I read this during lunch today, and there is one point in it that made me think about Manchester.
The official inflation rate of two to three percent is a lie, and it has been for years. Presidents Reagan and Clinton ordered the Bureau of Labor Standards to change the way it calculates the Consumer Price Index. Previously they compared the prices of the same items from one year to the next. Now, in order to cheat senior citizens out of cost-of-living increases on their Social Security payments, the government uses a "substitutions" analysis. "The consumer price index assumes that if prices get too high, consumers will start buying cheaper products," reports The San Diego Union-Tribune. For instance, if steak gets too expensive, they will switch to ground beef.
Steve Reed, an economist [with] the Bureau of Labor Standards, freely admits the change makes inflation looks lower than it is. He also admits its motivation: "Even if the CPI was one percentage point higher, it could cost the government hundreds of millions of dollars."
John Williams, an economic consultant who publishes the monthly newsletter "Shadow Government Statistics," calculates that "inflation is actually running at an annualized rate of 9.95 percent." Inflation has been rising since 2002.
If the actual rate of inflation is running at close to 10%, how is the Manchester GOP going to maintain services with only 3% budget increases?
Oh, one more thing: how many of you have changed from Steak to Ground Beef so far? At this rate, we might have to switch to dog food.
1 comment:
The CPI is a flawed instrument no matter how it is calculated, but it is the best indication we have of inflation. The "substitution" method is a valid change to the calculation and should be retained. Without it, we would base our inflation numbers on the cost of a horse, saddle, and feed rather than a car and gasoline. Everyone always looks at the cost of the things that have gone up and then laments the fact that prices are rising. But many industries see prices fall, some seemingly forever. How much did a laptop cost in 1990? What does it cost today? You can buy a laptop for $400 today that is at least 100 times more powerful than one purchased for $4000 in 1990. Cellphones? Initial cell phones cost thousands of dollars, now they are essentially "free" with a 2 year contract. How should the CPI be adjusted for such factors? Let's face it, you could look at this stuff from all kinds of perspectives and with all kinds of lenses. But even the steak vs. ground beef argument doesn't work - 20 years ago steak was the thing - today most people actively avoid both in favor of white meats and fish. This is the fundamental flaw of a non-substitution CPI.
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