May 15, 2011

"Shadow Stat Misery Index Highest on Record."

Using "economic data for inflation and unemployment the way it used to be calculated pre-1990":
Based on that data, the CPI inflation rate is over 10%, and the unemployment rate is over 15% (see charts). The Misery Index is the sum of the current inflation rate and the unemployment rate. If it were to be calculated using the older methods, the Index would now be over 25, a record high. It surpasses the old index high of 21.98, which occurred in June 1980, when Jimmy Carter was president.
Is Shadow Stats doing this right? I have no idea, but I hope not!

41 comments:

RuyDiaz said...

It feels right to me. I know several recent graduates who cannot find their first job, and I'm feeling the pinch of increased prices on the things I buy. Things are pretty bad.

Chip S. said...

I took only a quick look at the "Shadow Stats" page, so I'm not offering a definitive opinion, but it looks like a bit of a crank site. The price index he seems to hate the most, a chain-weighted consumer price index, is the one I'd say most economists think is best.

This guy seems to favor using the same collection of goods forever in calculating price changes. That makes no sense at all, and it can easily be shown to overstate the true rate of inflation.

rhhardin said...

I don't think it's right. Fuel and food and everything else was rising in the 70s at a buy-it-quick-before-they-change-the-tag rate.

They exclude fuel and food for a reason, namely that it doesn't reflect the money supply so much as weather and mid-east politics, and so can't be used as a guide to money policy.

Inflation is a money effect, not a weather effect.

At the moment the flood of new dollars aren't being circulated but used to transfer risk to the Fed's balance sheet from the banks' balance sheet. They're going in a circle without encountering any real goods.

RuyDiaz said...

What Chip S. said--it is a crank site.

However, the government statistics themseles paint a pretty bad picture; unemployment is still high, a number of people have given up looking for work, and inflation is just gathering steam. The Govt. was 'printing dollars' without much effect because people were not circulating the money. Lately, the extra money is circulating faster, which is being reflected in prices.

Paul Zrimsek said...

Not to worry. Williams is wrong, wrong, wrong.

RuyDiaz said...

Paul:

I hope you meant 'not to worry more', than what you should worry. The Government statistics are accurate, and what they reflect is worrisome.

Chip S. said...

I'll add that, IMHO, the BLS serves a legitimate public purpose with a high degree of professional skill.

(No, I don't work there.)

edutcher said...

Jimmy Carter changed the way inflation is measured. Today, the CPI doesn't count food and fuel in its measurements.

Gas has more than doubled in 2 1/2 years.

Cotton and corn are up more than 100% from last year.

Wheat up more than 50% from last year.

The reason the U-3, which Willie used as the main employment gauge, rather than the U-6, looks a little better is that the people who have run out of unemployment (the 99ers) and those who were laid off and retired early because they couldn't find a job - the so-called "discouraged" workers - aren't being counted in the workforce - to the tune of about 6 million. With a workforce Little Zero says amounts to 156 mil, that extra six adds about 3 or 4 points.

Gallup puts the U-6 around 19.3 and the Organisation for Economic Co-operation and Development basically agrees.

So all are welcome to do the math.

Chip S. said...

Today, the CPI doesn't count food and fuel in its measurements.

That is completely false.

You are confusing "core inflation" measurement with "inflation" measurement. The distinction is made in order to deal with the potentially high short-term volatility in commodities prices. But the basic CPI most certainly includes food and fuel prices.

Chip S. said...

Today, the CPI doesn't count food and fuel in its measurements.

That is completely false.

You're confusing the CPI with the "core inflation" index, which is designed to eliminate the short-term volatility in commodity prices. The idea is pretty simple: if the price of oil skyrockets because we're bombing the Libyan oil fields, that isn't something that can be blamed on monetary policy.

Quayle said...

The FRB and Treasury are acting like America is a near zero rate of return risk (net negative, with inflation and dollar devalue), and somehow the world is supposed to still love us.

But consider, if you had a dollar in Dresden, would you put it in America or in India or Brazil?

We have somehow convinced ourselves that we are the only game in town, and we can abuse our lenders with net negative real interest and devalued dollars, and they'll stick around and take it.

We insane.

Quayle said...

..we're insane.

rhhardin said...

But consider, if you had a dollar in Dresden, would you put it in America or in India or Brazil?

The only thing you can do with a US dollar is invest it in the US or buy something from the US economy.

AllenS said...

We screwed.

We're screwed.

Quayle said...

The only thing you can do with a US dollar is invest it in the US or buy something from the US economy.

Wrong. Currencies are fungible.

Shouting Thomas said...

It's been particularly hard on the white good old boys, who, of course, nobody gives a fuck about.

I know a lot of these guys who make a living out of the back of a pickup truck.

Ralph L said...

6-10 years ago, when housing prices were rising quickly, it didn't show up in the CPI, nor did the subsequent rise in fuel and commodities. Now some people say the decline in housing prices is offsetting the rises elsewhere.

I question the timing.

Keeping the CPI down saves the government tens of billions in COLA increases for SS and government retirees, and the savings are cumulative.

rhhardin said...

Ever since I read Mark Steyn on the debt ceiling this morning Google ads has been trying to sell me the Woodtrac Ceiling System.

Quayle said...
This comment has been removed by the author.
Quayle said...

Ever since I read Mark Steyn on the debt ceiling this morning Google ads has been trying to sell me the Woodtrac Ceiling System.

And because you searched for a tow truck Monday, Google will try to sell you on a certain car repair shop on Thursday.

They're build good "get you 80% of the way" solutions. Finishing detail? Not so much.

mariner said...

I have no idea either, but I strongly expect the "real" numbers are at least that bad, and may in fact be worse.

Chef Mojo said...

Provisioning a restaurant is getting very precarious. Wholesale food prices have gone nuts. I'm paying purveyors fuel surcharges on my deliveries. Pork bellies have gone up 185% in the last 3 years. A lot of my business is folks driving down from DC for weekend getaways, and it just isn't happening. I lucked out booking wedding parties for weekends in May last year, and I can't count on good business during UVA's graduation weekend.

After that? I really don't know. Things are looking pretty grim. Those numbers reflect what I'm looking at in terms of wholesale prices. I've been in this business for 26 years, and I've never seen it like this. It's pretty fucking scary.

Mark said...

They exclude fuel and food for a reason, namely that it doesn't reflect the money supply so much as weather and mid-east politics, and so can't be used as a guide to money policy.

That's fine for money policy, not so much for the purpose of the misery index. Lots of misery comes from rapidly rising food and fuel costs. Fuel prices pretty much impact all of the other goods because of delivery costs.

Rick Caird said...

Chip S. seems to to take a dim view of ShadowStats, but ShadowStats is widely followed. It is certainly not a "crank site". One of the statistics ShadowStats maintains is the M3 value. Further, ShadowStats produces more statistics than just the CPI values.

Further, RuyDiaz points to Econobrowser as a debunking. But, if you read the Econobrowser post, it is merely a reference back to the BLS site justifying their method of calculating CPI. That is hardly a "debunking".

Finally, you will see ShadowStats statistics showing up in the work of many financial writers. To call that a "crank site" is to be calling a large number of writers "cranks" while elevating a mere two professors at San Diego and Madison.

Paul Zrimsek said...

The Government statistics are accurate, and what they reflect is worrisome.

Not really the inflation and unemployment numbers that go into the "misery index", though-- the former isn't (yet) worrisome, and the latter, though bad right now, isn't expected to get worse. The statistic that's really telling us we're boned is debt/GDP.

Paul Zrimsek said...

Chip S. seems to to take a dim view of ShadowStats, but ShadowStats is widely followed. It is certainly not a "crank site"

It's widely followed by cranks. There are a lot of cranks out there.

Charlie Martin said...

Well, a couple of points.

First, as the author makes clear in the comments, his past estimates are done by-guess-or-by-god through eyeballing old charts.

Second, there's a reason the old methods were eliminated: they weren't telling economists what they needed to know. Economists have largely adopted the "quantify theory of money" which says that the value of a dollar is basically the amount of "stuff" in the economy divided by the number of dollars; inflation happens when the supply of dollars grows faster than the supply of "stuff". Letting volatile things like oil and food drive the overall index hides the essential signal in noise. A temporary increase in the price of gasoline doesn't change either the amount of "stuff" or the amount of money; it just leads to reallocation.

In the long term, an enduring increase in the price of gasoline will cause other prices to go up; over that same long term it may contribute to "real" inflation.

Now, all that said, the "misery index" as it's being computed in the article may be a good measue of general misery; that doesn't mean the current index is wrog, just that it measures something other than the misery index.

rhhardin said...

"The only thing you can do with a US dollar is invest it in the US or buy something from the US economy."

Wrong. Currencies are fungible.


Actually they're not. You can exchange currency, but then somebody else is holding your dollar and has the same problem that you had.

The dollar doesn't do anything until it winds up on the US.

rhhardin said...

In the long term, an enduring increase in the price of gasoline will cause other prices to go up; over that same long term it may contribute to "real" inflation.

It depends what the Fed wants to do.

Whatever the Fed does, the higher price of gasoline will reduce the standard of living; that's the only long term certainty.

Pastafarian said...

The BLS numbers for inflation are affected by something they call "hedonic indexing" -- as I understand it: Suppose you can purchase a laptop with a certain amount of processing power, today, for $500.

But three years ago, that same laptop would have cost you $1500.

Well, hell, they say -- that's deflationary. And so, despite the fact that food and power and fuel, and all of the things that require fuel and power to make or deliver, have increased in price by 30% over that 3-year period, we'll just offset that with the fact that you can get this laptop for $500.

And we're left with pure bullshit useless numbers from BLS that serve only to convince people that things are much better than they are.

Now, all of you supporters of these nonsense BLS numbers, please pile on and point out how I've oversimplified this hedonic indexing, and how vitally important it is, and how much more valid the numbers are with it factored in.

And in the end, the price of a gallon of gas, or a loaf of bread, or a car, or a pound of steel, will all, over the long haul, reveal higher levels of what any ordinary person would refer to as "inflation" than the officially recorded 3% for the last several years; your protestations won't change that.

Big Mike said...

We're not quite as miserable as we were during the Carter administration, but give Obama time. Give him time.

Chip S. said...

To call that a "crank site" is to be calling a large number of writers "cranks" while elevating a mere two professors at San Diego and Madison.

I'll see your ad populum fallacy and raise you an appeal to authority: The "mere professor" whose Econobrowser post you dismiss out of hand, James Hamilton, is a preeminent scholar in the field of macroeconomics. But there's really no need to rely on anybody's authority on the CPI question, because Shadow Stats is simply taking an absurd position, probably in the very reasonable expectation that a ginned-up controversy = more newsletter subscribers.

Greg Kemnitz said...

There's been intense debate as to whether there should be a "Moore's Law" inflation discount. I think not, as while Moore's Law has made an amazingly vast amount of stuff cheaper, daily living expenses aren't much affected by Moore's Law.

You need food and fuel, but can live without an Iphone, or can get by with just one.

wv: spreate, which is what happens when you go to the gas station.

traditionalguy said...

Does social security do cost of living increases?? If not, then you know why inflation fires are being set by our political class as fast as they can circulate another excuse for what they are doing.

Chip S. said...

Oh, FFS.

The fact that "food" is something people keep buying when its price goes up, whereas an iphone is something people only purchase every now and then, is reflected in the CPI by the weight that's attached to price changes on each of those items. That's why the sort of "chain-weighted" index Shadow Stats hates is considered good by just about everyone else. Because it's a good idea to keep the price index up-to-date with the ways people actually spend their money.

Now if you think that a vacuum-tube-based 12" black-and-white TV is the same thing as a 54" 1080p flat-screen, then by all means use Shadow Stats' price index. Because that's the logic being deployed there.

In terms of their treatment of food and fuel, though, they're pretty much on the same page as the BLS.

Chip S. said...

Social Security payments are adjusted for inflation.

That took about 5 seconds to find out, including typing time. You're on your own now.

BEK477 said...

Inflation is up for any good or service that can be exported to EM countries.

Goods and services that can not be exported ( like American houses)are not disturbed by inflation.

The volitility of money is slowly growing and may begin spurting faster in the 3rd qtr.

The real issue IMHO is the continued decline in lending to the business and consumer sector.
If QE2 ends without a QE3 successor then we are farked.

I recommend an immediate year long holiday from the income tax and the payroll tax for every American family making less than $250,000 per year and every business with less than $5 Million in sales.

Jim said...

It's correct. In fact it's low. Just go to Target and buy stuff. My dog's food went up 20% in two weeks. Youplait youghurt went from 55 cents to 67 cents in the same time. Dont talk to me about milk or orange juice.

If Barry and Timmy and Bernanke's goal with quantitiative easing was to destory the middle class - they've been successful.

bagoh20 said...

I was just trying to enter the job market after college in 1980, and it was a miserable time. Absolutely nowhere to work, and it seemed as though the United States had peaked and was spent. I didn't know it at the time but in 1980 we were simply looking for a new inspiration and retooling. There was actually nothing wrong with the country.

This time it seems our dysfunction is more concrete than just a feeling of malaise. This time the the feeling isn't as bad, but the numbers (facts) are much worse. This is an amazing nation, and I hope we are not too far removed from our strong, do-whatever-it-takes roots. If we are the same people, we will turn this around. I don't know if we are. We seem much more pusified now. The myths we made come true don't seem to be as respected today. Now we are too smart to try the impossible.

viator said...

Well, the Democrats made sure that what happened to Carter was never going to happen again. Williams has detailed the whole sorry history of the many political changes that occurred in government economic reporting on his website.

Today the Democrats and the MSM will tell you there is no inflation. Anyone who shops at the supermarket knows there is galloping inflation. One more example of cognitive dissonance on our sorry ship of state.

viator said...

Chip, Social Security payments are not adjusted for inflation if the government reports there is no inflation. Since the government has said there has been no inflation for more than two years running there have been no adjustments for inflation to any indexed government payment for quite a while. Older people who depend on Social Security and have little disposable income are hurt the most but I guess they can always eat their flat screen TVs.