So much for tomorrow. This has been a crazy week and I expect it to be an equally demanding weekend. Perhaps next week will bring relief?Today I want to write a little bit about local economic indexes (do I know how to party or what?). A few days ago my partner initiated a discussion about just how easily the data in the Consumer Price Index (CPI) can be manipulated, and how there are some who believe the CPI is manipulated, wildly, already.
For those of you who wouldn't know a CPI from a GPS device (and I count myself among you), in its most simplistic terms, the CPI attempts to measure the average rate of inflation in the U.S. The term inflation represents a loss of purchasing power due to increased prices on goods and services. The increased prices are not reflected by increases in quality. So, in theory, the goods being measured are equal to the goods measured last time, and its the prices alone that have changed. Are you still with me? I hope so.
There are critics (of the current administration, of government regulation, or of economic forecasting more generally) who argue that the CPI is routinely manipulated by government to achieve specific political and economic purposes. Why would the government want to tinker with measures of consumer prices? Well, the theory goes that by suppressing inflation figures (current figures are below 3%) the U.S. saves a lot of money. How? Cost of Living Allowance increases (COLA), salary and pension adjustments and the interest on the national debt are all impacted by the rate of inflation. If the rate is low, the government spends less on all of the aforementioned things. There are allegedly many ways that the statisticians manipulate these figures, but I don't know enough about them to explain them satisfactorily. Apparently, "geometric weighting"(a process by which the prices of "volatile" categories, such as housing, energy and health care, are simply eliminated from the tabulation), rolling back price increases for products with quality improvements, and not accounting for subsidies on goods are the mainstays of this manipulation. In truth, I don't pretend to be an expert on this topic. I just think that it's interesting.
So, the critics (understandably) take issue with official numbers that are so low when it's obvious to anyone with a pulse that the cost for most things, especially essentials like housing, health care and energy, are increasing by double-digit increments nearly every year. I do find it interesting that there doesn't appear to be a whole lot of documented discussion of this dissonance.
The manipulation of these figures, the critics contend, leads to a false sense of consumer confidence and encourages overspending, due to artificially low interest rates. Ultimately, instabilities and vulnerabilities result. What would happen, I wonder, if we relied on local measures and indexes of cost and economic activity, instead of the Bureau of Labor and Statistics' CPI? Would the numbers be so easily manipulated? Certainly statistics can be massaged into saying just about anything, but wouldn't it be much easier to take the authors of a local measure to task if the lived reality and the report didn't match?
It seems to me that persons of a given locale would be better served by the transparency and accountability that is likely to come with designing and using local measures of purchasing power. Responsible spending might be one benefit. Employer COLAs that have some basis in the local reality might be another. And I have to imagine that when the persons of a community witness the rapid climb in price of an area necessity, some of them might be inspired to respond with creative and regionally appropriate solutions. Less manipulation. More problem solving. A clearer, more honest picture. I'll admit that I like the sound of that.
I'm interested to hear what others have to say, about the CPI or local measures. A good weekend to all!
