What Conspiracy?

"All models are wrong; some are useful."

George P. Box


I enjoy intelligent criticism. It forces you to tighten up your analysis, more aggressively dig up facts, communicate your position more effectively. Good criticism should be challenging, eloquent, and raise the argument bar — making you sharpen your rhetorical pencil.

Then, we have the criticism that can be most charitably described as "wanting." These come in a variety of forms, ranging from the simple ad hominem attack to the complex Straw Man arguments, to the classic taking quotes out of context.

There are a many other weak, disreputable forms of argument, and they all find a ready home in the blogosphere.

Lately, I have been noticing an increase in the conspiracy accusation. In particular, our many discussions on the systemic understatement of Inflation or Unemployment gets derided as "There goes Ritholtz again with his conspiracy theories!" This one statement manages to combine all 3 rhetorical errors mentioned above above into one lazy and dishonest argument.

Today, we will spill a few pixels on this, and what it means.

Let’s begin with how BLS models are constructed and
function in the real world. I find this complex subject of to be quite fascinating. The entire statistical output from the various governmental data bureaus is like a giant crossword puzzle, Sudoku and murder mystery wrapped up in one. Dissecting the publicly available data, teasing out nuance, placing the snapshot into the context of the larger moving picture is a delightful intellectual exercise.

I can understand that these sorts of puzzles are not for everyone, but I simply cannot fathom how they are so easily dismissed. Rather than
address the gravamen of these intriguing mathematical puzzles, they are simply waved away. Conspiracy
theory! Tin Foil Hats! Nut Jobs!

I began this post with a little known quote, which I will slightly modify  "All models are flawed, but not worthless." (I misplaced the author’s name Thanks!).

The issue is not whether any specific model might be wrong: ALL MODELS ARE BY DEFINITION WRONG. They are approximations, a numerical depiction of a small portion of universe. The true question for interested statisticians, mathematicians and economists is "just how wrong are they?"  This is not, as some have implied, a question of nefarious cabals or governmental conspiracies. It is simply a mathematical reality.

For example, we know that the way Inflation is measured has changed
over the years. The focus on the core rate, variable weighting of items in the CPI basket,
the report and changes from the Boskin Commission
— these all end up altering the output of the inflation data. All of
the changes to the BLS inflation methodology are released by BLS,
painstakingly footnoted, and very, very public.

An even better example is the BLS expansion of the Birth Death
. To grossly oversimplify, BLS Statisticians identified a shortcoming in the way the Establishment Survey picks up new jobs from start up firms. Rather than
interview people at home (like the CPS study which determines the
Unemployment rate does), the CES takes data from employment tax filings
at existing companies. However, economists know that much of the new job
creation int he US comes from new companies. In order to capture the jobs
currently missed by the old CES methodlogy, the BLS expanded a B/D model. Now, they use new
state incorporation filings, and a formula that deduces how many new
jobs go along with these newly born firms. My criticisms about this are legion, but none claims this is a hidden conspiracy or political
manipulation by the BLS. The changes to the Birth Death model are all very public, and well documented. Its just that I believe they are flawed — and those flaws seem to all have a bias to systemic make things look better than they really are.

All of the various economic models used by Bureau of Economic Analysis, and the inputs and algorithms involved, change the output that gets published as your favorite monthly data point.

As I have said repeatedly over the years, all of the data is there — its released in a variety of forms, raw, non-seasonally adjusted, monthly, year-over-year. You just have to fight your way through it. Here’s what we said on the subject last year:

"One of the things people do not understand is a basic truth about the BLS, BEA, Commerce Department, and other government data sources. I get constant emails warning me of the dark cabals manipulating the official releases.

While I have been critical over the years of the models and
methodologies employed, I do not believe this is any grand conspiracy.

Sure, the headlines are often misleadingly spun, but the data is all
there for whoever wants to peruse it. Indeed, if you strap on your
green visor, you can find all of the data releases for Inflation,
Unemployment, GDP, New Home Sales, Durable Goods, etc. The
non-seasonally adjusted, non-hedonics, no substitutions data is all
right there. You need only bring a critical eye and a dollop of
skepticism, and you can usually deduce the real meaning beneath the

That is my long held view. You are free to disagree with it for any number of reasons. You might recognize the error, but think it is so small as to be meaningless. Perhaps, you think there is a conspiracy. Maybe you believe the BLS models — unlike every other model ever created by mankind — are flawless.

However, if your intellectual sophistication and analytical acumen is at a level where you find it easier to claim that those who disagree with your views on inflation, employment and GDP wear tin foil hats and consort in Area 51, well that’s just so much intellectual detritus, and I am calling you out on it.

Your dismissive comments are lacking in critical rigor. They are analytically vapid, and intellectually lazy.  This is my pushback to the creeping anti-intellectualism that has been working its way into what is usually considered a somewhat thoughtful and analytical discipline: Market analysis and economics.

There is a silver lining: They put the reader on notice that they are dealing with an intellectual lightweight, a political hack, someone not worthy of any further expenditure of your limited time and finite attention.

Its one thing to see the comments on other blogs — I expect no less from anonymous cowards; However, I refuse to tolerate this sort of nonsense on actual blog posts by authors who should better.


No Conspiracy Theory — Just Data (November 2007)  http://bigpicture.typepad.com/comments/2007/11/no-conspiracy-t.html


Other Worthwhile Discussions:
Does the Government Understate Inflation?    http://www.fundmasteryblog.com/2008/06/17/does-the-government-understate-inflation/

Why Bears Always Have the Best Arguments   http://paul.kedrosky.com/archives/2007/12/13/why_bears_alway.html

Merrill’s David Rosenberg goes postal on the inflation conspiracy theorists

Statistics as a government plot


Anonymous Cowards:
Area 51 coment

JMF Comment


Hall of Shame:

Thinking About Butterflies Randomosity

Role of proprietary trading at banks    http://finaxyz.blogspot.com/2008/01/role-of-proprietary-trading-at-banks.html

How To Understand Inflation Data   http://seekingalpha.com/article/24572-how-to-understand-inflation-data

When making money becomes too easy…….

The Conspiracy to Keep You Poor and Stupid


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What's been said:

Discussions found on the web:
  1. pmorrisonfl commented on Jun 20

    Could it be George Box’s “All models are wrong; some are ueful”?

    Box, G.E.P., Robustness in the strategy of scientific model building, in Robustness in Statistics, R.L. Launer and G.N. Wilkinson, Editors. 1979, Academic Press: New York.

  2. Barry Ritholtz commented on Jun 20

    Excellent! I will fix above . . .

    (Wow, that was record quick)

  3. Susan commented on Jun 20

    Thanks for spending the time on this, Barry. As a former professor of Rhetoric and Composition, I can’t tell you how much class time college teachers waste on chowderheads who think spouting logical fallacies entitles them to good grades. I used to try to point out to them that logically flawed thinking would not help them advance porfessionally, but then Bush got elected, and I gave up. Maybe they’ll believe it coming from someone who’s on their teevee and wears nice suits.

  4. Mike in NOLA commented on Jun 20

    Boy, someone got up on the wrong side of the bed this morning :)

  5. Greg0658 commented on Jun 20

    “I do not believe this is any grand conspiracy”
    just fluffy “allllllll is wellllllll”

    Marias ad says corporate social responsibility is coming into vogue

    something tells me the oil industry will short cycle an energy changeover
    something tells me the markets industry will come out of all this sweetly

    in Guns n Roses words “its a jungle baby”

    Trekies maybe (ya) Gene had the numbers right and we’ll see intelligent design in 2063

    while humping 4 days and 2500 lbs of YellowBooks … wondering how my life would be different if I was a sportsman instead of an artist

    now excuse me, this dweeb needs to go turn in the spare books and paperwork for the paperpushers

  6. Roman commented on Jun 20

    So, here is one thing I don’t understand and I probably have something wrong in my thinking so hopefully someone can correct me. A lot of people on this blog state that inflation is vastly understated. That actual inflation is not 2-4% as government data shows but something like 8-10% and that this has been basically going on for the last 6 or so years.

    If that is true and inflation is really being underreported by the magnitude of 6% and I don’t think we have had real GDP growth higher than 6% using government data in the past 6 or so years that means we have been in an 8 year recession dating back to the year 2000.

    Am I wrong? And if that is what you are implying would we not literally see blood on the streets. I mean an 8 year recession with GDP growth at -5% would have some VERY visible consequences. Massive unemployment. Massive poverty. Starvation. Bread lines. We see none of this.

    So, what gives? What am I missing?

  7. josh commented on Jun 20

    Can someone please explain the “conspiracy” on fair value of the dow and s & p. notice all of yesterdays gains were bogus on the day, save a few points?

  8. David commented on Jun 20

    BRAVO. I usually stop reading the comments sections on blogs once these type people start dominating the conversation. I find them to be quite boorish and a complete waste of my time and effort to read through the tripe to get to good posts.

    Thank You for all the good info you offer up on your blog BR, hopefully this will not fall on deaf ears.

  9. grumpyoldvet commented on Jun 20

    A bit peevish there this morning. C’mon tomorrow is the first day of summer, the fish are ajumpin’ and the cotton is high…relax have a cup of good coffee, eat a danish and enjoy the day….:-)

  10. Barry Ritholtz commented on Jun 20

    Not grumpy, just percolating for a long time.

    Its something I started writing months ago — and put aside for a while — and I revisited it earlier this week after reading something that just struck me as god-awfully lazy. I polished it up this morning . . .

  11. VennData commented on Jun 20

    Nuance is difficult. It’s like the guys who put the phone number system together with the studies showing people seem to be able to remember seven digits. But once you get past that, the human mind begins to over simplify (or something.) More examples of not grasping enough digits:

    More nuclear power will help with the price of oil… even though oil’s not really used on the electricity grid.

    We need to save the tax cuts to save the economy… even though the last tax cuts didn’t really save today’s economy.

    The credit crisis is over… even though bank write offs continue, the Fed has rates at near-Greenspan lows, and the dollar markers, XLF and foreign central banks show otherwise.

  12. cinefoz commented on Jun 20

    Nope, it’s not them. It’s you.

    Economic statistics are honest and fair. The government knows best. If formulas were changed, it was because they were previously incorrect. Oil is fairly priced and we will run out of it soon. Some people really are better than others, especially those with money, and politics helps us sort this out. People really over do all that scare stuff about pollution. Disasters only happen to people who have done something immoral in their lives. There’s nothing wrong with being a little afraid all of the time. People who aren’t like me seem suspicious.

  13. Mark E Hoffer commented on Jun 20

    Good Going BR. It is continually amazing to me that simple Scientific Rigor is now derided as ‘Conspiracy Theory’.

    You, aptly, sum them as: “intellectual lightweight(s), (a) political hack(s), someone not worthy of any further expenditure of your limited time and finite attention.”

    That more don’t care to point this out, reveals them, and bodes ill for us.

  14. steveeboy commented on Jun 20

    the anti-intellectualism is a side-effect of right-wing rule.

    If you deny science and inconvenient facts as a matter of political ideology–evolution, global warming,”abstinence only education,” “there really were WMD but they got moved to Syria/Iran,” etc. it is only a matter of time before the phenomena rears its head in ALL fields, not just those which are part of the so-called “culture wars” or more common political battles.

    the anti-intellectualism has been running rampant from the oval office on down. academics/experts have been under assault since the dawn of the conservative “movement” back in the 1960s

    My favorite part of the campaign so far was when both McCain and Clinton–pandering on the gas tax–indicated they weren’t really going to listen to a “bunch of economists”

    on the other hand, I totally agree re: your views on the “conspiracy” or lack thereof…

    A wise man once said– “that’s the really insidious thing about the conspiracy, it’s not even aware that it IS a conspiracy!”


  15. Marcus Aurelius commented on Jun 20

    The more people who believe an idea, the truer it is.


  16. Peter B commented on Jun 20

    German Producer prices May 2008: +6.0% on May 2007

    WIESBADEN – As reported by the Federal Statistical Office (Destatis), the index of producer prices for industrial products (domestic sales) for Germany was up 6.0% in May 2008 from the corresponding month of the preceding year. The same year-on-year rate of price increase was last reached in July 2006. In April 2008, the annual rate of change was +5.2%. Compared with the preceding month, the index rose by 1.0% in May 2008.

  17. Vermont Trader commented on Jun 20

    Investing and trading are all about reading between the lines and working with incomplete information. There is no fundamental Decartian truth.

    Josh – today is ex date on a lot of ETFs like the SPY. That plus triple witching is causing some confusion in the pre -market this morning. Remember most puts and calls are not adjusted for dividends.

  18. Douglas M Dillon commented on Jun 20

    Hmmm… I enjoyed reading this because I hear a lot of “conspiracy” talk from the guys commenting about the price of gold and I like to hear both sides of an argument.

    Can I summarize your claims that there is no conspiracy as follows:
    (a) The raw data is available.
    (b) The method for coming up the the headline number is published every time it is revised.
    Therefore its not a conspiracy.

    I don’t see how the conclusion follows from the premises.

    I think that the fact that the method revisions keep the same name (CPI, GDP, unemployment) and yet method changes consistently make the economy look better (and, for inflation, the government social security payments lower) to be evidence that a conspiracy exists to try to spin government numbers to make it look like the government is improving the economy and to reduce government obligations.

    To get the truth we need to know more about the process of revising the method for coming up with the numbers from the raw data. I don’t see this addressed in your post.

    I guess I’m with the conspiracy guys that it goes through some process where ultimately someone with political motives (probably with connections to one of the big wall street houses) makes the final decision on the method change.

    By the way, the FED’s ceasing to publish the M3 number seems like clear evidence that “they” don’t want the world to see how fast “they” are ramping up the money supply. The idea is, if you can’t redefine an ugly number, then just stop publishing it.

  19. DownSouth commented on Jun 20


    Production (income) was replaced by borrowing.

    Let’s take the mean household for instance.

    In 2000 total U.S. household debt stood at a little over $7 trillion.

    By the end of 1Q08 it was just a tad shy of $14 trillion.

    So you have a $7 trillion increase in debt in 7-1/4 years.

    There are about 115 million households in the United States, so the mean household has taken on a little over $60,000 dollars of debt in the last 7-1/4 years, or about $8400 per year.

    In 2004 the mean family income was $70,700.

    $8400/$70,700 = 11.9% per year

  20. sergtat commented on Jun 20

    Do you guys realize how many brown nose idiots on tv and the rest of the media say NUKILAR?
    Sorry for being of topic :0)

  21. chris commented on Jun 20

    Silly! Tinfoil hats don’t work. They’re just another part of the alien conspiracy.
    You need this:

    (Excellent post, BR. Thank you.)

  22. ndallasj commented on Jun 20

    Your discussion on this topic, Barry, is emblematic of why yours is the first financial blog I read each morning.
    When I was in graduate school in the late 70’s, there were three main criticisms of the CPI that we discussed:
    –infrequent changes to the “basket of goods” so that changing buying patterns, changes in relative prices, new products, etc. were only considered every several years when the basket was modified;
    –improvements in quality/functionality of products were not taken into account (hedonics);
    –the “shoppers” who gathered the data did not include sale prices.
    (Maybe there were other issues, but these three still stick in my mind 30 years later.)
    It appears that the BLS has addressed the first two in the current construction of the CPI (I don’t know about the “sale” issue).
    When I work with others to attack a complex problem, we spend a lot of time up front agreeing on the base assumptions; from that point on, developing an analysis or solution is usually fairly straightforward.

    Keep up the great work!

  23. Chief Tomahawk commented on Jun 20

    BR, my personal favorite was when Larry Kudlow accused you of being responsible for the weak dollar.

  24. HCF commented on Jun 20

    Greg0658 (in reference to above):

    A better, more complete quote from the same song:

    “You’re in the jungle, baby; You’re gonna diiiiiieee!”


  25. Marcus Aurelius commented on Jun 20

    (b) The method for coming up the the headline number is published every time it is revised.
    Therefore its not a conspiracy.


    There’s also a warning on tobacco products that they cause cancer. We also have a written Tax Code that even its authors don’t understand.

    I’ve never seen an explanation of the methodology, or a reason for the change in the methodology used, released with the data, when reported by the media.

    A tangled web is usually evidence of deception.

  26. mark mchugh commented on Jun 20

    You’ve been at this a long time and your work has been outstanding. You’ve had the courage to champion truths that most are too ignorant (or afraid) to challenge. You have been recognized and honored by many. Be proud, man!

    With recognition, a backlash of resentment is almost sure to follow. Keep in mind, there are MILLIONS of people out there with property they can’t unload, invested in all the wrong sectors, nightmarish balance sheets… It shouldn’t surprise you that some of these ninnies have resorted to bashing you. It is nothing more than fart noises in the background. Laugh it off.

    Tony Robbins says, to paraphrase, “If no one is rejecting you, you’re probably insignificant.” Believe it. The whole world’s NEVER gonna love you. Time exposes the real crack-pots for what they are. Don’t let these cretins bring you down!

    P.S. I want my hat back.

  27. m3 commented on Jun 20


    i think your analysis is correct. there has been a sharp increase in unemployment, but they aren’t classified as unemployed (e.g., NILFs).

    the consumer confidence numbers are about the same as 1980, the worst post-1930’s recession.

    also consider that lifestyles in the US were propped up by the largest debt bubble in world history. so people were able to borrow to mainain consumption. on top of that, add a housing bubble and MEW.

    i think the poverty is there, but was masked by the obscene availability of consumer credit. i’ve read stories where soup kitchens are being overrun by middle class homeowners. the demand is so great that the kitchens have run out of food, and are starting to write checks. (they can’t afford high food prices, nor the gas for the delivery trucks, so it’s cheaper to cut a check)

    now that the tide of credit is moving out, it’s exposing a lot of the rot that was always there. just look at the sudden collapse in retail stocks. no one has the money to consume anymore.

    also, check out this BBC video about homelessess & the subprime fallout, and see if this changes your view:


  28. Space Cowboy commented on Jun 20

    Book: “Mistake Were Made (but not by me)”

    Author Carol Taylor/Elliet Aronson

    “A great nation is like a great man:
    When he makes a mistake, he realizes it.
    Having realized it, he corrects it.
    He considers those who point out his faults as his most benevolent teachers.”-Lao Tzu

    Barry…you are truly a great man!

  29. straight n narrow commented on Jun 20

    Thou dost protest too much.

    Your constant jibes against innacurate statistics reminds me of Don Q tilting at windmills. Pick your head up. Look in the mirror. You have a charmed life and your buddies do, too. When your selling assets to put food on the table, then you can cry that the sky is falling.

    You are simply getting blowback from your own flailings.


    BR: Charmed life? Man, do you have the wrong guy . . .

  30. me commented on Jun 20


    Good point. Perhaps as the BP grows in popularity and is recommended by many award nominations, it is the law of diminishing returns. The intelligent and insgihtful commentators have been with your from the beginning but as more show up they have less to say.

  31. mhm commented on Jun 20

    “All models are wrong; some are useful.”
    -> (mhm filter) ->
    “Some models are correct; but are misused”

    CPI is just the case. The _how_ MSM portrays it to the general public is problem but I don’t see any official correcting them either…

  32. DownSouth commented on Jun 20

    Space Cowboy,

    Your comment reminds me of the question posed by Bryan Ward-Perkins in “The Fall of Rome and the End of Civilization:” Was the fall of the West inevitable?

    He argues that it was not:

    “All empires have, sooner or later, come to an end; so it is a reasonable assumption that the Roman empire was destined at some point to fall or to disintegrate. But this doesn not mean that the fall of the West had to occur during the fifth century; indeed, at a number of points along the line, things might have gone differently, and the Roman position might have improved, rather than worsened. Bad luck, or bad judgment, played a very imortant part in what actually happened.”

    Ward-Perkins goes on to describe in detail very specific events where things could have gone differently.

    I do not believe that the American empire is necessarily finished. It is going through some very difficult times, probably the most trying times since the two decades that began in 1929.

    And during that era America demonstrated that it can pull back from the edge of the abyss. It can do so again. But I don’t believe all the denial and wishful thinking that are part and parcel of government statistics and their interpretation is helpful.

    As Confucius said: “The beginning of wisdom is calling things by their right names.”

  33. roger commented on Jun 20

    There are two aspects to the reporting of economic statistics, one of which is the production of the stats, the other of which is the reporting.

    I think that it is the reporting that has gone downhill. Reporting – journalism – has simply not kept up with the more sophisticated level of spin we have today. Newspapers use a rule of thumb – report two sides of an issue – to come up with a “fair” assessment of the facts. Unfortunately, this is different than an assessment of the reality of the facts. That requires some knowledge, and, especially, some memory. Other media – tv news – follows suit.

    The recent WAPO story by Neil Irwin that compared inflation and unemployment today and in 1980 was an excellent example of journalistic incompetence that comes from not knowing how to deal with spin. Obviously, the reporter had no memory of something that is easily available via the internet, namely, the change in the models for producing the figures he cited. I think the persistent outrage which has produced the explosion of blogs and the latent hostility between journalism and blogs comes from the perception that newspapers have become something like lobbyist’s instruments – means of generating a spin on events, rather than a tool to look at events.

    Unfortunately, the journalistic response has been to dig in. Typically, a journalist will defend a newspaper or tv story not by saying that it was proven right, but by citing a mass of stories to prove that the media is being fair. Being “fair” has only secondary standing in science, and really is only part of being accurate. Unfortunately, journalism has turned fairness into a virtue in itself – which is nonsense. Accuracy will more often than not be unfair to somebody. It isn’t that journalism should be a ‘science’ (you can’t experimentally reproduce a news story), but it is becoming more and more divorced from representing reality at all – rather than weighing intentionally skewed pictures of reality produced by interested parties. And that leads to wild inaccuracy. From the reporting on Iraq to the reporting on the real estate boom, journalism has been, by and large, disgraceful over the last seven years.

  34. Rock commented on Jun 20

    Completely agree Barry. Wishful thinking is the death of critical thinking. I saw many of the posts about Robert Novak saying how wrong he always was. I’m guessing that was politically inspired comments derived from the Valerie Plame incident. Novak was right. I’m just amazed at how many people wished to discredit him because he was on “the other side”. (I’m not talking about you BR as you explicitly stated your example in your original blog, just commenting on the others who piled on.)

    I’m neither pro nor anti Novak. I just like a logical argument over “Yeah, he sucks, someone should kill him.”

  35. Pat commented on Jun 20

    I’m a software geek and I read this blog just to know what to be skeptical about (at this point it appears to be anything from the current administration and anything from the mainstream media.) Add to that the fact that I don’t have the time or inclination to do all of this research and number crunching myself I appreciate what all of you do to keep me in the neighborhood of some facts.

    Someone has already mentioned the political reasons for massaging the facts (“everything is wonderful so elect me again”) but the medias reasons: They require ad revenue, more people watch if the news is good so they only share the good news or even twist the facts to gain market share. Fox News is the culmination of both of these motives (politics and ad revenue.)

    But what is the solution to gain a more enlightened populace?

  36. Neal commented on Jun 20

    The greatest fear that politicians have is to have the populace think that something is wrong.

    Therefore the populace must be shielded from the unpleasant realities where the bad news is never supposed to be delivered. As a result, we continue on in the same old ruts, with most never realizing that the world has changed and we are being left in the dust.

  37. Vermont Trader commented on Jun 20

    That was quite the bear attack this morning… perfectly timed. Very impressive watch the squeeze.


    BR: Yes, that was all me!

    It had nothing to do with the MBIA/ABK downgrades, the Merrill warnings and Citi writedowns, nor the Israeli attack jet fighter war games in preparation for a possible attack on Iran, or the $4 bounceback in the price of Oil.

  38. John F. commented on Jun 20


    Your criticisms of the official inflation statistics have been spot on, perhaps even prophetic to the extent that books are now being sold on the back of essentially identical arguments. However, I see two valid critiques of your critique, which perhaps only point out the futility (dismalness?) of economics. First, how do you make peace with the monetarist view of inflation (and if so, which measure of the money supply is your lodestone), and second, can you propose a more optimal use of hedonics, substitution effects, and so on to create a more useful measure? To take just one counter-trend example which may achieve macro significance well before showing up in the statistics, many people are now getting most of the utility of car ownership from for-profit car share outfits. What about public goods and externalities? At the end of the day, are not all of these statistics attempts to measure something we can barely define?

  39. Toro commented on Jun 20

    “murder mystery”

    AHA! Murder at the BLS!

    I knew it…

  40. IdahoSpud commented on Jun 20

    While there may be no “conspiracy”, there is arguably an ongoing effort to introduce a “bias”.

    This bias is both unidirectional and long-term; it causes unemployment and inflation numbers look lower than they would using previous models.

    One reason to claim bias rather than conspiracy is that the efforts to understate reported inflation and unemployment span decades and several presidential administrations.

    For the most part, those in power like to be perceived as competent stewards of the economy ;)

  41. Serious? commented on Jun 20

    You innocuously claim:

    “Its just that I believe they are flawed.”

    As if there are no further implications to your assertions . If the data are just randomly (and by implication, blamelessly) flawed, wouldn’t your statistics tell you errors would be random, up and down, positive and negative. But that’s not what you are saying. You constantly rail on the systematic bias of these data, so please, you have to at least acknowledge you are saying more than the data are simply flawed.

    What you wear on your head and where you consort is your own biz.


    BR: Fair enough — I will expand above to say: “those flaws seem to all have a bias to systemic make things look better than they really are.”

  42. Marcus Aurelius commented on Jun 20

    Consistency of the unit of measure is the only thing that makes accurate measurement possible. If there is no good way to account for value, why do we keep trying? I’m not at all concerned about using apples vs. oranges, as long as you don’t try to tell me that apples ARE oranges.

  43. dark1p commented on Jun 20

    But you see, Barry, evolution is just a ‘theory’, and….

    I’m with Steveeboy. The rise of the right wing has led to a terrible breakdown in critical and scientific thinking. Politics is more important than the truth in areas we depend upon as a society for veracity or at least the best attempt to determine it.

    With the way the Democratic Party is going, I don’t think it’s going to get any better. They’ve become the same thing, in terms of tactics and ‘up is down’-ness.

    Keep up the rebuttals, Barry. They need repeating regularly in the attempt to keep some semblance of rational thought in the mix.

  44. speculator commented on Jun 20

    In any arguement there are smart people on both sides. You are right because your logic and reasoning is right, not because you say you are right. I think a lot smart people get caught up in tribalism in one form or another instead of thinking through the merits of an arguement. As John Mayard Keynes said “Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally”

  45. CaptiousNut commented on Jun 20

    I believe that highlighting and debunking one’s weakest critics is essentially a strawman tactic as well!!!

  46. Zo commented on Jun 20

    i never understood how Don Luskin was gonna go about shorting Fusion IQ…

  47. Skjellifetti commented on Jun 20

    “However, if your intellectual sophistication and analytical acumen is at a level where you find it easier to claim that those who disagree with your views on inflation, employment and GDP wear tin foil hats and consort in Area 51, well that’s just so much intellectual detritus, and I am calling you out on it.”

    There are legitimate criticisms of BLS methods and statistics, it is true. But then, again, there really are a vocal bunch(*) of bloggers who claim that the CPI revisions are a government conspiracy to make the numbers look better (they have proof!). No way around it; those guys ARE creepy conspiracy nuts.

    I’m one of those who think that the old CPI way overstated inflation because it did not account for changes in relative demand nor account for changes in quality. I don’t know how successful the hedonic methods are on the quality issue, but at least the statisticians at the BLS are trying to make the models a better reflection of real human behavior. But somehow, whenever I try to defend the methods, I am derided as blind to the conspiracy. It is worse than trying to defend the Fed when talking with a gold bug.

    (*) Bunch does really capture the blogosphere. A conspiracy of bloggers is probably a better way to describe a flock of internet writers.

  48. JJ commented on Jun 20


    BR: can you actually prove anything you claim? I think you frequently make references to what others say because that is your blog niche but you can prove little of what you are claiming to “know”. There is a multitude of varying opinions out there from which you conveniently “select” slices to fit your style. Also regarding science and stats – a little knowledge is dangerous. I do not feel you are competent in either field. So much for journalistic merit.

    You always tend to gravitate toward criticism of others, gov’t, etc. They are always wrong, you are always right! If you believe what you are writing you are mostly fooling yourself.

    It is easy to yap from a safe high tree, but sooner or later you have to come down and face the music. What are you doing to fix the situation?

    As you are an American I would expect you to work towards making necessary changes through government, or wherever needed, this is really what great men do.

    Of course if changes were made, then what would you write about in your blog?

    You have probably been found out Barry and are now reacting defensively. Denial>Anger> Acceptance>Change = Better life.

  49. roger commented on Jun 20

    I have a question on the hedonics issue – does it also measure wear, or when things get worse? For instance, penicillin is now mostly useless, simply due to natural selection. Substitutes for it are more expensive. So, hedonically, do we count the lessened effect of penicillin as a form of inflation?

    There’s been a visible deterioration of public infrastructure, like roads and sidewalks, over the past decade. Does that count as inflation?

    Just wonder what the official model says.

  50. wunsacon commented on Jun 20

    >> Of course if changes were made, then what would you write about in your blog?

    JJ, this is a smear that can be charged against anyone at any time, regardless of the merit (or not) of what they say. It is an ineffective approach to evaluating a statement or argument.

    Not sure of your political affiliations. But, FYI, this is a staple argument from right-wing pundits, who obviously have nothing to peddle.

  51. Skjellifetti commented on Jun 20

    Rogers’s penicillin question is an interesting example of where hedonics should be used in reverse since the quality of a new batch of the same drug bought today is worse than the quality of the same drug bought yesterday and simple comparisons of prices over time may not account for the quality drop.

    Infrastructure deterioration is not inflation. It is simply the usual depreciation of a capital asset. But if we were to replace the infrastructure with a safer version that cost more, we would have to deduct the cost of the additional safety feature from the new cost in order to be able to compare today’s cost with yesterday’s cost.

  52. dwkunkel commented on Jun 20

    “Never ascribe to malice that which is adequately explained by incompetence.”
    Napoleon Bonaparte.

    I think conspiracy could be substituted for malice here.

  53. IdahoSpud commented on Jun 20

    “Rogers’s penicillin question is an interesting example of where hedonics should be used in reverse since the quality of a new batch of the same drug bought today is worse than the quality of the same drug bought yesterday and simple comparisons of prices over time may not account for the quality drop.”

    No no no! Hedonics should be adjusted upward. The new drug treats pennicillin-resistant bacteria while the old one does not. Major product improvement per dose administered. Upward adjustments only! ;)

  54. Estragon commented on Jun 20


    I agree with you that the current measure of “inflation” probably more accurately reflects what it’s supposed to; changes in aggregate retail prices over time. I also agree that older measures of “inflation” likely overstated retail price changes.

    Two points I think are important to make though:

    1. I quoted inflation above because the CPI isn’t really a measure of inflation. It’s a consumer price index. That is all. Inflation is monetary and may or may not appear in retail prices.

    2. The CPI can only reflect the incidence of aggregate changes in retail prices accurately for a very small group of people, simply because very few of us have consumption weighted exactly as the BLS determines it. Personally, for example, I currently consume more red wine than gasoline, so my personal CPI is badly described by the published version. That said, gasoline prices impact my perception of inflation because the product is nearly identical across brands and vendors, and the price is apparent even to those of us who rarely buy it. Wine, in contrast, varies hugely in price across brands and vendors, and they rarely post it in 4ft letters on every street corner.

  55. DownSouth commented on Jun 20

    ☺☺”As you are an American I would expect you to work towards making necessary changes through government, or wherever needed, this is really what great men do.” –Posted by: JJ | Jun 20, 2008 11:13:12 AM

    But JJ, isn’t that exactly what BP does.

    Daniel Yanelovich, in his book “Coming to Public Judgment: Making Democracy Work in a Complex World,” states that in the “quality-as-public-judgment model, there are three states of evolution. The first is ‘consciousness raising.’ The second is ‘working through.’ The third is ‘resolution.’ ”

    “Consciousness raising is the stage in which the public learns about an issue and becomes aware of its existence in meaning.”

    BP, with its dissident viewpoints, does an excellent job in the consciousness raising arena. Do you REALLY want to rely solely on the print and broadcast media, with all their elite gatekeepers, for all your news and views?

    A couple of other pertinent quotes from Yankelovich:

    “Our system of representative democracy assumes that those who act for the public have suerior knowledge but that they share the public’s goals and values. But on many issues this assumption is invalid. Leaders and experts seek to advance their own values and interests. This is why so much emphasis is put on public relations. Correcting the public’s understanding is rarely the goal of public relations. The usual goal is to make it possible for special interests to achieve objectives and advance values the public does not fully share.”


    “The key point is that events, however large and important, are always filtered and editorialized. Not only the content of the events but, more to the point here, the importance with which stories are to be treated depend directly on the media’s editorial interpretation.”

  56. RW commented on Jun 20

    I was going to say it seems redundant to put Donald Luskin’s “The conspiracy to keep you poor and stupid” in the Hall of Shame but, upon reflection, I had to admit that the title of his book and corresponding blog are marvelously deceptive, not simply a double entendre but Orwellian doublethink: Imagine, a persona and text that not only depend upon the stupidity of the audience but strive to increase that stupidity as a means of keeping the audience tractable while extracting wealth from them and which portrays itself as the opposition to that very project and argues for truth …well, now that’s something.

    OTOH I’m not sure I agree with the oldprof cite; I think he was mainly twitting you BR.

    Staying on topic, whether one agrees or disagrees with Barry or anyone else, sticking with real-world data and struggling with the models that explain it (and there are usually more than one) while maintaining the integrity of inquiry is the superior project. For example, I think CPI as currently constructed is a reasonable proxy for inflation if one is focusing on the “built-in” or embedded model (which focuses on labor costs rather than inputs broadly speaking) but that even if that is the preferred model among economists these days (and it seems to be) CPI generally, and core CPI in particular, is no longer a reasonable proxy for cost-of-living.

    IOW, as well as I can determine (being a non-economist), it seems that it has become important to distinguish between relative price increases arising from supply/demand imbalances and price increases arising from monetary problems and the growing inability of CPI to capture both of these phenomena may be an indicator of deeper underlying problems more than it is an indicator of lack of ability (or duplicity) at BLS.

    It’s easy to forget with models that they not only have internal features and relationships but also have a domain in which they are valid and that domain must be as clearly defined as the model’s internal equations; i.e., applied to the wrong domain the best model in the world must break.

  57. RPB commented on Jun 20


    I had an interesting coversation about the perversion of BEA and BLS statistics with a professor at the GSB. Same story there, the man derided me as a conspiracy theorist. I agree that the models have been warped in some poor ways to explain seasonal fluctuations and consumption habits.

    However, I have met some people who work at these agencies and I have no reason to feel that they are biased, politically or otherwise. They are extremely apt and incredibly brilliant at modeling complex economic interactions. Obviously, no model is perfect and the raw data should be easier to obtain.

    That noted, reliance upon the raw data is similarly flawed. Regressing seasonal fluctuations is the best way to understanding how the numbers should be interpreted. Not many people have the time or the training to do these type of things. However, if you can do better please indulge me.

  58. Michael F. Martin commented on Jun 20

    It takes imagination to understand how our models of the world actually change how we perceive it — imagination that, almost by definition, you don’t have if you aren’t the kind that likes playing around with models.

    It’s not a conspiracy. More like an inside joke.

  59. Pete commented on Jun 20

    As far as the press is concerned, Mark Twain wrote 150 years ago “If you don’t read the newspaper, you are uninformed; if you do read the newspaper, you are misinformed.”

    Mainstream Media has always been a tool used by those who controlled it, and has never represented pure fact or accuracy. Now the internet allows official information to be challenged more easily, and thus the spin is just more apparent.

  60. BG commented on Jun 20

    I found this tidbit interesting in its comparison of inflation numbers before and after their subsequent adjustments.

    ‘ Nowhere is the pain being felt more than at the gas station and supermarket. Yes, “core” inflation (excluding food and energy) is contained, but many consumers would respond, “Are you kidding me?!” Until recently, few paid attention to the way the Consumer Price Index (CPI) gets calculated, but roaring food and energy prices have enlightened many. ‘

    ‘ Over the past 30 years, major changes have been made to the calculation of the CPI due to “reselection and reclassification of areas, items, and outlets, [and] to the development of new systems for data collection and processing,” according to the Bureau of Labor Statistics. ‘

    ‘ If you eliminate those adjustments and calculate CPI as it would have been calculated in 1980, it would be nearly 12% today! (See “Why Inflation Feels Higher Than It Is.”) No wonder clients constantly tell me they distrust government inflation data. ‘

    Investing Insights Newsletter – June, 2008
    Liz Ann Sonders
    Senior Vice President, Chief Investment Strategist
    Charles Schwab & Co., Inc.


  61. Schnormal commented on Jun 20

    barry i am so SO glad you wrote this, i see these lazy conspiracy comments everywhere and they drive me crazy. i used to work with a woman who called any idea that took longer than five seconds to explain a conspiracy theory. the fact was that she didn’t have much going on upstairs, but she knew she could just whip out the old get-out-of-jail-free conspiracy card whenever she found herself in over her head.

    but i agree with roger that the media deserves most of the blame.

    when i read that the BLS uses an inflation model that does not take into account the cost of food or energy, i assume that either their methodologies are over my head or their data has been politicized. but when i read an article in the press that argues that things aren’t so bad now compared to the carter years, and as proof they compare the current “core” rate with the old CPI, i have to assume that they do not consider informing their readers about the economic state of the average citizen to be a top priority. is it out of malice? stupidity? lazyness? at this point does it matter?

  62. riverrat commented on Jun 20

    steveeboy called it about how I see it:

    “…anti-intellectualism is a side-effect of right-wing rule…if you deny science and inconvenient facts as a matter of political ideology–evolution, global warming…etc…it is only a matter of time before the phenomena rears its head in ALL fields, not just those which are part of the so-called “culture wars” or more common political battles.”

    I also liked M.A.’s variant: “The more people who believe an idea, the truer it is.”

    I read an article recently that termed this the “low information” demographic. Sadly, the main point of the was that the presidential candidates have realized the importance of courting this demographic by appearing on airhead entertainment shows…

  63. bsneath commented on Jun 20


  64. AGG commented on Jun 20

    Well now, what we have here is not just a toughed nerve but THE nerve has been stomped!
    One could argue that success in life is attributable to perception management. However, that is also the con artist definition of success. As flawed humans we naturally wish to emphasize our virtues and hide our faults. The problem is that when everyone is a liar, the wheels of a prosperpous society begin to get jammed with the abrasive of corruption. Without integrity there is no trust. Without trust you have anarchy. Morally bankrupt societies become dictatorships to avoid anarchy. A perfect example is a sate prison facility. All the prisoners claim to be innocent. Yet take a vote and ask them if they want all guards removed and for the prisoners to govern themselves and they’ll reject it. Why? No trust.
    We have a problem and I thank you ,Barry, for shining the spotlight of truth on it.

  65. Space Cowboy commented on Jun 20

    As Confucius said: “The beginning of wisdom is calling things by their right names.”

    Posted by: DownSouth | Jun 20, 2008 10:07:18 AM

    “A man only learns in two ways, one by reading, and the other by association with smarter people.” – Will Rogers

    Btw I am honored to be associating with smarter people (assisted by the uptake from this site) such as yourself!

    All The Best To You And Your Loved Ones….

    Space Cowboy

    Addendum: “The men the American public admire most extravagantly are the most daring liars; the men they detest most violently are those who try to tell them the truth.” – H L Mencken

  66. L’Emmerdeur commented on Jun 20

    Does this mean you will stop posting the occasional Ben Stein piece? Sorry to play that violin again, but… friggin’ Ben Stein, for Christ’s sake!

  67. pft commented on Jun 20

    “While there may be no “conspiracy”, there is arguably an ongoing effort to introduce a “bias”.

    This bias is both unidirectional and long-term; it causes unemployment and inflation numbers look lower than they would using previous models.”

    An intentional bias of data by both parties, a decision to do so made in secret meetings, (ie. not public), and which is denied, is by definition a conspiracy to bias the data.

    In the real world, conspiracies exist, and those who do not believe in them are more likely than not to be in the bottom 90% and getting their pockets picked by conspirators. In fact, many people today are in jail for conspiracy to commit one crime or another. The dumb ones get caught. The smart and powerful ones protect themselves by labelling those accusing them of conspiring against them as conspiracy theorists.

    Getting tagged as a conspiracy theorist is proof your theory is getting too close to the truth. After all, it is the conspirators who tell us conspiracy is not possible in this world of a tenacious media searching 24/7 for the truth. This media is motivated to expose the fraud and injustice committed by their owners and sponsors, and a government their owners and sponsors have bought and paid for. Silly me, the conspirators must be right. How could a conspiracy exist with our MSM as the gatekeepers. LOL.

  68. Anonymouse commented on Jun 20

    I you’re experiencing the cognitive dissonance that goes with the transition from private citizen to public figure.

    My advice, let it roll right off you. I wouldn’t spend your finite analytical resources on this garbage… alternatively, you could set a ‘retard time budget’ say an hour twice a week to spend on boneheads. If that sounds like an egregious waste of time… well maybe you’re right.

    ps: I considered changing my ‘handle’ to “anonymous internet coward” but that’s too many key strokes.

  69. guest commented on Jun 20

    Great post, Barry. But I would like to defend the ‘anonymous’ poster, whom you expect no less from.

    I have found that cliques form in comments sections, and certain posters are assumed right by reputation, which actually interferes with a true exchange of ideas. Likewise for some posters who are always derided and dismissed, regardless of the quality of the actual ideas. Many posters utilize their board reputations, which changes the atmosphere from idea exchange to popularity contest. You name the blog, and that is happening in the comments section.

    I think the cliqu-ing of the blogosphere is actually ruining the true potential of an exchange board of ideas, regardless of identity.

    Food for thought.

    Long live the anonymous poster.


    BR: When I mentioned the “anonymous coward” I was not referring to your intelligent but anon poster. Rather, I was referring to the small-dicked troll who is too ball-less and chickenshit to post under their own names . . .

  70. Winston Munn commented on Jun 20

    It is not conspiracy; it is agenda.

  71. mcg commented on Jun 20

    Here, Here Barry. You nailed it on the head.
    Excellent post, very well thought out and written. A pleasure to read and for me a breath of fresh air.

  72. bdg123 commented on Jun 20

    Well……….all models are not wrong. Only wrong models are wrong. But, your tinfoil hat looks good on you. Some data is suspect to say the least. The Fed obviously has many reasons to understate inflation. Some are good for society and some are bad. I don’t think most people view your remarks of such as conspiratorial. Unless, they are espousing a dogmatic position. No one should care what those types believe anyway. But, in the end, isn’t it irrelevant? The system will take care of itself regardless of what anyone wants.

  73. AB commented on Jun 20

    Don Harrold has been recycling a clip of Bob Pisani making fun of the “vast conspiracy” strawman for awhile now. Pisani’s a great example of “an intellectual lightweight, a political hack, someone not worthy of any further expenditure of your limited time and finite attention.”

  74. Karl K commented on Jun 20

    Barry, maybe you’ve heard the joke.

    Two conspiracy theorists finally get to heaven. One of them was sure that 9-11 was caused was really caused by the Bush administration trying to whip up the anti-Islam frenzy; the other was convinced the moon landings were stage in Hollywood.

    They meet St. Peter at the Pearly Gates.

    St. Peter says: “Sorry guys, 9-11 was caused by a bunch of suicidal crazed al Qaeda jihadists, and Neil Armstrong, he really did walk on the moon.”

    The two conspiracy theorists looked at one another and said, in unison:

    “Boy, this really does go to the top.”

    “Sorry guys

  75. Gregg M commented on Jun 20

    The true reason for the disonance between reported government statistics on unemployment and anectdotal experience is that a change has taken place in the very nature of employment over the past decade.
    Far more people are working as 1099 “independent” contractors,rather than as employees,whose work ceases without any mechanism for reporting. This situation is more the rule than the exception in the real estate, insurance, construction, restaurant, and personal services businesses among many others.

  76. Scott commented on Jun 21

    Tighten up your analyses? How? The many and varied analyses found in TBP, those our man in Amsterdam endorses (that B U Barry) are tighter than bull’s asses in fly season.

  77. Skjellifetti commented on Jun 23


    You and I would probably get along quite well since I, too, consume more red wine than gasoline.

    I disagree that “Inflation is monetary and may or may not appear in retail prices.” If it doesn’t appear in retail prices, how can it be inflation? Isn’t that akin to the old “If a tree falls in a forest and no one is around to hear it, does it make a sound?”

  78. Muckdog, Hall of Shame Member commented on Jun 24

    Intellectual laziness ROCKS!

    I know there must be inflation somewhere besides the gas pump, but heck if I can find it. Banquet TV dinners are $.86 at Wal-Mart.

    Load up!

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