Demon Inflation

One thing the Pizza Riots of 2008 made clear is that times are tough. Crowds standing in line for hours for a 23 cent pizza demonstrates the squeeze rising food prices are having on ordinary people. It may also be that they are just suckers for a promotion.

Anyway the crunch at the grocery store and the gas pump and elsewhere is indicative of the strains inflation is placing on middle and working class folks. There seems to be a disconnect though between the pinch consumers are feeling and the haughty economic indicators that are released periodically. Despite the constant talk of recession and stimulus plans inflationary stress as divined from CPI and GDP doesn't appear to be echoing the hard facts we see on the ground. It has always seemed out of place that food and fuel prices are excluded from CPI when we are paying record prices at the pump and at the grocery store. The official definition of a recession has been described as two consecutive quarterly drops in GDP but that indicator actually increased by 0.6% at last release. So what is really going on?

The numbers are all based on lies is one answer being offered up. According to Kevin Phillips in an article published in this month's Harper's the CPI and other mainstream economic indicators are a numbers racket. In his piece titled Why the Economy Is Worse Than We Know Phillips puts forth a convincing case for what he terms the "Opacity" crisis in America. Basically over the past two decades the goal posts have been moved to make these key indicators more palatable for investors in the U.S dollar. The actual numbers if based on prior methods would look much more grim today:

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession.

There hasn' t been a lot scary talk on inflation because it's kind of been swept under the rug. To the average person it's much more pervasive than the rigged numbers we keep seeing each month. The article is meant to serve as primer to his latest book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. The title sounds kind of gloomy but I think it will be worth the read. The notion that our economic system and method of wealth creation is built on a house of cards is more apparent now than it has been in years.