Top Scoops

Book Reviews | Gordon Campbell | Scoop News | Wellington Scoop | Community Scoop | Search


Dan Spillane: Con Job Finger-Pointing

Con Job Finger-Pointing

By Dan Spillane, The Liberty Whistle
--“Con Man” is actually “Dark Thief in the Night"

(SEATTLE) 10/13/04 -- Bill Gross’s " Haute Con Job” (Pimco, October 2004) drew quick criticism from Bloomberg’s John Berry and the Fed’s William Poole, according to the latest exchange in Gross’s rebuttal.

Yet, the main—and very financially relevant--point of Bill’s original story seems to have evaded both Berry and Poole. That being, over the long term, an increasing number of hedonic and other adjustments and non-adjustments (such as rent equivalence) have come to change--and in many cases lower--major headline inflation indices since the 1980s. However, during the same period, there is absolutely no evidence that government programs and financial instruments keyed on these inflation indices have factored such changes in. Thus, in practical terms, inflation expectations and fiscal actions related to inflation reports have been based on indices assuming constant measures—but instead, the measures have drifted. In scientific circles, this is heresy--imagine the consequences of changing the definition of a mile or kilometer. Suddenly, cars might be more (or less) fuel-efficient based on a government edict!

So all the talk about “inflation in the 1970s” related to present figures is based largely on non-comparable headline numbers. And in fact, more recently, and to some unknown extent each year, changes in inflation-measuring indices have lead to an unidentified gap between the actual cost of things, and reality. So Gross is right on track.

And speaking of reality, you have to question the application of hedonic measures in practical contexts. Take for example, the measures for personal computers (and as a side note-- Berry’s analysis correctly states the CPI computer weighting is small, but neglects to mention the high negative magnitude). In the case if computers, it is assumed that we are always getting “more bang for the buck” in terms of hardware. Yet, as everyone knows, computer hardware is fully dependent on software. And, as it turns out, new versions of computer software often require more hardware--which largely negates the hedonic price decay used in US CPI calculations. Therefore, if we assume we live in a globally competitive economy, in order to retain a level of relative productivity growth, it is correct to assume the amount spent on computers will not fall by nearly as much as reported in the CPI, if at all. In fact, as the number of software applications grows to cover more tasks, it is likely a more expensive computer will be not only desired, but be needed to handle new tasks. In other words, the notion of hedonics and price decay is a sham—or con job. Indeed, over time, and combined with other factors in the CPI, this heist has slowly and quietly slipped in to the US bond market and social entitlement programs. That is, very much like a thief in the night—who, being unnoticed, keeps coming back for more. Unnoticed…or willfully ignored, by Berry and Poole, as the case might be.


© Scoop Media

Top Scoops Headlines


Binoy Kampmark: Congress, Skulduggery And The Assange Case

Is the imperium showing suspicions about its intended quarry? It is hard to believe it, but the US House Intelligence Committee is on a mission of discovery. Its subject: a Yahoo News report disclosing much material that was already in the public domain on the plot to kidnap or, failing that, poison Julian Assange... More>>

The Conversation: Old wine in new bottles – why the NZ-UK free trade agreement fails to confront the challenges of a post-COVID world
When the sales pitch for a free trade agreement is that “British consumers will enjoy more affordable Marlborough sauvignon blanc, mānuka honey and kiwifruit, while Kiwis enjoy the benefit from cheaper gin, chocolate, clothing and buses”, you know this is hardly the deal of the century... More>>

Philip Temple: Hang On A Minute, Mate
Peter Dunne quietly omits some salient facts when arguing for retention of MMP’s coat-tailing provision that allows a party to add list seats if it wins one electorate and achieves more than 1% or so of the party vote... More>>

Dunne Speaks: Labour's High Water Mark
If I were still a member of the Labour Party I would be feeling a little concerned after this week’s Colmar Brunton public opinion poll. Not because the poll suggested Labour is going to lose office any time soon – it did not – nor because it showed other parties doing better – they are not... More>>

Our Man In Washington: Morrison’s Tour Of Deception

It was startling and even shocking. Away from the thrust and cut of domestic politics, not to mention noisy discord within his government’s ranks, Australian Prime Minister Scott Morrison could breathe a sign of relief. Perhaps no one would notice in Washington that Australia remains prehistoric in approaching climate change relative to its counterparts... More>>

Binoy Kampmark: Melbourne Quake: Shaken, Not Stirred

It began just after a news interview. Time: a quarter past nine. Morning of September 22, and yet to take a sip from the brewed Turkish coffee, its light thin surface foam inviting. The Australian city of Melbourne in its sixth lockdown, its residents fatigued and ravaged by regulations. Rising COVID-19 numbers, seemingly inexorable... More>>