How Federal Numbers Cheat You

When is a number not a real number...?

INDEPENDENT senator Bernie Sanders from Vermont is up in arms, writes Daily Reckoning founder Bill Bonner. 

He demands that the White House and the House of Representatives say no to benefit cuts for Social Security recipients and disabled vets.

He got the Senate to express itself on the issue too. Not surprisingly, the senators are opposed to any cutbacks that would fall on their voters' heads. No senator dared raise his voice against it.

What exactly has been proposed? Simple enough: more fudge.

Anyone who has read us for very long knows that the numbers used by the federal government...and by economists, generally...are special numbers.

They look like normal numbers. They use the decimal system. You can add them. You can subtract and multiply them. But they are imposters...crooked...bent...perverted. They do not mean the same thing as stand-up, normal numbers. They may not mean anything at all.

If you look in a basket of apples, you will find a certain number of them. You might have one. You might have six. But whatever number you have, it will be an actual, real number. It will accurately describe what's in your basket.

But what if The Federal Reserve tells you the unemployment rate is 7.6%? What if they tell you that GDP is growing at 2.5% per year? What if they insist consumer prices are rising at a 2% annual rate?

What do you know? Nothing!

These are public numbers, not private numbers. Like public information, generally, they are low-quality numbers...with little real information content...and, often, negative value.

They may have meaning, but it is not the same meaning that you expect from other numbers. Often, they lead you to believe something that isn't true. And you can never trust them.

What got Sanders worked up was the latest attempt to use these scammy numbers to lower US deficits. The idea on the table is a plan that probably originated here in Argentina. It is shifty enough.

The Federal Reserve proposes to change the way they calculate the CPI — a so-called 'chained Dollar' inflation rate— so that they will get a lower reading and, thereby, send less money to the old folks.

Heck, the number can be almost anything you want! Why not make it convenient for the feds?

On the surface, it appears to be the rarest sort of government initiative — the kind we can approve of. After all, the feds spend too much. Cutting back would allow more people to keep more of their money.

But isn't it cheating the graybeards and the cripples?

Yes, of course. They were promised money that does not belong to them. As it turns out, they will get less than they expected. But so what?

The politicians promised to adjust payments to the CPI. As we've discussed at length, the CPI was fudge from the get-go. It already understates real price increases substantially. According to John Williams of ShadowStats.com, the real CPI — calculated as the feds did in the Carter administration — is 9.6%, not 2%.

So they're already cheating retirees and veterans. Might as well cheat them a little more.