Thursday, April 7, 2011

Government Suppression of Accurate Measurement

The source article is tongue-in-cheek, so this is not required.

But, it touches on something that really frosts me, and is broadly related to one of the items on my list of things that make macroeconomics hard: government isn’t very good at measuring data it doesn’t like.

From Long and Short Capital via Newmark’s Door:

… People are debating whether housing plays too big a role in the CPI; specifically, the “problem” is that the housing portion of the CPI is exerting upward pressure on the overall number.

So what should we do?

“Some suggest alternative inflation measures.”

Oh ok. Well, what are “some” proposing?

“A ‘supercore’ alternative excludes not just food and energy but shelter, too, to gauge underlying trends.

There is great opportunity for the Govt to reduce CPI by excluding more items. In fact, this looks eerily reminiscent of another highly successful endeavor in metrics improvement: LoS’s change from GAAP to SAAP (Seldom Accepted Accounting Principles). By changing our standard, we could change our metrics, and by changing our metrics from EBITDA to EBE (Earnings before Everything aka “supercore earnings”), we greatly improved our profitability.

… The evolved goal of the CPI is to show a slight and consistent level of inflation, we propose that the CPI no longer include any components that are increasing in price …

This new CPI, CPI-F (flat), will provide data on all changes in the prices paid by urban consumers for a representative basket of goods and services whose prices did not vary that month. We expect it to have the most consistent and consistently low inflation readings …

No comments:

Post a Comment