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 http://read.bi/wG0Shn @SimoneFoxman

 Damn the truth, let's blast those who fight for freedom, I am convinced must be a banner hanging high at BI.


(htScottMunro)