went up by 20%, but fuel went down by 10% and a new TV went down by 30%. Also people stopped buying steak because it went up 50% so we'll drop that from the basket. Do you understand how StatCan calculates the CPI? What their methodology is? The CPI you see in the headlines is made of of various components (Shelter, Food, Transportation, etc), the proportions of which are determined by spending surveys: * https://www.statcan.gc.ca/en/survey/household/3508 https://www.statcan.gc.ca/en/survey/household/3508 As people change their buying habits the items that are tracked also change to reflect what consumers are spending. Here are the items in each category: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D68_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D59_V4 https://www.statcan.gc.ca/en/statistical-programs/document/2... You can see the list of changes going back to 1913 at: * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D70_V1 https://www.statcan.gc.ca/en/statistical-programs/document/2... Do you think the CPI should reflect reality—i.e., track what people actually buy—or be some arbitrary list of stuff that has no relevances to people's actually basket of goods (e.g., coal and lard were removed/replaced in 1956; 35mm film removed in 2013; video rental removed in 2015). It should also be noted that the number reported in the headlines is the national average, while the prices can vary widely depending on your location. So in the report for February 2024, the national number was 2.8%, but Alberta had 4.2% while Manitoba had 0.9%: * https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240319a-eng.htm https://www150.statcan.gc.ca/n1/daily-quotidien/240319/dq240... (Chart 5) * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... * https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000413 https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=181000... (searchable by province) StatCan has a "Personal Inflation Calculator" where you can enter your own numbers/budget and find a number that may be closer to what's happening around you: * https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020015... Remember: the CPI is a model of reality, and not reality itself. It is used as a guide, and to use the words of [Alfred Korzybski](https://en.wikipedia.org/wiki/Alfred_Korzybski https://en.wikipedia.org/wiki/Alfred_Korzybski): * [The map is not the territory.](https://en.wikipedia.org/wiki/Map–territory_relation https://en.wikipedia.org/wiki/Map–territory_relation) * https://fs.blog/map-and-territory/ https://fs.blog/map-and-territory/ Or those of statistician George Box: * [All models are wrong but some are useful.](https://en.wikipedia.org/wiki/All_models_are_wrong https://en.wikipedia.org/wiki/All_models_are_wrong) > Great news for the person who buys a new TV with their groceries every week! If you don't like televisions being a part of the 2.25% of the CPI that is "Household equipment": * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc-eng.htm https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc... Then tell the average Canadian to stop buying televisions so that it does not show in spending surveys. If people stop consuming televisions it will stop being part of the Consumer Price Index, QED. Meanwhile Food is 11% of the CPI because that is on average what the average Canadian spends on their average basket of goods per the spending surveys that StatCan gets.

tsimionescu 3y ago

The OP and your reports agree: the Boskin committee changed the way inflation is calculated. The new way says there is less inflation than the old measure said. So, if the new measure is actually wrong, then inflation is underreported now, when it used to be correctly reported before. The Boskin committee believes it was overreported before and it is now correctly reported.

sob727 3y ago

You are absolutely correct that the BLS publishes CPI, but this still happened in the Greenspan era (and that's what I meant by "under Greenspan"). I remember reading (IIRC, in Bill Fleckenstein's book), that the Boskin commission was not free of interference and/or had an intent going in. Either way, especially in recent years, it's pretty clear that CPI has been a flawed metric. I remember this episode fondly: https://www.wsj.com/articles/SB10001424052748704893604576199113452719274 https://www.wsj.com/articles/SB10001424052748704893604576199...