Thursday, March 1, 2012

Business Insider Attack on Ron Paul

Business Insider, which has a policy of not attacking individuals on its web site, just dropped that policy to attack Ron Paul.

BI claims Dr. Paul went on a "rant" when questioning Fed chairman Ben Bernanke, yesterday. BI points out that Dr. Paul uses the price inflation data created by John Williams of Shadow Stats. When a Willliams argument is so obvious that they can't disagree with it, without looking totally absurd, they call Williams's argument "vaguely legitimate." But, overall, they are in full attack mode.

The attack piece was written by BI reporter Simone Foxman. BI tells us that Foxman "graduated from Columbia University with a B.A. in economics and Middle Eastern Studies. She speaks fluent Spanish and conversational Arabic."

Foxman has obviously never studied the work of Columbia graduate Murray Rothbard, who received his PhD in economics from Columbia. Had she done so, she would have realized the heart of her attack is absurd.

She writes (my emphasis):
From the BLS, these are the three main pieces of their CPI calculations that regularly come under attack from Williams and his ilk....In January 1999, the BLS changed the way it calculated indexes to reflect consumers ability to switch to, say, cheaper apples sold in the same market when other apples became more expensive. That's a change from the Laspeyres index used to calculate CPI before then.

The main issue

Critics of the BLS take the biggest issue with the final item here. We'll synopsize briefly an illustration of the Bureau gives as to why it made this change:

You generally buy four candy bars—two peanut and two chocolate bars—at $1 a piece. The price of the peanut bars goes to $4. So in order to buy exactly the same goods, you'd have to spend $10. So the Laspeyres formula would say that the price of your basket of candy goods increased from $4 to $10.

The BLS argues that because consumers maximize their utility with respect to prices, they shift away from more expensive goods when very similar goods are cheaper—and they wanted to account for this in their measurements. So maybe paying $7 for one peanut bar and three chocolate bars gives you the same utility as your initial purchase. Thus, saying that $10 is your new price of goods would be an "overstatement" of what's actually happening—they're not arguing that your utility is exactly the same for $4, they're arguing that $7 is a much more realistic evaluation.
But as Columbia grad Rothbard writes, "actual choice obviously cannot demonstrate any form of measurable utility".

Thus, it is absurd for Foxman to claim that a change in product as a result of price is an "overstatement" because consumers are switching to "very similar" goods. We don't know how much the utility damage is to get a grasp of the so-called "overstatement" when a switch is made. Consider, if the price of Coke goes up, but the price of Pepsi stays the same, and a person switches to Pepsi, in no way does this mean that the increase in the price of Coke is an "overstatement" or that they are "very similar" goods.. If someone switches to Coke because of price, a huge loss in utility may occur, if they, for example, are among those that are sensitive to the difference between Pepsi and Coke and prefer Coke and only switch because of the price to what they consider an inferior product in Pepsi.

If the price of PCs goes through the roof, but Apple's MAC does not, I may switch to a MAC the next time I buy a computer, but I would dread the fact that I would have to waste time to learn all the idiosyncrasies of a MAC that make it different from a PC.

In short, as I quote from Rothbard above, "actual choice obviously cannot demonstrate any form of measurable utility". Thus, all we know when a switch is made between products because of price is that some utility is lost, since utility isn't measurable, we don't have an exact number. In other words, we don't know if it is a big loss or a small loss.

For Foxman and the BLS to come in and tell us that the switch from Coke to Pepsi or the switch from a PC to a MAC is no big deal is a fraudulent argument. They don't know and no one else knows how much disutility is caused, since utility can't be measured. All we do know is that, by using the switcheroo argument, the BLS is diluting the size of the price rise. We know there is disutility because an alternative choice is made only because of price. This switch tells us that the second choice is a less desirable choice, i.e.,of  less utility, since if the old price structure was maintained the alternative second choice would not have been made.

Thus, the only thing we can say for sure is that the BLS, by adopting the switcheroo argument,  is  distorting in a manner that makes the price inflation seem less than it is. In other words, Ron Paul is correct in this part of the argument and "our guts" which seem to suggest that prices are climbing higher than what the BLS suggests is also correct. Price inflation is higher than what the BLS reports and if you really understand their switcheroo argument, they are really admitting that they are downplaying the price inflation impact.  

From this point in her hit piece, Foxman goes from bad to outrageous. Get a load of this. She writes:
 We can clamor as much as we want about how a politician could have tried to bribe BLS officials to change the CPI system by offering the bureau money, but there is no hard evidence to prove that the BLS was motivated to change their calculations for political motives.
Does Foxman seriously believe that political leaders don't have influence over the bureaucrats they appoint? Notice the loaded terms "bribe". It is all done much more subtly than that. But, does she want hard evidence that political leaders influence the calculation methods? Well, there happens to be some.

Kevin Phillips, a political and economic commentator for more than three decades and onetime Nixon strategist reports that President Richard Nixon asked his Federal Reserve chairman, Arthur Burns, to concoct a new inflation number that would be split off from traditional headline CPI, dubbed “core” inflation—and thus make inflation look less threatening.

Foxman concludes by going totally wacky by quoting Doug Short, whom she tells us "acknowledges that Williams's argument about a government bias is 'thoughtful'". She then quotes Short dissing Williams:
The more I study inflation the more convinced I am that the current BLS method of calculating inflation is reasonably sound
Got that? She quotes Short telling us that Williams argument about BLS biases is thoughtful, then she quotes him saying the BLS calculations are sound. Talk about holding opposite views in your head at the same time. And this is how she concludes her hit piece.

Beginning to end, the illogical attack makes me think Foxman is just perfect for government work (which, come to think of it, is pretty much what it must be like writing for the government apologist site BI).

What does BI founder Henry Blodget think of this sad attack on Ron Paul? He tweets:
Excellent explanation of why Ron Paul's inflation conspiracy theory is bunk @SimoneFoxman
 Damn the truth, let's blast those who fight for freedom, I am convinced must be a banner hanging high at BI.



  1. To say nothing of the fact that you don't have a choice to buy gasoline and the price is within a few pennies everywhere and no matter what I buy in groceries to save money and no matter how far I drive to get those groceries from the cheapest source, the cost has gone WAY UP.

    Hence taking these out of the CPI calculation is FRAUD. The two most basic things that people have no choice in purchasing (food and energy) are going through the roof and the CPI ignores it.

    1. Food certainly, however there are some choices when it comes to energy. I am not saying that they are as desirable as buying gasoline, but they do exist. You could buy an electric car and install solar panels on your roof to charge it with, etc. At any rate your point is taken.

    2. You are incorrect, the CPI does not ignore Food and Energy, the Bureau of Labor Statistics produces several CPI's, including the headline CPI which includes food and energy. What you are refering too is the so called "Core CPI" which indeed excludes food and energy since they are the more volatile elements. This index however is only used by the Federal Reserve, in their assumption that energy and food prices are more volatile and subject to supply and demand shocks. The headline CPI (including all items) is produced montly and reflects all the consumer purchases for a month.

  2. while i'm honestly certain the entirety of this article is a bunch of excellent points -- no sarcasm, seriously -- i cannot in good faith expend the time to read it.

    despite being a big fan of dr. paul, the premise feels dishonest: i saw the video of the alleged "rant" myself, and while i do not agree that it can be justifiably characterized as such, i would state unequivocally that it is surely impossible for BI or anyone else similarly uneducated -- and steeped in establishment propaganda instead -- to make heads or tails of dr. paul on this occasion, and indeed on most any occasion.

    dr. paul meets the time constraints set aside for him. his statements simply do not stoop to the level that BI employees have relegated themselves to. on each subject, dr. paul brushes over vast amounts of introductory material which anyone even mildly inclined towards economics can follow without a thought.

    the bernank will go to his grave shrugging it off. he has a financial interest in not knowing and understanding. he is the big dog in the kennel that the FRS governors own and operate. it is their money, and the money of their most favored depositors, that built the academic institutions which bred their big dog, as it breeds all their dogs.

    now it is valuable, politically, for dr. paul's seemingly vague statements to goad bernanke into an acknowledgement of austrian economics. the minute the bernank replies more than the editors at BI think he should, he gives away that he knows exactly what dr. paul intends to convey -- he gives away his own conscience.

    and then who do the dogs look to? or perhaps they question their collars.

  3. That Ron Paul is so mean-spirited. Just because government programs are indexed to price inflation along with tax rates doesn't mean the government isn't completely fair and neutral on the subject. Right?

  4. Bob, great analysis - thanks for exposing their baloney!

  5. Are you sure she doesn't speak conversational English?

  6. Bob, MACs are very easy and intuitive in how they operate. You would waste no time in learning how to use one. Great take -down piece too!

  7. Not to belittle the article, but I think it misses the most important point.

    Just for argument's sake, let's assume Simone Foxman's point that the purpose of the CPI is to measure the 'utility' of money. The question remains: Why shouldn't people enjoy an ever more productive economy in the form of an increase in the purchasing power of their money? By what logic is it okay for the government and banks to skim off the wealth of the economy through monetary expansion as long as they do so at a rate that decays purchasing power at 'only' three percent a year?

    Inflation is not rising prices. Inflation is expansion of the money supply, one of the consequences is to make thing more expensive than they otherwise would have been all else being equal. This is not a fact derived from observation, but from logic. The whole point of the CPI is and always was to obfuscate the true nature of inflation as a transfer of wealth from the economy as a whole to whoever gets to spend the freshly-printed money first: the bankers and the politicians.

  8. Macs only take incredibly dumb people any time at all to figure out.

  9. Statistical shenanigans...nothing new at all...

  10. I generally agree with the post here, but I don't see the need for hysterics. BI was founded by Henry Blodget and much of the day-to-day is done by Joe Weisenthal -- BI is a business, not a tool of the pro-Fed banking cartel. Joe knows full well that an article about Ron Paul gets tons of hits, especially if it can be construed as controversial. Ever notice their headlines over at BI? Almost everything they run is designed to be click bait. By responding here at EPJ, which Lew Rockwell then posts to the blog at LRC, you're giving BI tons of hits, so congratulations on that.

    Like I said, I agree with the post here. I really like Ron Paul. But there's no need to get so wee-wee'd up about a post on BI that the writer probably spent half an hour putting together.

  11. How do the progressives who deny the existence of inflation think their denial will play out in terms of political calculation? It is a losing position for them at anytime given the average voter is always anxious about prices. When it also happens to be true, the Krugmans and Obamas who defend the inflation and its causes, and insist that it makes us all more prosperous not only come across as delusional but cold hearted and uncaring. That which they accuse every one else of being. I certainly hope they keep it up and notch it up with an extra edge of shrill.

  12. This is very good. Congratulations due to the author.

  13. Great analysis Bob,

    Shall I switch from internet to paper mail? Or perhaps telegraph? After all, they are all "Communication". Maybe I should switch to flag or smoke signals?

    By making such an argument the BLS is authoritatively stating that it, rather than you, knows the proper aspect of utility that caused you to choose one product over another. It is the presumption of knowledge where none in fact exists.

    To dismiss this argument one only need visit any store with one's spouse and question them on their preference of certain products over other products.

    This test will convince absolutely anyone who is open to evidence that the relative weighting of values in product choice is a wholly individual affair, that is impossible to gauge or anticipate externally.

    Full disclosure, I asked my wife why she chose to buy the brand of clothes for my son that she did. I expected her to cite price, popularity of the style, his appearance in the clothes...

    She responded that clothes were more expensive, less stylish, not particularly suited to surviving a 5-year-old, and weren't the best looking on him...but she liked the manufacturer's logo!

    See what I mean?

  14. Notice that the CPI and more accurate measures of price inflation have started moving in opposite directions (how is that for divergence).

    See MIT's Billion Prices Project and the American Institute for Economic Research.

    1. I like how you assume without any given facts that the MIT's Billion Prices Project and the American Institute for Economic Research measurements are by default "more accurate measures of price inflation"

      You just backfired by posting those links. First of all the CPI is based on a baket of items and goods, that are wide and are made of different extensive Items. This being said in the MIT's Billion Prices Project website states that "These indexes are designed to provide real-time information on major inflation trends, not to forecast official inflation announcements. We are constantly adding new categories of goods, but we do not cover 100% of CPI goods and services. The price of services, in particular, are not easy to find online and therefore are not included in our statistics" therefore of course is gonna show different trend than the CPI becuase includes less items than the CPI. The same applies for the measurement used by the American Institute for Economic Research. In their article that you link btw, it clearly states " The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products" therefore of course their measurement trend is going to be different than the one in the CPI, since all of those items exlcuded by AIER are included by the BLS in the CPI. Talk about saying things and posting things without knowing. If you have any more misconceptions of the CPI, please read

  15. Suggestion for an article in BI: "Which brand of cat food tastes best". For when the hedonic adjustment of steak to hamburger reaches its logical conclusion.

    1. First of all,You are assuming that the BLS substitutes from steak to hamburgers when stakes are too expensive. This is incorrect. Steak and Hamburgers are in completely separate item categories! so there is no possible way to substitute steak for hamburgers. If you want to learn more about the CPI and their misconceptions I recommend you to read the following paper: It's very easy to criticize something without knowing.

    2. The current proposals are exactly to switch the CPI calculations using something called "Chained CPI" ( ).

      These kinds of "adjustments" are the "let them eat cake" of the monetary world (or, more accurately, maybe "let them eat shit").

      This is the gist of these types of government inflation reporting distortions:

      1) We print the money from thin air
      2) This squeezes the middle class
      3) The middle class buys cheaper items
      4) That keeps "costs" down
      5) The guys who get the newly printed money can buy more oil, stocks, real estate, etc. to preserve their wealth.
      6) Oil, stocks, real estate, etc. don't count toward CPI
      7) Everybody's a winner!

      That's complete bullshit.

  16. The switcheroo argument: Customers sacrifice only a small amount of utility when, as a result of rising prices, they switch from hamburger helper to cat food.

  17. "they shift away from more expensive goods when very similar goods are cheaper"

    How does this meet any kind of definition for scientific measurment? The thing we're measuring is giving us answers that don't support our conclusions, so we're going to measure something different now. "When food becomes too expensive, people eat dirt, and since dirt is basically free, then we actually have deflation."

  18. To {maximize utility} given a price or prices is completely separate from {rising prices}, since prices are taken as a premise.

    I can maximize utility with zero money; it will be less than if I maximize utility with billions, but in both cases I maximize utility.

    I'm thankful this person wrote about this practice. Surely there are persons out there who are now more informed to the manipulation than before.

  19. Everybody please Read the following article published by the BLS addressing their myths and misconceptions.

    1. I looked at the PDF. So did Simone Foxman, apparently, since she uses the same "peanut bar" example that it does. It explains the prices of some items going up, so people switch to buying other things, and if the various CPI indexes didn't take that into account, they might report prices as being higher or lower than the hapless consumer experiences. But Bob Wenzel completely explains why this is bogus in the above blog post. When someone feels compelled to switch from "peanut bars" to something else, they are getting "less for their money", whether you and the BLS think so or not. Good to see that there are some BLS employees reading this blog, BTW.

  20. To be honest, Dr. Paul did seem to rush to confront Bernanke in that session, quickly shifting between subjects and drifting into moralizing mode. He raised several good points, but he did so inefficiently. BI is showing its true colors in confronting him for doing so in this piece, but I would be remiss to consider it an incorrect response. Rather, lets look on this as an attempt at discipline and correction. The more we are attacked, the better we will become, Dr. Paul included. Hopefully in the next session, Dr. Paul will be able to deliver a coup de grace.

    1. These kinds of congressional sessions are just political, so Dr. Paul did exactly what he should have done. The real point is to get all this on public record so more people will see it and become informed. You're not going to get any useful information, or really, give any useful information to Bernanke. The whole thing is just for show, and Dr. Paul used the opportunity, as he should, to get his viewpoint into the public record.

  21. I am pretty sure you are all wrong since Krugman said we have to worry about deflation.

  22. CPI is a political metric. It is only used to manipulate the masses who are the ones consuming the products that are in the basket.

    If there was a legitimate need to measure the change in money prices, everything that has a money price would be counted not just consumer or producer products. This includes every kind of asset including stock prices, real estate prices, and of course labor prices, producer product prices, and consumer product prices.

    This metric would mimic the change in the money supply, and if you could break it down you could see where the additional money is flowing to and the damage the inflation is causing by distorting the market.

  23. I agree that great and wonderful Ron Paul comes off disorganized and frazzled, even though the content of what he's saying is so solid. I wish he would stick to some notes...focus on fewer things and simply get Bernanke on record being dead wrong...again.

    I'd like to see Dr Paul spend the first minute of his limited minutes reminding the room of how wrong Bernanke and the FED have been on so many occasions. Then I'd just say "Ya know...I really don't have many questions for you. I know what you'll say. While I was identifying the seeds of a dangerous housing bubble and announcing it to the world in 2001, your predecessor Greenspan was busy baffling us with FED bull crap...the same way he mesmerized us with his nonsense in the 1990's while he blew up the tech bubble with massive expansions of the money supply then too. When I was being ridiculed in 2007 for warning everyone about a massive housing, car and tuition and credit bubble, you were telling us the problems were limited to subprime. So at this point, I just want you on record...right admitting you have no idea that prices are exploding and will spike even higher so that the next time we meet I will have fresh material. Now if you'll excuse me, I have an unnecessary war with Iran to try to stop, a war that will paid for with money YOU create out of nothing, further exacerbating this problem".

    Vent complete.