Shadowstats is the dumbest thing I've ever read. If they have it right on inflation, the US has been in a recession since 1988. If they have it right re: house prices, houses are worth 60% less than they were in 1980 and we never had a housing bubble. One important note, Williams from Shadowstats definitely doesn't use 'the old computation methods' -- he just arbitrarily adds a 'factor' to the CPI rate and claims that's the real number.
The BLS has published volumes about the idiocy of the assumptions behind Shadowstats. As have many economists from all over the spectrum.
Literally nobody worth listening to takes them seriously. Why would banks willingly offer 30-year fixed mortgages at 3.6% if inflation was 8%/year?
Think for a moment what that means for real GDP growth the
past three decades. Nominal GDP averaged about 5% from
1986 through 2013. Of that 5%, 2% was inflation and 3% was
real GDP growth. If inflation was really 5% — and often,
according to Williams, it was much, much higher — then
there has been no real economic growth in America all that
time. Actually, we have probably been in a long depression
from the Reagan years forward.
But Shadowstats is not calculating inflation any
differently. They are not using the 1980s or 1990s
methodology that they believe would be higher. All
Shadowstats is doing is taking the CPI data and adding
on an arbitrary constant to make it look like inflation
is higher!
While I agree that Shadowstats is likely wrong, your counterfactual statement is not really counterfactual:
In the 70s and even early 80s, it was possible to support a family of 4 on the income of one average wage earner. In the 50s it was even a good life. Today it is nearly impossible to do, so something very significant happened to the value of money that is not reflected in the official inflation/wage disparity.
TVs and computers cost about 90% less than they did in 1980, and that's something the BLS happily takes into account in more ways than one ("hedonistic adjustment"). If you assume, e.g., that houses right now are worth what they were worth in 1980 and work everything out form there, it's a lot less inconsistent than you think. It is inconsistent, sure, but at about the same level of inconsistency that official BLS numbers suggest.
> Why would banks willingly offer 30-year fixed mortgages at 3.6% if inflation was 8%/year?
Because they don't know how to get a higher return, regardless of what inflation really is. (Of which there are multiple definitions - some based on prices, and some on money supply - and they are useless if you are not consistent in the definition you use)
And the AEI quote is hyperbole. Read e.g. Karl Deninger for consistent numerical proof (if you accept his methodology, which is not mainstream but definitely not unreasonable) that indeed, all GDP growth in the last 30-40 years is smoke and mirrors.
Suit yourself. I was replying to anecdotes with anecdotes - note that the quotes you gave do not actually bring anything to the table (neither do mine).
But I do urge you to read denninger. You will very likely disagree with him (I'm not sure if I agree with him), but he is consistent, and is very well supported by data. Whether you accept the axioms or not is up to you. As far as track record with predictions go, he has a significantly better one than essentially all mainstream media.
Ask yourself why you accept the GDP growth is real. If you do just because everyone else does, without looking at the numbers and at alternative explanations - that's religion. Which is fine - none of us has time to evaluate every single thing we believe in. But it is important to acknowledge it for what it is.
And for that matter, ask yourself why you accept GDP as a measure of growth and welfare - Kuznets, the person who came up with the definition thinks you shouldn't.
The fact that if Shadowstats' figures are correct, we didn't have a housing bubble and have been in a 30-year recession are far from anecdotes. As is Williams admission (referenced in the Aziz piece) that he doesnt actually calculate the figures using the old methodology but rather just adds an arbitrary factor to the CPI data.
I 'believe' that GDP is higher and inflation is in check because I can buy a 60" LCD for $400, a hybrid car that gets 45mpg and will last 200k miles for $18k, I can get a 30-year mortgage for well under 4%, my cell phone is faster and more capable than a 5-year old laptop, I can get any physical good delivered to my door in 12 hours, doctors can perform miraculous procedures at podunk hospitals with fantastic success rates, and there are free courses available from the best schools on the planet in just about every subject.
Do I have to work longer hours than my parents did for a similar quality of life? Perhaps, but it seems like that is far more likely due to globalization and the fact that there are billions of people participating in the global economy rather than some conspiracy. Do I think GDP is a perfect measure of growth or welfare? Not especially. I think median household income combined with hours worked is a better gauge but that doesn't mean the GDP stats are useless.
I'll gladly read some Denninger but I'm not sure how you explain the massive global shift from abject poverty to something resembling a first-world existence without economic growth.
The BLS has published volumes about the idiocy of the assumptions behind Shadowstats. As have many economists from all over the spectrum.
Literally nobody worth listening to takes them seriously. Why would banks willingly offer 30-year fixed mortgages at 3.6% if inflation was 8%/year?
From the right-leaning AEI: http://www.aei.org/publication/why-amity-shlaes-is-dead-wron...
Or from the left-leaning John Aziz: http://azizonomics.com/2013/06/01/the-trouble-with-shadowsta...