WASHINGTON, December 6, 2014 – It has always been a staple of conservative political rhetoric to note how liberals seem to think ordinary Americans are too stupid to know what is best for them. It was shocking still to see it all in high definition on YouTube – multiple times. But what is yet even more shocking is how the Gruberian gymnastics required by ObamaCare are the tip of an iceberg which has been growing for 30 years. On December 9th, Republican Representative Darrell Issa will convene a hearing of the House Oversight Committee at which Gruber is expected to testify. The topics at hand should include more than just ObamaCare – the tip of the Gruberian iceberg.
That 70’s Show: The Misery Index
Those who are old enough to remember the 1970’s – you know, back when we had only three national news outlets on TV – will probably recall the “misery index.” This was the combination of, inflation, unemployment, and interest rates. It was the media’s effort to take what President Carter called a “malaise” and stick a number on it. It is hard to overstate how politically potent this was. It was a single number that measured the social and political dynamics which came to a head in 1980 when Ronald Reagan was elected President.
When we look at these numbers – and what has been done with them over the past 30 years – it becomes clear that Gruberianism is nothing new. We just have a name and face for it now. And we also discover that the Grubercrats certainly do not have a monopoly on this nonsense. The Grubericans are equally, if not more complicit.
Let’s start with inflation and the Consumer Price Index. After 1945 this was called the “Cost of Living Index.” It was used primarily to adjust Social Security benefits, measuring the cost of living by the price of a fixed basket of goods and services. The underlying idea is that a consumer has a “standard of living” and is out of pocket a certain amount of money in maintaining that standard of living. The index measured how much more out of pocket the consumer was, year over year.
In the 1990s, to lower the fiscal impact of Social Security and other federal programs by lowering benefit growth – but without actually having to vote to do so – the Grubericans and Grubercrats together with their Gruberian economists touted a “more accurate” CPI which allowed for the substitution of cheaper products in the “basket” used to calculate the number. For example, if the price of steak were to rise, the consumer might settle for hamburger instead. They dressed this up as a “Consumer Satisfaction Index.” Now just imagine the price of hamburger rising for the fixed income pensioner – and they have to be “satisfied” with dog food instead – and you have the logical end of this substitution model.
As if this were not enough, the Bureau of Labor Statistics introduced a Gruberian tweak: “hedonic” quality adjustments. If the price of gasoline were increased because of required additives to the gas, that increase would not be counted in the CPI because it supposedly reflected an increase in “quality” – even though the consumer had no choice in the matter and was still out of packet the extra few cents per gallon. Textbooks were considered of better quality if they had color pictures in them, even though the student could care less in the face of ever-increasing textbook costs.
The result for inflation is a relatively stable discrepancy since 1999 of 7.1 – 7.2 percent underreporting in the “headline” rate. Simply put, when the Grubereaucrats report inflation to us at 2.0 percent, the real rate of inflation in “out-of-pocket-to-maintain-your-standard-of-living” terms is 9.1 to 9.2 percent.
Why This Matters: Interest Rates
At the end of the day “standard of living” is about “purchasing power.” Even if your dollar – which once had the power to buy you steak for dinner – now only has the power to buy you hamburger at roughly the same price, the forced substitution is still a reduction in your “standard of living.” When prices go up, purchasing power goes down and standard of living is lost. So when money is lent out, the first question for the lender is how badly eroded that purchasing power will be during the term of the loan.
Take a 16 oz. bottle of Coke going for $2 from the machine in the break room: Two dollars today represents 100 percent of the power needed to purchase that bottle of Coke. If, in 10 years, that price will double to $4 (a 10 percent annual rate of inflation), that same $2 will only be one-half of the needed purchasing power. When prices double, purchasing power declines by half.
So if I were to look over our shared cubicle wall and ask you to lend me $2 – and allow me to pay you back 10 years from now – you would have to set terms on that deal to make sure your $2 became $4 over those 10 years. That would require 10 percent interest (or the “coupon” rate in bond terms): 10 percent of $2 is $0.20. Paid annually over 10 years, $0.20 per year becomes $2. When the original loan of $2 (the face value of the bond) is added to the coupon payments after 10 years by “redeeming” the bond “at par” you now have the $4 you need to buy that same 16 oz. bottle of Coke.
But 10 year rates are in the 2 percent ballpark today, not 10 percent. The only way this makes sense is if you artificially suppress the inflation rate. If the CPI reflected an accurate, “out-of-pocket-to-maintain-your-standard-of-living” rate of 9.2 percent, the interest charged to borrowers like the federal government would have to at least match that rate. And at $18T of public debt, the impact of rates more than quadrupling like that would be catastrophic to the ability of politicians to keep making promises that cannot possibly be kept – ObamaCare merely being the latest in a 30+ year series of such Gruberian promises.
Unemployment: The Ultimate in Gruberian Numbers Games
A common aphorism about unemployment says that there really are only two possible numbers. If you have a job, the unemployment rate is 0 percent. And if you don’t it is 100 percent. While pithy, all one has to do is watch as their kids approach adulthood to realize this how little sense this makes.
But while inflation is the magic number behind things like interest rates and indices of government benefits, the unemployment rate measures the actual economic condition of ordinary Americans more than any other number – and is thus the lynchpin of political fortunes for both the Grubercrats and Grubericans – and their ability to keep making promises that cannot possibly be kept.
This metric is easier to understand. Since 1994 the Bureau of Labor Statistics has basically defined out of existence those who are considered “long-term discouraged” – meaning those who have been out of work longer than 12 months and have given up looking for a job – from the “headline” rate. They retain two numbers: the “U3” – or headline – rate reported by the media, and the “U6” rate which includes the “short-term discouraged” – those who have given up, but who have been out of a job less than 12 months.
The average American probably knows someone unemployed and who would qualify under the “long-term discouraged” rubric. This only highlights how completely divorced from reality the Gruberian numbers have become.
And the real numbers tell an appalling story. As of October 2014, the unemployment rate is a shocking 23 percent when the numbers include both short-term and long-term discouraged workers. This aligns well with the “labor force participation rate” of under 63 percent – the lowest since the mid-70’s. The popular excuse for this is the retirement of the Baby Boomers. But the 55+ labor force participation rate has increased from the mid-70’s (about 34 percent) to around 40 percent today. Not only can’t the Baby Boomer age bracket account for the decline, but the increase in labor force participation by “retirees” is likely out of necessity as miniscule interest rates paired with near 10 percent real inflation robs them of their savings. Remaining in the workforce is the only way to make ends meet.
Even if we include only the short-term discouraged, the unemployment rate is 11.5 percent. The headline rate of 5.8 percent is a fiction of the Gruberian imagination.
The Tip of the Gruberian Iceberg
ObamaCare is only the latest – the tip of the iceberg – in a 30+ year game of statistical manipulations designed to avoid a repeat of the political overhaul led by Ronald Reagan. The Gruberian deception centers on the three numbers which made up the misery index of the 70’s: inflation, interest rates and unemployment. Suppressing inflation stats allows the Federal Reserve to justify its Zero Interest Rate Policy (ZIRP) and “printing” money to buy government and mortgage bonds guarantees the bond market will not point out that the emperor has no clothes.
Having rejected the “Culture of Experts” in 2014, if the American public can get past their statistical lies, 2016 just may harken an awakening to the truth: Inflation of around 10 percent, the Federal Reserve’s turning the free market into a den of thieves, and the resulting 23 percent unemployment. Representative Issa should begin this awakening in his House hearings on ObamaCare.
Can you say “Misery Index?”
(Statistics for this article were drawn from copyrighted subscription content at http://www.shadowstats.com/)