Who is Right: Professionals or the Populace ?

Portfolio has an interesting discussion on what they term the “He-Said-She-Said” economy:

“Inflation, energy, home prices, and tax rebates. Ordinary Americans and Wall Street professionals are at odds on issues like these and others at the center of the current economic malaise, according to the CNBC/Portfolio Wealth in America survey. And these differences have implications for both the Federal Reserve and this year’s congressional and presidential candidates.

For example, while Wall Street forecasters predict inflation will be fairly tame in the next year, at about 2.5 percent, 71 percent of the report’s respondents think prices will rise by at least 4 percent, and 50 percent expect inflation to run at or above 6 percent.

In the past month, the Federal Reserve has been trying to put a lid on inflation expectations, culminating last week with what was seen as a benign outlook for price pressures in the statement following its monetary policy meeting. Still, Americans don’t seem to be hearing that message.”


I heard Steve Liesman discuss this poll on CNBC. Steve, like so many other economists, is having a hard time with this conflict. Many of the dismal scientists believe in the wisdom of crowds, but they also are somewhat compelled by training to buy into the methodologies of their profession.

When the two schools of thought are directly opposite, you end up with a form of cognitive dissonance. This has accelerated as prices continued to go higher, even with relatively modest core inflation.

I have been surprised by how many reality-based economists — including those on the left like Professor Brad DeLong and NYT columnist Paul Krugman — were so reluctant to embrace elevated inflation as a genuine threat. There was a bit of a circle-the-wagons mentality about economics as a discipline. That seems to have faded in the face of elevated food prices and $143 Crude Oil.

Here’s a suggestion: If the professional economists’ data states that inflation is contained and unemployment modest, and at the same time the population sentiment is screaming as if neither were the case, perhaps its time we consider that it might be the data, and not the population, that is the source of our dispute.

Sentiment is now at levels last seen during deep ugly recessions. Perhaps the fault lies not with us American whiners — but with the way the data is gathered, massaged and reported.

Something else to mullover: We have “enjoyed” practically full
employment (i.e., very low unemployment levels) for several years now
— but wage pressure has been non-existent. That seems to be unusual to
say the least.

As someone who has been skeptical about the artificially low
inflation and unemployment rates for quite sometime now, the public’s
reaction makes a whole lot of sense. If we believe the negative
sentiment of the American people, then its likely that Inflation has
been much more pervasive than reported by either the top line or the
core.  And the same thinking likely applies to the low unemployment rate. If we judge by sentiment, perhaps its not as low as advertised. Ignoring widespread distress in the population is a recipe for major electoral changes.

Regardless of who wins in November, its time for a major rethink of the methodology behind BEA/BLS data . . .



Consumer Sentiment Hits 28 Year Lows (June 17, 2008)

Are We Too Gloomy? (June 19, 2008)

The He Said, She Said Economy
Zubin Jelveh
Portfolio, Jun 29 2008

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What's been said:

Discussions found on the web:
  1. Roman commented on Jun 30

    Is it possible that sentiment is overly negative because the price of the item that is going up the most is posted on every street corner. For example, we have had a huge run up in health care costs over the last 10 years. Yet, no one is really flipping out about that. Oh sure, they’ll have a discussion about it once in awhile, but no has really has taken into account the increase in health care costs when determining their inflation expectations. And yet, for many health care dwarfs anything they may pay for gas. Thats probably because the cost of a checkup is not posted on every street corner or even in the doctor’s office.

    BR: I’m not sure I buy that. National Healthcare insurance has been a huge issue this election.

  2. Marcus Aurelius commented on Jun 30

    We’ve become culturally immune to reality. We accept that a huge, indebted populace is the status quo and SOP during the history of the world. It’s like reading a story about a starving man – we feel for him, but we don’t feel the hunger.

    Reality will grind fiction and group-think into the dirt, regardless of the depth of one’s belief in the fiction.

  3. Marcus Aurelius commented on Jun 30

    We’ve become culturally immune to reality. We accept that a huge, indebted populace is the status quo and SOP during the history of the world. It’s like reading a story about a starving man – we feel for him, but we don’t feel the hunger.

    Reality will grind fiction and group-think into the dirt, regardless of the depth of one’s belief in the fiction.

  4. Marcus Aurelius commented on Jun 30

    We’ve become culturally immune to reality. We accept that a huge, indebted populace is the status quo and SOP during the history of the world. It’s like reading a story about a starving man – we feel for him, but we don’t feel the hunger.

    Reality will grind fiction and group-think into the dirt, regardless of the depth of one’s belief in the fiction.

  5. Marcus Aurelius commented on Jun 30

    We’ve become culturally immune to reality. We accept that a huge, indebted populace is the status quo and SOP during the history of the world. It’s like reading a story about a starving man – we feel for him, but we don’t feel the hunger.

    Reality will grind fiction and group-think into the dirt, regardless of the depth of one’s belief in the fiction.

  6. Jim Haygood commented on Jun 30

    “While Wall Street forecasters predict inflation will be fairly tame in the next year, at about 2.5 percent, 71 percent of the report’s respondents think prices will rise by at least 4 percent, and 50 percent expect inflation to run at or above 6 percent.”

    Wall Street forecasters are predicting the official CPI — that’s the game they play. Ordinary Americans are predicting the actual increase in their living expenses, which they are fully qualified to do. Any relation between the CPI and their actual living expenses is purely coincidental.

    “Perhaps its time we consider that it is the data, and not the population, that is likely wrong.”

    Hear, hear! More evidence is provided by the rising inflation rates in most of the world. India and China, whose inflation we import, are running at around 11%. Europe, whose currency has been stronger than the dollar, just saw its inflation rise to 4%. It does not stand to reason that the U.S., with its weak dollar, would be running a 2.5% inflation rate, as the Wall Street forecasters predict.

    Bottom line, economics postures as a science when it is not. Statistical boilerplate is appended to economics papers to provide a phony gloss of corroboration, when the substance is entirely lacking. After a couple of dozen credit-driven Bubbles over the past few centuries, Greenspan and Bernanke still think you can’t identify a Bubble in real time. They are the economic equivalent of sun-worshipping, loincloth-clad flat-earthers, shaking their spears at the sky in alarm when an eclipse comes. Have you tried sacrificing a goat, Ben?

  7. DownSouth commented on Jun 30

    Vox populi vox Dei!

    Barry Sussman wrote that politicians regard public opinion as “the great gorilla in the political jungle, a beast that must be kept calm.”

    And Daniel Yankelovich observed that “the denigration of public opinion is implicit whenever one defines opinion in opposition to knowledge and then identifies knowledge as the possession of the select few and as imbued with moral authority.”

    “[Elites] think they know better than the public because they are well educated and articulate. They have superior knowledge, and because they do, they assume in the great classic tradition that they are, therefore, endowed with superior moral virtue.”

    Americans have seen this “moral virtue” on display for the last six years. Here’s a short list of some of these morally superior elites:

    George Bush
    Dick Cheney
    Don Rumsfield
    Richard Perle
    Scooter Libby
    Paul Wolfowitz
    William Kristol
    John Woo
    Paul Bremmer
    Condoleza Rice
    Tommy Franks
    Thomas White
    Douglas Feith
    James Woolsey
    Charles Krauthamer
    George Will
    William Saffire

    Are you beginning to see why people don’t believe the “experts” anymore?

  8. Ella commented on Jun 30

    As we look at the difference between the professional or the populace let us not forget that the populace pays the true cost of inflation each and every day. This cost is frequently vastly different then the skewed economic data that the professionals rely on.

    Additionally, the professionals have failed to recognize that the populace has replaced income with debt. Debt has propelled the economy forward and has kept the consumer resilient not the increase in real wages. Real wages have stagnated for many years. Affordability, is now and has always been the key to consumption.

    Contracting credit and expanding inflation have and will continue to destroy demand because these factors in the face of stagnant wages have destroyed affordability.

    Affordability, is the key to purchasing power. Tax rebates and falling real wages do not increase affordability.

    It is no mystery that the populace has negative attitudes. Quite simply, the core rate of inflation has little effect on the psych of the populace when they are paying more than the headline rate of inflation. Particularly, when the headline is far less than the real rate of inflation.

    Wall street has decoupled from main street. The populace wins this debate hands down.

  9. Carmen commented on Jun 30

    A correction here: Liesman is not an economist. He’s an English major with a master’s degree in journalism (from Columbia).

  10. BG commented on Jun 30


    Rightly or wrongly, I just don’t buy the premise of:

    We have “enjoyed” practically full employment (i.e., very low unemployment levels) for several years now — but wage pressure has been non-existent. That seems to be unusual to say the least.

    In my mind, this is rationalized because a lot of unemployed people just aren’t counted in Government jobless statistics any more. They never found a comparable job,… the Government just methodically dropped them from the jobless rolls regardless of their employment situation.

    IMO the reason wage pressures have stayed down is because of all of those marginally employed/unemployed (~desperate) people having to take anything that is available, i.e. the least-desireable job not yet filled.

    It makes perfect sense to me. I bet the true unemployment rate is at least twice what the Government reports.

    Just my 2-cents worth.

  11. TDL commented on Jun 30

    I was just about to say the same thing. He is a journalist and as journalist who covers the street he went straight to those who regarded as experts. It is highly unlikely the Mr. Liesman can tell you the difference between an Austrian, post-Keynesian, or a Public Choice theorist. I would argue the Mr. Liesman is nothing more than a cipher.


  12. DownSouth commented on Jun 30


    Thomas White should not have been included in the above list.

    “In 2003, White refused to publicly rebuke GEN Eric Shinseki for his statement to the Senate Armed services committee that it would take ‘something in the order of several hundred thousand soldiers’ to occupy Iraq after invasion. This, combined with White’s actions on the Crusader and his distracting association with Enron, prompted Rumsfeld to demand White’s resignation. White resigned on April 25, 2003.”

    I mistakenly believed White to have been one of the dozens of retired generals the White House used as military “experts” in its propaganda blitz to misinform the American public.

  13. wally commented on Jun 30

    This split of opinion comes at a time when the split between the income groups in the US also increases. It is quite true that the ‘uppers’ are getting more ‘upper’…. and therefore more detached from daily reality.
    You can see this trend, and the outcome, at various points in history. It has never been pretty.

  14. larster commented on Jun 30


    I think you are on to something, i.e. rethinking how we compile the data. GIGO has been a truism for a long long time. The real issue is how does anyone overhaul the methodology in such a partisan environment. This brings up the true problem and that is lack of leadership and this is on both sides of the aisle.

  15. E commented on Jun 30

    The difference between the professionals and the populace is that they are talking about two different things. Professionals are talking about inflation in the classic definition – money supply – while the populace is talking about inflation in the method that we sloppily try to measure money supply – prices.

    Prices for some things that we buy regularly (gas, milk) are going up. Prices for others (housing, SUVs, businesses) are going down. The impact of price movements are felt differently, depending on what you are buying most.

    As for the money supply, it is contracting. There’s this thing called a credit crisis going on. Professionals are attuned to this moreso than joe sixpack, and understand the consequences.

  16. Bruce commented on Jun 30


    The problem most economists aren’t seeing is that for the first time this is not a “wage-price spiral”…this is simply a price spiral…and it is evident that wages don’t have to follow prices up in order for inflation to take off…all you need is higher oil, higher hard commodities, higher soft commodities, in short higher demand…most economists apparently think of wages AND prices, and all you need is prices to increase to produce what has happened here….

    “It is different this time”……

    Bruce in Tennessee

  17. RedCharlie commented on Jun 30

    There’s a saying, something to the effect that generals are always fighting the last war, meaning that the lessons drawn from past wars influence the decisions made about present ones, but that doesn’t work well when the present conflicts are qualitatively different.

    Krugman, DeLong, Bernanke, etc. betray their age because they are still fighting the economic battles of the 70’s, when inflation driven by an upward wage-price spiral was the gorilla in the room.

    To Keynesian economists of their age, the wage price spiral is the only important piece of inflation. That’s why they don’t complain about how bogus CPI is. Everything else outside the “core CPI” is thought of as sort of one time adjustments that are not self-sustaining.

    So, ironically, the rest of us are stuck with stagnant wages (if we’re lucky enough to keep our job) and a soaring cost of living, and Krugman, Delong, Bernanke, et.al. are quite happy about it.

    It’s this focus on the wage price spiral that led everybody to think Greenspan was such a genius because he inflated the money supply while 90% of the country couldn’t get a raise. Meanwhile they massage the unemployment figures to make themselves feel better.

    But it’s the completely wrong way of thinking about the current state of affairs. We have global inflation caused by soaring global demand for commodities (think China and India), a precipitously falling dollar caused by a surfeit of treasury bonds floating around the world, and a credit crisis.

    The old Keynesian playbook just doesn’t work anymore.

  18. gc commented on Jun 30

    Is it volatility if the error is consistently in one direction?

    So, perhaps food and fuel are no longer volatile, but there is political will against correcting the formula, because it will put the current administration in a bad light.

    Now, with an administration that has lied more than one too many times, the trust in honest professionalism of government numbers is paper thin.

  19. David Rosenberg commented on Jun 30

    Consumer confidence data sending an accurate signal

    This is why the consumer confidence data are probably sending out an accurate signal. To date, Uncle Sam has handed out $71 billion in rebates, which is a stunning $576 billion in extra income when taken at an annual rate, and despite that, consumer confidence is imploding –down to 1992 levels in the Conference Board survey and to 1980 levels in the University of Michigan polls. For the first time in the 40-year history of the Conference Board survey, there are more people who expect their incomes to go down in the next six months then there are people who expect an increase in their pay, and we are talking about nominal, not real incomes here. The University of Michigan survey on Friday showed that in May and June, 20% of respondents expect to see their incomes cut in nominal terms. Not only is this the highest since the question was first asked 32 years ago, but is completely off the charts and about double what a normal figure is in this survey.

  20. cinefoz commented on Jun 30

    BR asked

    Who is Right: Professionals or the Populace

    Conjecture: Professionals vote their career and the populace votes their pocketbook. Their interests rarely intersect and both ignore most of what they see.

    The professionals ignore what isn’t good for their careers. You’re dealing mostly with lazy ‘C’ students who know how to get along better than anything else. Image is everything. Substance can get you in trouble.

    The populace just doesn’t give a shit about anything that doesn’t affect them with the same intensity as a sharp stick in the eye.

    Ask someone from either group to think and they will probably want to punch you.

    Practically everyone lies and will steal whatever they can if they believe they can get away with it. You expect people to give. They may tithe, they may donate a few bucks or old clothes to charity, but they don’t give very often.

  21. John commented on Jun 30

    Much of the confusion arises from the fact that there is effectively a two track economy in the US. For example the top 20% spend more than the bottom 60% and the top 20% have a collective income as large as the remaining 80%. It doesn’t take a big leap to realize that someone modestly well off with a net worth of say $3million including home equity and annual income of say $250k is not going to be as affected by $4 gas and 9% food inflation as someone with a net worth of say a $100k and income of $50k. Once one starts to push the net worth and income calcs up higher the disparities are even more pronounced. It’s also not hard to guess in which group all the pundits, pontificators, economists, journalists and shills belong and even if they haven’t got an agenda it colors their views. This problem has been looming for years and has got worse during the Bush Administration when income inequality has accelerated dramatically. Cheap credit disguised the situation by allowing much of the 80% to continue spending like the 20% even though their cash flow was not rising to accomodate greater consumption. Now comes the great deleveraging which is coinciding with a dramatic spurt in inflation. As for the stats the man in the street gave up believing those years ago because they are so obviously out of touch with reality because of some bizarre distortions created by the modelling.

  22. Kents commented on Jun 30

    Is it just me, or was Dow Chemical saying something about 25% price increases?

    The difference in opinions comes from the way the data is interpreted. You and I look in our wallets. The experts consult their models. The models say our wallets are full. Our wallets say the experts are full of it.

    We also look at our electric bills, medical bills, education bills, and taxes. And the fact is, none of these items is going up at anything resembling 2.5%. Even if the “experts” have more degrees than a thermometer, we look at what’s costing us actual money, and what we see tells us that the experts are crazy.

    Anecdotal? Sure.

    But in the end, the mob will define reality. Go ask Paul Wolfowitz.


  23. David commented on Jun 30

    I agree with Bruce. Economists do not see these price rises as “proper” inflation because they are not driven by rising wages and are unlikely to be in the foreseeable future, given rising unemployment. And the decline in the average household’s purchasing power, which has been going on for quite some time now, appears to be of little interest to them.

    In all fairness, economists might be right when they forecast moderate inflation in the medium-term (after a short-term spike), as the likely slowdown in global growth should dampen commodities price rises. Whether wages keep up with even that moderate level of inflation is another issue…

  24. Mark S commented on Jun 30

    Oh, I think this is easier to explain. Economics and Financial Analysis look at the economy as a whole and mostly in the aggregate.

    Meso-America looks at its bank balance, its home equity, its savings, and how many friends are out of work. Their weekly costs of food and gasoline/diesel are a quick reminder.

    And it isn’t just what the press says, but how often it says it.

    If you stand on my toes, but tell me you like me, I might not believe you. Right now, the economy and press are standing on the toes of most American consumers.

  25. HCF commented on Jun 30

    Economics is a very complex (and dismal) science indeed, which leads to such a wide range of conclusions of where we are and where we are going. The problem is that it seems an increasingly large number of economists are practicing the field as a religion and not a science, burdening it with strict dogma. What they don’t realize is that there is no physical underpinning to economic reality. If you know the velocity and direction a ball is traveling, the air friction, wind direction, and gravity, you can with almost complete certainty, know where to ball will land. There is no economic equivalent to this. As such, a trained economist or financial professional’s prediction on what will happen X amount of time out is only marginally better (and sometime worse) than your average armchair economist [They, however, are probably more qualified to receive a Nobel Prize than you or I]. You certainly can’t say that about fields like nuclear physics, brain surgery, or auto repair (Incidentally, there is a great discussion on fields with real experts vs. fields with no real experts in Nassim Taleb’s ‘Black Swan’).


  26. cinefoz commented on Jun 30

    BR asked

    Who is Right: Professionals or the Populace

    Sorry, I never answered the question. Personally, I think it is best to avoid both groups whenever you can. Most people aren’t worth a damn and they sure don’t care about you, unless it is their job to do so.

    If you want things done, emulate Radar O’Reily on MASH. Just sneak around, make a few friends, and build a base that people have to use. Sounds like Karl Rove’s tactics, too. (Separated at birth?)

  27. MM commented on Jun 30

    Despite the bearish sentiment, it is very nice to see a triple bottom in the S&P500 which I think is very important for the future.

  28. Aaron commented on Jun 30

    I heard that business activity rose “unexpectedly.” Take that you grassy knoll economists. You wish that the economy would crash, but to quote Monty Python, “It’s not dead yet.”


    BR: It didn’t rise unexpectadly, you silly kiiiinniget — it contracted less than expected:

    “The June Chicago PMI was a better than expected 49.6 vs the consensus of 48 and it’s up from 49.1 in May. The components were mixed as New Orders fell to 52 from 56.1 and Backlogs dropped to 42.3 from 46.8 but the Employment index rose 5.5 pts to 46.7.

    Bottom line, the data still points to sluggish activity in the manufacturing sector (with continued price pressures) but not to the same extent as in the last recession which was cap ex led. The lows in that cycle in this # was 35.5 in Mar ’01. The low in the current contraction was 44.5 back in Feb.”

    Now, go away, or I shall be forced to taunt you a second time.

  29. Mike in Nola commented on Jun 30

    An excerpt from Iacocca’s new book pretty much sums up the problem:

    “Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder. We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, “Stay the course.”

    “Stay the course? You’ve got to be kidding. This is America, not the Titanic. I’ll give you a sound bite: Throw the bums out!

    “& someone has to speak up. I hardly recognize this country anymore. The President of the United States is given a free pass to ignore the Constitution, tap our phones, and lead us to war on a pack of lies. Congress responds to record deficits by passing a huge tax cut for the wealthy (thanks, but I don’t need it). The most famous business leaders are not the innovators but the guys in handcuffs. While we’re fiddling in Iraq, the Middle East is burning and nobody seems to know what to do. And the press is waving pom-poms instead of asking hard questions. That’s not the promise of America my parents and yours traveled across the ocean for. I’ve had enough. How about you?

    “I’ll go a step further. You can’t call yourself a patriot if you’re not outraged. This is a fight I’m ready and willing to have.

    “I’m going to speak up because it’s my patriotic duty & I’m hoping to strike a nerve in those young folks who say they don’t vote because they don’t trust politicians to represent their interests. Hey, America, wake up. These guys work for us.

    “Why are we in this mess? How did we end up with this crowd in Washington? Well, we voted for them — or at least some of us did. But I’ll tell you what we didn’t do. We didn’t agree to suspend the Constitution. We didn’t agree to stop asking questions or demanding answers. Some of us are sick and tired of people who call free speech treason. Where I come from that’s a dictatorship, not a democracy.

    “And don’t tell me it’s all the fault of right-wing Republicans or liberal Democrats. That’s an intellectually lazy argument, and it’s part of the reason we’re in this stew. We’re not just a nation of factions. We’re a people. We share common principles and ideals. And we rise and fall together.

    “There was a time in this country when the voices of great leaders lifted us up and made us want to do better. Where have all the leaders gone?

    “On September 11, 2001, we needed a strong leader more than any other time in our history. & That was George Bush’s moment of truth, and he was paralyzed. And what did he do when he’d regained his composure? He led us down the road to Iraq — a road his own father had considered disastrous when he was President. But Bush didn’t listen to Daddy. He listened to a higher father. He prides himself on being faith-based, not reality based. If that doesn’t scare the crap out of you, I don’t know what will.

    “So here’s where we stand. We’re immersed in a bloody war with no plan for winning and no plan for leaving. We’re running the biggest deficit in the history of the country. We’re losing the manufacturing edge to Asia, while our once-great companies are getting slaughtered by health care costs. Gas prices are skyrocketing, and nobody in power has a coherent energy policy. Our schools are in trouble. Our borders are like sieves. The middle class is being squeezed every which way. These are times that cry out for leadership.

    “But when you look around, you’ve got to ask: “Where have all the leaders gone?” Where are the curious, creative communicators? Where are the people of character, courage, conviction, competence, and common sense? I may be a sucker for alliteration, but I think you get the point.

    “Name me a leader who has a better idea for homeland security than making us take off our shoes in airports and throw away our shampoo? We’ve spent billions of dollars building a huge new bureaucracy, and all we know how to do is react to things that have already happened.

    “Name me one leader who emerged from the crisis of Hurricane Katrina & Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing & Name me a government leader who can articulate a plan for paying down the debt, or solving the energy crisis, or managing the health care problem. The silence is deafening. But these are the crises that are eating away at our country and milking the middle class dry …

    “Hey, I’m not trying to be the voice of gloom and doom here. I’m trying to light a fire. I’m speaking out because I have hope. I believe in America. In my lifetime I’ve had the privilege of living through some of America’s greatest moments. I’ve also experienced some of our worst crises … If I’ve learned one thing, it’s this: You don’t get anywhere by standing on the sidelines waiting for somebody else to take action. Whether it’s building a better car or building a better future for our children, we all have a role to play. That’s the challenge I’m raising in this book. It’s a call to action for people who, like me, believe in America. It’s not too late, but it’s getting pretty close. So let’s … go to work. Let’s tell ’em all we’ve had enough.”

  30. Jim D commented on Jun 30

    Pop Quiz:

    Measured the way we measure now, what was the inflation rate under Carter? (A: about what it is now.)

    Measured the way we measure now, what was the unemployment rate under Carter? (A: about what it is now.)

    So who’s right, the populace or the statistics? (A: Both, it’s a trick question. It’s just that the statistics aren’t saying what the “experts” say they are.)

  31. Gary commented on Jun 30

    Professionals? You mean the jackasses that created, laid the groundwork, or whatever phrase you care to give, for the current mess?

    And who would define inflation simply as a wage/price spiral?

    We’re in a global economy so perhaps the wage part of the equation is elsewhere.

    The system has been rigged for years to suck the middle class dry. I’m not sure why there’s surprise when it starts to bear fruit.

    CPI data and interpretation has been suspect ever since COLA was introduced for SS.

    “Where are the customers’ yachts?”

    And a paraphrase from Rogers — “I don’t see a lot of 29 year old farmers driving maseratis, but I see a lot of 29 year old wall streeters driving maseratis.”

    Screw most of the “professionals.”

    The Supreme Court’s declaration of individual rights being contained in the 2d amendment may prove prescient.

    Yea, I’m that cranky.

  32. Rob P. commented on Jun 30

    What if it’s the sentiment data that is being reported incorrectly? Everyone seems to think it’s the econo-data that is wrong. I’m bearish, don’t get me wrong but I like to look at both sides of the camp. As far as the debate between professionals vs populace, the populace rules the roost and pays the bills so the professionals are simply informational guides on this trip. I’m just holding out for this second half comeback that the professionals told me about a few months ago. (yes, that’s sarcasim if it didn’t come across glaringly obvious)

  33. DL commented on Jun 30

    If it’s true that the professionals believe that inflation will be tame, that suggests that commodities can go a lot higher. And while the public may recognize that an inflation problem exists, the average individual investor has not put a lot of money into commodity funds.

    Thus, ETF’s like GLD, USO, DJP, and DBA are likely to go much higher over the coming year.

  34. BG commented on Jun 30

    Mike in Nola,

    Good post. I agree 100%.


    Yeah, I would like to see some of those figures myself. I recall a couple of weeks ago (maybe during the discussion on this site about calculation of the CPI) where the CPI now was x.x% but would be x.x% if measured with the same criteria used in 2001 (or something to that effect).

    The difference between the two measures was quite revealing, since 2001 was not that long ago.

  35. Dr. Steven J. Balassi commented on Jun 30

    One of the major changes is the way we are now integrated into the world economy. Facts and figures change differently because of this integration. An example is the price of gas, it’s not our money supply which is driving up demand, it’s global growth. We need to reexamine our economic models and adjust them for globally integrated markets (i.e. exchange rates, trade, etc.).

  36. Jay commented on Jun 30

    This quote is hilarious:

    “In the past month, the Federal Reserve has been trying to put a lid on inflation expectations, culminating last week with what was seen as a benign outlook for price pressures in the statement following its monetary policy meeting. Still, Americans don’t seem to be hearing that message.”

    That’s rich! It’s so sweet it makes my teeth hurt! Who is it that isn’t getting the message, really?

    With everything that ordinary people actually have to buy, such as food, lodging, healthcare, and higher education going through the roof, then on top of that you’ve got a Fed that’s willing to let the whole world burn down around it to save demonstrably insolvent banks by devaluing the currency to the point where everything will double in price, who is it, remind me, that isn’t getting the message?

    Who are you going to believe, your lying checking account, or wildly out-of-whack official government figures?

    This is a political powder keg, just waiting to go off. Our society simply does not work with gas at $4 / gal.

  37. ReturnFreeRisk commented on Jun 30

    Excellent post BR. I have been saying for a while now that Bernanke’s “great moderation” is not in the economy but (largely) in the data (only). Data massaging has led to wringing the volatility out of the data. We just get “smoothed out” data. Survey data can not be smoothed out in the same way as they do with CPI (witness the attempts at excluding volatile items) – core, median, trimmed mean etc. The internal calculations have (esp in prices) that data are inherently non volatile. This effects output (GDP) directly as well. BR, you are spearheading the intellectual fight against the established economic types (the public already knows). Keep up the good work.

  38. bonghiteric commented on Jun 30

    Professionals/Politicians/Pundits Vs. Populace

    I’m with Lee I. This little diddy pretty much sums up my feelings on the matter

    “There comes a time when a man must spit on his hands, hoist the black flag and begin slitting throats.”

    H.L. Mencken

  39. Periwinkle commented on Jun 30

    I am a nurse. We can and ARE starting to demand increased compensation. That will push healthcare CPI up, and we won’t have to take a pay cut when oil goes down

  40. farmera1 commented on Jun 30

    Who is right???? You have to define your terms before you can answer the question, the public is operating from a different definition than the FED and most economists I would assume.

    The professionals including the fed says no matter what happens to prices as long as wages aren’t going up, no inflation.

    Here are some brilliant comments by President of the Federal Reserve Bank of Cleveland Pianalto

    “Oil prices have ratcheted up over the past nine years and the dollar has depreciated more than six years. Nevertheless, as long as a central bank is not creating an excessive amount of money, these relative price pressures ought to be transitory

    As consumers spend more money for higher-priced petroleum and agricultural goods they have less money to spend on other goods and services. Other relative prices must then fall.

    While sometimes devastating, these global relative-price pressures are not the same thing as inflation” Pianalto

    So prices don’t matter to the fed as long as wages aren’t going up. I say LET THEM EAT CAKE. At some point the prices will get so high, 90% plus of the population won’t be able to afford anything and there fore no inflation, it is just relative price differentials.

  41. me commented on Jun 30


    I think you need some quotes and attribution in your comment. Most of us read the same words in the paper this morning also.

  42. me commented on Jun 30


    I saw on a BW blog a comment about when sales are reported that companies like Amazon report sales and do not break out foreign sales. While they have a separate UK site, the US site is used for Mexico apparently.

    Since the dollar has fallen, many overseas customers find it cheaper to buy form US Web sites.

    I wonder if this has any true impact in the sales figures?

  43. bluestatedon commented on Jun 30

    Part of the problem is that guys like DeLong and Krugman — not to mention the shills on CNN and MSNBC and Fox — exist in a very rarified atmosphere in their daily lives. Compared to the vast majority of Americans, they are paid extraordinarily well, have very secure jobs that pay wonderful benefits, live in the nicest neighborhoods, drive the nicest cars, buy the most expensive wine, send their kids to the most exclusive day care facilities and private schools, vacation in the most exclusive locales, and belong to the most exclusive golf clubs. And just as important, all of their coworkers and close friends do as well. All these people know is financial security, comfort, and privilege, so to them the idea that large numbers of Americas are hurting badly simply doesn’t make any sense, because when Krugman or Delong or Cramer look around them, all they see is wealth. It’s been so long since the last time any of these guys had to go without something they really needed, they literally can’t wrap their minds around the fact that it’s reality for plenty of people.

  44. liz tool commented on Jun 30

    For the moment I guess it is both. If you haven’t lost enough in your job or in the market then the world you live in is still rosy! On the other hand if you have seen in the last 10 years your benefits being eroded and the price of the erosion cost you more and more…life ain’t so rosy. If your company has resorted to giving across the board 5 cent raises your living standards aren’t improving and once again life ain’t so rosy.

    You can look at all of the charts in the world and until you actually start talking to people of different socioeconomic classes you will never have a grasp on what people are really experiencing…You just imagine it. And usually people imagine the worst about each other. Many (not all) of my “well-to-do” friends imagine the worst about “poor” people and dismiss them as lazy and insignificant and my “not-so-well-to-do” friends imagine that all rich people are unfeeling and uncaring snobs! God forbid they actually talked to each other.

    What really scares me are the youngsters who have given up before they even start. Through relatives of mine I have recently encountered an entire class of youngsters who are so depressed and lost they can’t manage the simplest tasks of life. They don’t know how to keep a job by showing up on time everyday. They don’t know how to work out problems they have with their bosses. (A friend recently told me about a college graduate who brought her mother in for a work reprimand….What the hell kind of parent would accompany their child to work for any reason??) I have relatives that can’t keep a job and are on food stamps (I think it’s actually a card) they can’t afford diapers or formula for their baby but they manage to get their hands on 400.00 Ipods , 300.00 phones and the latest Wii games. They watch those programs with young celebrities and they think that is how life should be for them! I was quite disturbed when one relative in particular who dropped out of high school, had a baby and got married neither one was working and they were calling up real estate agents trying to buy 3 million dollar properties! Seriously they REALLY thought that is how life worked! They are not bad people and if your car broke down on the side of the road they are the type of people who would be the first to stop and help you. They just really have no clue. Whatsoever. Their friends are all the same. They really don’t know how to manage life and have given up because they have discovered that being a “Paris Hilton” doesn’t happen just because you wish it so! Before they even turn 21 they have given up. There is a mindset that if you don’t have the “right” kind of job then it is better to not have a job…

    My Portuguese Mother says they don’t even know to have shame on their faces. And I understand what she’s saying but the problem runs deeper than that. Our values as a country seem to have changed.

    Every single day I encounter people whose sentiment is more and more depressed. It is just now hitting some of my friends who THOUGHT that they were well off. Some have gotten laid off from their jobs and just last week a friend with a Countrywide mortgage got a foreclosure notice…Sorry for the novel just using YOUR blog to clear MY head…but I think I am more confused!

  45. Money Man commented on Jun 30

    The economy will eventually follow public sentiment…no matter how many $600.00 checks arrive in the mail. You could give everyone a $6,000.00 check and it would not change a thing. The average credit card debt is $13,000 in the US and I would wager less than 25% of Americans have ANY equity in their homes after the refi decade. They sucked whatever they could out of the house to keep their standard of living. Our homes have come down, wages have not risen, credit is gone, banks are not liquid, stocks are down 20%, and the government is printing money like we are Mexico. Where is the engine for growing the economy or lifting it out of a recession/depression going to come from?

  46. Sinomania! commented on Jun 30

    What BG said,

    Yes indeed the unemployment rate is much higher than official rate. We public perceive what we experience, the real level of unemployment. The BLS does compile this info. For May it was almost 10%.


  47. John commented on Jun 30

    I’m not sure which article you are talking about but if someone else has stated the obvious as I did, I agree with him.

  48. bad home cook commented on Jun 30

    This is like a free college symposium…and with Monty Python quotes thrown in! Huzzah!

  49. ScottB commented on Jun 30

    Okay, Barry, what specific changes would you suggest for unemployment rate methodology? What specific changes would you suggest for CPI methodology?

    In terms of the unemployment rate, you have previously stated that there have been methodological changes in the rate over the last 30 years. Given the documentation I have shared with you, you had indicated that you agree now that there hasn’t been any substantial change in methodology. So what, exactly, is the current unemployment rate missing?


    BR: No, thats not what I said at all:

    I said you are forcing me to sharpen my response which is a good thing.

    And, I told you that given my schedule, it was a project that will have to wait until the fall . . .

  50. me commented on Jun 30


    You are far too gracious so I must be wrong. It was recycle day so I can’t find what probably was very similar. I probably owe you an apology so forgive me, especially since I agree with you.

  51. ScottB commented on Jun 30

    Apologies for misinterpreting your response.

    For an interesting discussion of consumer sentiment and how it relates to actual consumer behavior, see the San Francisco Fed’s latest newsletter at http://www.frbsf.org/publications/economics/letter/2008/el2008-19.html. The article gives some basic information about what the survey asks, and briefly covers some research that shows that incorporating consumer sentiment into forecasting models improves accuracy during bad times, but not during good times.


  52. Lord commented on Jun 30

    The reason I see for inflation being higher is during normal times people can substitute away from higher prices, but during commodity inflationary times substitution becomes impossible and even negative as necessities absorb larger proportions of the basket forcing reductions in spending on things that may be flat or falling in price.

    As far as employment goes, it captures numbers of jobs but not their quality, durability, or ease of change. If people are stuck in unpleasant situations due to their inability to find anything better, it increases dissatisfaction even without an increase in unemployment.

  53. Francois commented on Jun 30

    “BR: I’m not sure I buy that. National Healthcare insurance has been a huge issue this election.”

    This time, I have to disagree with you. Sure, the candidates have argued how their plan is so much better than the opponent’s one and all that. But the “health care discussion” has barely scratched the surface of how bad things are on the ground.

    As an example, did anyone addressed the problem of the underinsured? The fact that copays and deductibles are zooming north so fast that it is equivalent to a full month of pay cut in certain cases? ( I sent you material about that a while ago)
    And how about this tragic but almost silent milestone: for the first time in 60 years, mortality has increased among low income women in the USA, something not observed anywhere else in the western world.

    Or, the fact that we rank last among 19 countries when it comes to deaths that could have been prevented by access to timely and effective health care.


    We got some work to do before bragging about our health care non-system. Unless we decide that it is OK for people to die or become seriously disabled for lack of money.

  54. E commented on Jun 30


    Excellent idea – we need hedonic adjustments for employment data.

  55. ScottB commented on Jun 30

    Francois, great comments about health care. If you look at the CPI, it measures (or tries to, see http://www.bls.gov/cpi/cpifact4.htm) what health care costs, but not who pays for it. So when your employer says, your monthly deductible for health insurance is going up from $100 to $120 (or whatever), that will not be picked up in the CPI.

    E, there already is a hedonically-adjusted employment series, put out by Scott Adams. Since all jobs suck, unemployment is 100 percent.

  56. Spencer commented on Jun 30

    The CNBC survey today that asked would you favor a new refinery in your back yard if it lowered gas prices really pissed me off.

    New refiners can not generate an increase in the supply of oil and lower gas prices.

    Isn’t there some way to make them explain on the air how a new refinery would reduce the price of oil?

  57. Howard Veit commented on Jun 30

    Two points: the flaw in the data collection is not in the measurement of general inflation. It is the fact that most people cannot afford (or don’t use) more than a few things in the overall index. So if I only buy the food and energy I get hit with that killer inflation only, and the portion of my income spent on those items may be as high as 90%, after which time I have no money. It just follows that the people earning the least feel the most..there ain’t too many diamond rings bought by window washers.

    Point two: the illegals doing most of the construction and farm work around the country are invisible to data collection. They aren’t counted, can’t be counted, and don’t want to be counted. I live in SoCal
    and the construction projects still running have no workers all of a sudden. They are manned by white and black guys working double shifts.

    Not counting at least ten percent of the work force means faulty data. If inflation was derived from separate income groups and what they can afford to buy we’d have a hell of a number.

  58. Simon commented on Jun 30

    If you think about how things are relative to one another and not how they are relative to a previous event (such as the wage price spiral of the 70’s) then the rising cost of goods relative to stagnant or decreasing wages is as bad or worse situation then the high inflation of the 70’s.

    At least WAGE/price inflation adjusts rapidly to the situation whereas without rising wages, rising costs destroy purchasing power slowly, destroys saving slowly, eases dept pain less rapidly, confuses the wage earner because hes not so sure about whats happening.

    I call it the slow cooked frog principle.

    Dump a frog in hot water and he’ll jump out. Slowly raise the heat and he’s stuperfied and won’t be able to jump out when he finally realises whats happened.

    It helps if you talk to the frog telling it that the waters still just the right temperature while you slowly turn the knob.

    The frog is the wage earner.

    The wage earner has been cooked by Goldilocks.

    mmmmmmmmmm that Goldilocks…

  59. Chinook commented on Jun 30

    Mike in Nola:
    Thanks, I’ll put that book on my list for sure.

    This priviledged class we call CEOs, especially in the financial sector, have demonstrated they have no special skill set. With all their knowledge, education, computer models, risk analysis, and insane salaries, they couldn’t steer a freight train down the tracks without going off the rails.

    While the government is usually a convenient scape goat (and this administration is the definition of incompetent), the private sector, with their short term thinking (Hummers?) share at least half the blame for this entire mess. Makes you wonder just how high of a pain threshold and tolerance level the American public has.

  60. DaveinHackensack commented on Jun 30

    What effect (if any) has the deflation in home values had on the official inflation statistics? One other example of deflation I’ve noticed: the prices of used cars (especially, but not exclusively SUVs) seem to be dropping fast. Of course, the drop in home values creates a negative wealth effect for current homeowners, and is of little help to prospective buyers who have trouble getting a mortgage due to tougher lending standards.

  61. flounder commented on Jun 30

    I read somewhere, thought it was here, that enough hours were cut at work collectively that it slashed something like 400 thousands of jobs (I may be wildly off here but I’m pretty sure that is ballpark.
    Now we have established that American workers get hosed on every “benefit” except working tons of hours. Now wouldn’t cutting your workforce’s hours by 10% keep the unemployment rate low but destroy consumer sentiment and effective wages, especially in sectors like construction that depend heavily on overtime?

  62. constantnormal commented on Jun 30

    Uh, is it possible that the economist community is blinded by their training and jargon? Confusing (or not confusing) monetary inflation (which seems to be relatively stable, at least according to M1 & M2) with price inflation (driven by the bottom falling out of the trade deficit, from a policy of deficits out the wazoo and dollar destruction)?

    I mean, it IS possible to have a stable money supply (and hence minimal monetary inflation) with rampant price inflation — all that has to happen is to destroy the currency while expanding an already huge trade deficit.

    However, if this were the case, it seems strange that the economist community would not point this out. So I must be in ignorant error.

  63. cm commented on Jul 1

    bluestatedon: You are probably talking about the economist/pundit class in general, but in the specific cases of DeLong/Krugman, I think they are both not exactly living in the stratosphere, and while it is probably fair to assume that the circles in whom they move and with whom they associate tend to be biased to the upside, I think they are not insulated from the service sector, and service sector workers, neither in their business nor their private life.

    I think mostly nobody (in the “Western world”) who isn’t independently wealthy, or a member of a really thin upper crust of professionals (e.g. corporate executives), is insulated. It’s more a matter of whether one is paying attention to what one readily sees “out there”.

  64. Aaron commented on Jul 1

    “BR: It didn’t rise unexpectadly, you silly kiiiinniget — it contracted less than expected: ”

    Sorry about that but I was just quoting what I heard on Bloomberg and I know how much everyone here loves Bloomberg with the fancy brit accents and all.

  65. John commented on Jul 7

    The Bureau of Labor Statistics bases the CPI’s basket of goods on the average household. If lower income people spend more of the earnings on the part of the basket that is rising dramatically, then their CPI is much higher than the average family.

    To get a more accurate picture of real CPI, you would be better off with 5 CPI’s, each one representing the basket of goods that each income quintile group consumes.

    This would likely show that the lower income groups are experiencing very high inflation, while the top earning groups inflation is relatively modest.

    In my opinion, I feel that the loss in purchasing power that poor people are experiencing today is the result of government handouts.

    If it is true in life that there are no free lunches, then what is given with one hand, is taken away with the other. In this case, the increase in domestic spending since George Bush has come into
    office has gone disproportionately to lower income families.

    As a result, they have ended up paying for these programs with punishing inflation, and a loss in living standards.

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