Moved from one of the hockey forums. Don't know if Blackbeard reads over here, but here goes.
The official numbers track pretty well with other (non anecdotal) sources.
I am familiar with Shadow Stats and it's complete garbage. For starters, he does not calculate the inflation rate the way they did at any time in the past. What he has done is figures out an estimate for how much he thinks the change in BLS methodology has subtracted from the real inflation rate on average and then just adds that amount to the official CPI-U figure each month. That's a complete useless approach that, even if he did it right, wouldn't actually tell us anything.
Of course, Williams doesn't do it right, either. As you can see from his posts on what he does, he calculates the aggregate difference in price level since 1980 between CPI-U and CPI-U-RS and comes up with a difference of 5.1%, which is the figure he then adds to the CPI-U each month. He says, "Keep in mind that the CPI changes of 0.68% were an aggregate for those years and had to be carried forward—added back in—on a cumulative basis if one wanted to remove the effects of the methodological changes from future data. Against the aggregated 0.68% reduction in the reported inflation, the BLS’s related CPI-U-RS series showed an aggregated reduction in the reported inflation of 0.7%, as discussed in the next two sections."
That's utterly wrong and reveals that Williams has no idea what he is talking about. You do not add in cumulative differences in the price level when trying to compute the rate of inflation. That's dumb and if Williams doesn't understand that there's no reason anyone should give the slightest credence to anything he says on the subject of economics. The correct answer for the difference between CPI-U and CPI-U-RS in terms of the annual inflation rate is the second to last column of his table Net Reduction in CPI-U inflation from Changes in Methodology, not the last one. You may notice that the difference was either 0.0% or 0.1% for every year between 2000 and 2011.
That's not much of an earth shattering difference.
Here is where you begin to betray that you don't understand BLS statistics. The US government wouldn't have you believe any such thing. They in fact publish six different unemployment rates that have progressively broader definitions of who is considered a part of the labor force. You are correct that the headline number, U-3, does exclude those who are not looking for work from its definition of the labor force but that's not because the government is trying to hoodwink us; it's because the different measures of unemployment are each suited for different things. If what you want is a measure of the number of people who are not working full time, U-6 is the one you want. In its complete nefariousness, the BLS puts U-6 right in its publications, thus ensuring that everyone remains completely in the dark as to what it is.
However, if what you want is the rate of unemployment as it will produce inflationary pressures, U-3 is absolutely the one you want. People who are not looking for work do not reduce wage inflation as they are not a part of the supply of labor. So if you are the Federal Reserve and your concern is what the proper monetary policy is, you'd be stupid to use U-6.
There is some debate as to which unemployment number should be the one that is used in the headlines, produced apparently by the conception that people are incapable of processing the idea that there are different rates. The thing is that there isn't really a right answer to that question. It's not lying to anyone to use U-3, it's just a subjective choice.
(For what it's worth, a lot, though not all, of the differences in headline unemployment numbers across countries comes not from different labor market conditions but from how they define the size of the labor force. Japan uses a narrower definition, closer to U-2, so a comparison to the U.S. headline rate makes it look like Japan has lower unemployment. European countries, on the other hand, use a broader definition which is one reason that their unemployment rates are always higher. There's nothing wrong with the choice being made by any of them.)
And you do the same thing when you complain that food and gas aren't included in the inflation statistics. First off, you are factually incorrect. The headline CPI-U number does include food and energy. What you are doing is conflating the headline number, which is the one generally reported, with Core CPI-U, which does exclude those items.
Your second problem is that you don't seem to understand what core inflation is used for and why it is used. It's used primarily by the Fed to determine monetary policy. The reason for this is that the price of food and energy, like all commodities (including gold), fluctuates wildly for reasons that have nothing to do with monetary policy. If you are trying to make policy both the price volatility and its non-monetary origins make it unwise to include commodity prices as a large component of your inflation measure. You need something that is both more stable and more accurately reflects what you are trying to measure, in this case the effects of monetary policy on the price level. For that, core inflation is the much more appropriate tool than headline inflation.
If someone keeps crying that the sky is falling and yet it never does, that calls their credibility into question. And, yes, I've been hearing the exact same prophecies ever since I started paying attention to finance and economics, which was around 1987. And it never happens. Could it at some point? Sure. But there's no evidence that it actually is happening or that it's at all likely to happen in the near future.
Let me ask you this: if very high levels of inflation are so inevitable, why isn't that reflected in interest rates? The fact is that the markets don't think that inflation is likely to happen in the next 30 years. If you're much of a believer in the efficient markets hypothesis (and personally I'm not, at least not in its stronger forms) and the idea that the best way to price anything is in a market, that's a very strong piece of evidence that inflation is not a serious concern at this point.
The official numbers track pretty well with other (non anecdotal) sources.
I am familiar with Shadow Stats and it's complete garbage. For starters, he does not calculate the inflation rate the way they did at any time in the past. What he has done is figures out an estimate for how much he thinks the change in BLS methodology has subtracted from the real inflation rate on average and then just adds that amount to the official CPI-U figure each month. That's a complete useless approach that, even if he did it right, wouldn't actually tell us anything.
Of course, Williams doesn't do it right, either. As you can see from his posts on what he does, he calculates the aggregate difference in price level since 1980 between CPI-U and CPI-U-RS and comes up with a difference of 5.1%, which is the figure he then adds to the CPI-U each month. He says, "Keep in mind that the CPI changes of 0.68% were an aggregate for those years and had to be carried forward—added back in—on a cumulative basis if one wanted to remove the effects of the methodological changes from future data. Against the aggregated 0.68% reduction in the reported inflation, the BLS’s related CPI-U-RS series showed an aggregated reduction in the reported inflation of 0.7%, as discussed in the next two sections."
That's utterly wrong and reveals that Williams has no idea what he is talking about. You do not add in cumulative differences in the price level when trying to compute the rate of inflation. That's dumb and if Williams doesn't understand that there's no reason anyone should give the slightest credence to anything he says on the subject of economics. The correct answer for the difference between CPI-U and CPI-U-RS in terms of the annual inflation rate is the second to last column of his table Net Reduction in CPI-U inflation from Changes in Methodology, not the last one. You may notice that the difference was either 0.0% or 0.1% for every year between 2000 and 2011.
That's not much of an earth shattering difference.
Here is where you begin to betray that you don't understand BLS statistics. The US government wouldn't have you believe any such thing. They in fact publish six different unemployment rates that have progressively broader definitions of who is considered a part of the labor force. You are correct that the headline number, U-3, does exclude those who are not looking for work from its definition of the labor force but that's not because the government is trying to hoodwink us; it's because the different measures of unemployment are each suited for different things. If what you want is a measure of the number of people who are not working full time, U-6 is the one you want. In its complete nefariousness, the BLS puts U-6 right in its publications, thus ensuring that everyone remains completely in the dark as to what it is.
However, if what you want is the rate of unemployment as it will produce inflationary pressures, U-3 is absolutely the one you want. People who are not looking for work do not reduce wage inflation as they are not a part of the supply of labor. So if you are the Federal Reserve and your concern is what the proper monetary policy is, you'd be stupid to use U-6.
There is some debate as to which unemployment number should be the one that is used in the headlines, produced apparently by the conception that people are incapable of processing the idea that there are different rates. The thing is that there isn't really a right answer to that question. It's not lying to anyone to use U-3, it's just a subjective choice.
(For what it's worth, a lot, though not all, of the differences in headline unemployment numbers across countries comes not from different labor market conditions but from how they define the size of the labor force. Japan uses a narrower definition, closer to U-2, so a comparison to the U.S. headline rate makes it look like Japan has lower unemployment. European countries, on the other hand, use a broader definition which is one reason that their unemployment rates are always higher. There's nothing wrong with the choice being made by any of them.)
And you do the same thing when you complain that food and gas aren't included in the inflation statistics. First off, you are factually incorrect. The headline CPI-U number does include food and energy. What you are doing is conflating the headline number, which is the one generally reported, with Core CPI-U, which does exclude those items.
Your second problem is that you don't seem to understand what core inflation is used for and why it is used. It's used primarily by the Fed to determine monetary policy. The reason for this is that the price of food and energy, like all commodities (including gold), fluctuates wildly for reasons that have nothing to do with monetary policy. If you are trying to make policy both the price volatility and its non-monetary origins make it unwise to include commodity prices as a large component of your inflation measure. You need something that is both more stable and more accurately reflects what you are trying to measure, in this case the effects of monetary policy on the price level. For that, core inflation is the much more appropriate tool than headline inflation.
If someone keeps crying that the sky is falling and yet it never does, that calls their credibility into question. And, yes, I've been hearing the exact same prophecies ever since I started paying attention to finance and economics, which was around 1987. And it never happens. Could it at some point? Sure. But there's no evidence that it actually is happening or that it's at all likely to happen in the near future.
Let me ask you this: if very high levels of inflation are so inevitable, why isn't that reflected in interest rates? The fact is that the markets don't think that inflation is likely to happen in the next 30 years. If you're much of a believer in the efficient markets hypothesis (and personally I'm not, at least not in its stronger forms) and the idea that the best way to price anything is in a market, that's a very strong piece of evidence that inflation is not a serious concern at this point.
