Friday, January 11, 2013

VIDEO: Peter Schiff Charges CPI Inaccurate as Price Inflation Measure


  1. Just as in his written post yesterday, Mr. Schiff is misleading in his take on the CPI.

    Mr. Schiff picks twenty "everyday goods and services" but leaves out apparel which has seen drastic price falls.

    Mr. Schiff picks two time periods but leaves out the 22 years in between where many commodity prices have fallen relatively. Austrian economists warned throughout (Dr. Paul surely did) of coming hyperinflation all through the 1980s and 1990s.

    Even when using Mr. Schiff's flawed and misleading index (which leaves out apparel) a "price inflation" rate over 11 years of 44.3% comes out to only 3.39% per year. Including apparel further knocks this down. Now 3.4% inflation is rather close (even when using Mr. Schiff's own flawed and misleading numbers) to the Fed's target of 2% "price inflation". The actual cost of living which includes electronics (which Mr. Schiff also ignores even though everybody needs some sort of device to watch his video) is quite a bit lower. Hardly hyperinflation territory. And nowhere near the 7-9% he claimed to already see on Yahoo the other day.

    This can also be briefly seen in the graph in the video at about 5:14 where the red graph of inflation looks rather low compared to the "price inflation" rates of the 1970s, again using Mr. Schiff's own data and graphs.

    Mr. Schiff seems to expose the "government lie" with his example of newspaper prices. But Mr. Schiff states he is looking at "cover prices". The BLS is not, it appropriately looks at how much people actually pay. Most people don't pay the cover price but rather pay a subscription price to the WSJ or Sports Illustrated. Many now only read these online at still lower rate, some for the price of $0. Just looking at cover prices is not the correct methodology, but rather once more cherry-picking to mislead the reader. We all see the flyers promising 73% off the cover price, haven't we? Using prices which most people don't actually pay doesn't strike me as sound methodology. What do you think?

    1. Does not matter what number you believe to be most accurate. When you force people to use a currency (legal tender laws) then inflate that currency, it is called theft!!!

    2. Your argument is garbage. Since the market does not fail and the regime of diluted funny money results only in theft of purchasing power and the distortion of the price, investment and capital structure, "only" 44% in the loss of the value of US money is horrendous. The fact that apparel and electronics prices have gone down only means that they would have gone down even further without the unnecessary money dilution we have endured. People seek cheaper substitutes because the money dilution regime makes them poorer than they would otherwise be.

    3. Good afternoon, Anon @5:46.

      I respectfully submit that you have missed the point of Mr. Schiff's video. Mr.Schiff is saying that the CPI as it is *currently* constructed is being manipulated.

      Consider: Mr. Schiff takes his basket of 20 goods and compares that basket with the CPI of the 1970s. Mr. Schiff concludes that inflation measured by the CPI closely matches the inflation as measured by the Schiff basket.

      He is not saying that his basket is the correct measurement nor is he saying the the CPI is the correct or incorrect measurement. He is simply creating a reference point.

      Then, Mr. Schiff takes his basket of 20 goods and compares that basket with the CPI of the past decade. Mr. Schiff concludes that the inflation measured by the CPI DOES NOT match the inflation as measured by the Schiff basket. The CPI of the past decade records a much lower inflation than the Schiff basket.

      40 years ago, 100X was approximately 100Y. Now, 50X is nothing close to 50Y.

      Thus, Mr. Schiff concludes that the methodology behind the CPI has changed from the decade of the 1970s to the most recent decade. If that is not the case, why the noticeable difference between the time periods?

    4. In reply to the comments:
      Bob Roddis: Mr. Schiff's point was that the CPI mismeasures "price inflation". That is what I am responding to. His video is not about "theft, investment or capital structure". You don't respond to my arguments except conceding my point that when including apparel and electronics in his flawed index "price inflation" is very close to the official numbers. So it seems you agree with me on this point. You might not like the Fed's target of 2% annual "price inflation" as measured by the PCE index. But you know it's coming. Also, don't suffer from money illusion. If prices are falling by 20% a year, people's incomes would not be unaffected. Maybe some seniors with money under their mattress might like it and be better off. But ask ANYBODY running a business if they like to see 20% "price deflation" and you hear a different story.

      I perfectly understand Mr. Schiff's point, I thought that was clear from my comment. But to reiterate, Mr. Schiff is cherry-picking and misleading. If he included apparel and electronics in his index (why are those less necessary or relevant than beer or coffee?) his two graphs in the video for 2002-2012 would likely look indistinguishable. He is intentionally leaving these out to mislead the viewer. 50X is in fact very close to 50Y if you don't cherry-pick your numbers.

      In addition he also cherry picks his time period. Why leave out the 1990s when oil prices and most other commodity prices fell in relative terms? Certainly Austrian economists and Dr. Paul were all through that time as well very critical of Federal Reserve policy. Here's the answer. Had he not arbitrarily fixed his starting date to 2002, the two graphs would have looked very close to each other. Again 50X is 50Y, but that is not what he wants you to believe.

      He makes up a completely arbitrary reference point to suit his conclusion and his own interests (after all he is CEO of a company profiting from gold sales and selling "research" to the public).

  2. It's just a coincidence that gas was $1.58 in March, 2004. Diluted funny money has nothing to do with $3.29 gas today.

    1. Perhaps not directly, as per inflation. But it is not a stretch to say that part of the reason we are able to dilute our dollar thus far without sever catastrophe is because the dollar is the world's reserve currency. Were not international oil transactions dependent on it the dollar would be in free fall. That is why some dub it the petro-dollar.

    2. Why have gas prices fallen since 2008? Why did they fall by about half between 2008 and 2009 at the height of Federal Reserve "money printing"? Why did they fall over the last two month when the Federal Reserve announced further increases in large scale asset purchases?

  3. I find it obvious for anyone using their powers of observation to conclude that prices have gone up at least three-fold since the early 1970's. Probably much more.

    Be that as it may, not all have experienced the entirety of that period.

    Throughout the period the waters have become "muddied" - perhaps increasingly - by greater interventions and complexity.

    For more recent periods my family's cost of living is going up by a minimum of 10% per year.

    Further there is not only the nominal "price" to look at (as Schiff is doing) but what you get for even the same "price" in terms of quality, diversity, quantity of goods/services.

    Add to it that monetary inflation - which is expansion of the supply of money and of money substitutes (i.e. credit) according to Mises - has many other effects within a society. One can read about some of these in the book "The Economics of Inflation" by Bresciani-Turroni in a chapter entitled "The Social Effects of the Inflation."

  4. As a real life study in the health insurance premium price changes, I looked at my pay stubs from 2008 and compared the price of my health insurance premium then to what it is today. I have the same employer and have the exact same plan with the same insurance company now as I did in 2008. In 2008, the total cost of my premium was $794.60 monthly. Now, in 2013, it's $1217.02 monthly. That's a price increase of 53.16% over the past five years. Those are the facts of my personal health insurance situation.

    1. Precisely!

      Add to that, how the composition of what you get for your premium (quality of care received, delivery time, availability, extent of coverage, etc) may have changed