26 Aug 2008

Are We in a Recession?

All Posts No Comments

Unable to fool the public into thinking things are rosy, here is now the “consensus” view from official economists: “The U.S. economy may have avoided a recession but will grow below trend for some time…”

Isn’t it surprising that during the worst financial crisis in decades, with record oil and food prices, and with the housing sector in shambles, we’re not even in a recession?

The answer is that the CPI and unemployment figures aren’t calculated as they used to be. So for example, when people look at today’s figures and compare them to earlier periods, it seems like America is a bunch of whiners.

But that’s because those numbers are comparing apples to oranges. Besides the trend to reporting “core inflation”–as if food and energy aren’t really important items to most households!–there is the fact that even the regular CPI has all sorts of seasonal and “hedonic” adjustments made to it. For example, in this article I went through and tried to understand how in the heck the BLS said gas prices fell by 4.6 percent from March to April this year. (!) Guess what? No matter how hard I tried, I couldn’t reproduce that result. I guess we just have to trust that the government statisticians wouldn’t fudge things.

I haven’t independently verified his methods, but John Williams over at ShadowStats claims that, using the old methods of calculation, CPI and unemployment would be much higher than what officials are telling us. (As for unemployment, part of the trick is that now they don’t count people who are “discouraged” and stop trying to find a job.)

Now folks, some of you may be new to all this, and you think I am a paranoid nut. So let me ask you: Do you do the grocery shopping for your household? Do you think prices have only gone up 5 percent or so over the last year? You know your energy costs have gone up far more than that. Hasn’t milk and chicken gotten a lot more expensive too? C’mon, you know the official CPI figure is bogus.

Nominal GDP has been growing much more slowly than consumer prices. We have been in a recession for some time now.


One last comment from the CNBC article linked above… Check this out:

Economists in the quarterly National Association for Business Economics survey were less pessimistic about the economy’s outlook in the June 19 through July 10 survey than they were in April, but price pressures will weigh on growth.

“More firms reported higher sales, but also higher material costs and lower profits, in the second quarter than in the first quarter,” said Ken Simonson, chief economist at the Associated General Contractors of America.

My economic worldview might be wrong, but at least it is coherent. In contrast, these mainstream prognosticators think that (a) economic growth causes inflation (not!), and (b) inflation hinders economic growth. How the heck do economies ever grow, in their books?

Comments are closed.