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The Pot Calling the Kettle Black

May 13, 2013

So I was recently fired from a job where they refused to tell me why but claimed that it was for fraud. That was such a humiliating charge and patently false. Its funny though, this is the same organization who had an accountant that quit because “she did not like where the company was going”. I believe she saw the double accounting and double dipping that they were doing and wanted no part of it. She also saw that they are a fiscal train wreck about to happen at anytime in the future. This organization happens to be a non-profit that lives off government funds by helping people with disabilities live off welfare.

Its funny how these non-profits behave exactly like the government that pays their bills through the taxation of our income of course. I can tell you stories of how this nonprofit is the real fraud and what they have asked me to do with public funds in the past. But instead, I want to use this story as a segway into the similar type of hocus pocus accounting successfully used by the government to make inflation look smaller than it really is.  They do this by changing the methods in how they calculate the Consumer Price Index. What is the Consumer Price Index? Let me repeat it again in Spanish, ¿Que es el índice de precios al consumo (CPI)? 

Well I am going to offer an explanation in both English and Spanish as I dont want to lose any segment of the population with this important post.

El índice de precios al consumo (CPI) mide el cambio en los precios de bienes y servicios. Esto proporciona una medida para los economistas para analizar el nivel de los precios que los consumidores tienen que pagar para ciertos bienes sobre un periodo de tiempo. Si el CPIaumenta, esto significa que los consumidores pagan más para los bienes o servicios que pagaban anteriormente, que podría señalar la inflación.

That means, the consumer price index (CPI) measures the changes in prices of goods and services. This provides data for economists to analyze the level of prices that consumers have to pay for certain goods over a period of time. If the CPI increases, this signifies that the consumers are paying more for goods and services than they paid previously, which could signal inflation.

So how does this hocus pocus work to change the methods of calculation to show a dishonest level of consumer prices? Watch this video.

What struck me the most about this fraud with the calculation of CPI is the chart showing a comparison of CPI against the price of the Big Mac. Take a look for yourself.

BMI vs CPI(1)


From 1986 to 2003 the U.S. BMI rose roughly in line with the CPI. Although the burger occasionally rose faster or slower, over that 17 year period both indexes increased by about 68% (or about 4% per year). But from April 2003 to January 2013 the CPI Index is up just 25% percent (from 183.8 to 230.28 or about 2.5% per year) while the BMI is up 61% (from $2.71 to $4.37 or about 6.1% per year), or more than twice the official inflation rate.

What could possibly account for the difference?  Has the Big Mac gotten bigger, better, tastier, or healthier?  As an iconic product, McDonald’s has been reluctant to change a proven formula. If the Big Mac hasn’t changed, is it possible that our inflation yardstick has?

It has been estimated that if the government used the same methodology to measure inflation that it used during the 1980’s, we would be currently dealing with official inflation that would be many times higher than today’s official 1.5% rate. The Big Mac appears to confirm this.

But now the government appears ready to distort the figures even further.  With little resistance from the media or the public, the Obama Administration and Congressional Republicans seem ready to switch the inflation measurements used for Social Security away from the CPI in favor of the even more attenuated “Chain Weighted CPI.” This index, which is consistently lower than the CPI, looks to incorporate changes in spending patterns when consumers switch to more affordable products (in other words, it measures the cost of survival, not the cost of living). And while many admit that this is a manipulation, no one really seems to care.

I think the deeper in debt our government gets us as a nation the more you will see a fudging with the methods for calculating inflation, but what they cant mess with is the number of people on food stamps and they cant mess with what we see everyday for our own selves when we go to buy gas for our cars or groceries to feed our families.


From → Economics

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