City Paper is not for tourists
Over the weekend Sarah Palin told the annual convention of the Specialty Tools & Fasteners Distributors Association in Phoenix that she felt Ben Bernanke‘s $600 billion cash dump plan to be ill-advised, contending that such monstrous money printing expeditions were bound to ultimately roll down the conveyor belt in the form of higher grocery prices. In the annals of utterances that ever emerged from that particular pair of glossy lips, this was certainly among the least inhospitable toward that elusive American faculty we used to call “common sense.”
But this is Palin, and she was not maliciously pilloried for connecting the dots, on the basis that food prices are not, according to any of the prevailing gauges of these things, considerably higher than they were last year; to the contrary, the trend of grocery prices is less “inflationary” than it has been in years! And while both things are by themselves no doubt true, the larger picture they shamefully neglect is that both the way we measure inflation in this country and the way we delegate all authority over the economy to the Federal Reserve are shameful cons that enrich the wealthiest percent of the population at the expense of everyone else.
First, the Fed. Resting the entirety of our economic policy on the Fed’s tweaking of interest rates and the “money supply” is little more than a deliberate conservative con to farm out all the nation’s economic decisions to its banks while at the same time dumbing down the economic profession so thoroughly that no one would understand what hit them. As John Kenneth Galbraith put it, monetarism “enormously simplifies economics so that it leaves nobody intellectually able to grasp it.” There really is no bigger reason than this that, try as you might to comprehend what it means that Bernanke is pursuing a $600 billion quantitative easing campaign, you just can’t. Bernanke himself doesn’t know where the money is going. The idea is that if he buys enough Treasury bonds off the banks’ books they will eventually have to plunk the cash into “riskier” prospects, like that nice couple with the sterling credit ratings and 20% down payment who can’t get a loan to buy their dream house. The banks will theoretically eventually have to do that, among other reasons, because the real cost of “holding on” to lower-yielding assets like T-bonds will be too high, because the Fed will finally have succeeded in generating this “inflation” thing Palin is going on about. There’s much much more to this picture, like the fact that the banks have had a lot of good reasons to sit on T-bonds, starting with the fact that they still pay a much higher interest rate than the one the Fed has been charging them to borrow the cash to buy them, and ending with the fact that they had to be ultra-conservative about who they loaned money to in order to pass the stress tests that would allow them to “pay back” the TARP money that briefly let Congress think they could haul their CEOs down to DC whenever they wanted to complain about the hundreds of billions of dollars in bonuses they keep shelling out at the risk of losing all their most extraordinary “talent,” but let’s go back to “inflation” because moving it up a few notches is really the only way we can get those guys to start lending money again.
And it’s not going to be easy, because the way we measure inflation in this country is deliberately designed to make it look like “inflation” does not really exist. This is largely the doing of a guy named Michael Boskin, who chaired a Congressional panel during the second term of the Clinton Administration that permanently altered the way the consumer price index was measured so that nothing in the “basket” of consumer goods whose prices economists monitored to calculate it ever needed to be permanent. The “logic” of it went thusly: if cash-strapped Americans started eating hamburger in lieu of steak, economists ought to be able to swap burgers for steak in the “baskets” they used to monitor changes in the cost of living. This is of course actually the opposite of logic, and I won’t even get to the supposed rationale behind the other completely insane adjustments they made, because actual logic makes infinitely more sense: they wanted to cut federal spending on “entitlements” like Social Security and welfare checks, and the CPI factors into the numbers stamped on those checks.
Yesterday I talked to an economist named John Williams, who has a consultancy in San Francisco that continues to monitor the nation’s heinously corrupted economic the old way, about my efforts last week to accurately compare the American economic situation with the one that faced the Republican Congress that gave us the Boskin Commission back in 1994. I spent way too much time trying to pin down the raw figures about GDP, education and media income that were actually issued in 1994, which Williams assured me was not a total waste: in the interim, those stats also have been “adjusted” to convey a grimmer-than-actual picture of the past in much the way the new ones convey a rosier view of the present.
If the CPI were still calculated the way it was in 1994, Williams says, the CPI would have been about 3.3% higher each year, which by the magic of compounded interest means it would have shown prices to have increased by 145% since 1994, as opposed to the 47% the CPI currently shows. This would be more easily reconciled with the doubling of college tuitions and 165% rise in health care costs we’ve experienced since then, but what it says about the average standard of living is so bleak it’s startling even to me: measured by 1994 standards, the median American household income has dropped 37.5% since 1994, and a full 47.5% for households headed by people with bachelor’s degrees. The average household income of the bottom 90% of Americans has fallen off 38.8%.
Meanwhile the average household in the top 1% of the population has seen its income climb a much more modest-sounding 35% since 1994, with a 112% spike in earnings for those in the top hundredths of a percent meaning that the average top 1-percenter who does not happen to be 01% wealthy has only seen his average household income rise 19% since 1994, adjusted for inflation by the metrics we used in 1994. No wonder so many wealthy Americans have felt unfairly victimized by all the fashionable populist rage—99% of them have barely seen any real growth in their incomes grow since the mid nineties! And with the other 1% laboring so industriously to skim off what paltry advances they’ve managed, who’s to blame them for clinging to their Bush tax cuts and their storied small government religion?
Photo by david_shankbone, via Flickr/Creative Commons Attribution 2.0