It’s still the economy, but we’re not stupid

This morning, financial news channel CNBC was kind enough to point out that “The Reuters/University of Michigan Surveys of Consumers said the final reading in May for its index of confidence fell to 59.8 from April’s 62.6, slightly above the median expectation of 59.5 in a Reuters survey of economists. May’s reading was the lowest since 58.7 in June 1980….”

That’s right, consumer confidence hasn’t been this low since, well, since oil was at record high prices.

Although this article mentions that “one-year inflation expectations surg[ed] to 5.2 percent” and “five-year inflation expectations jumped to 3.4 percent”, you got a different picture if you actually watched CNBC this morning. On TV, they were talking about the work of economist John Williams (no, not the guy who writes those cool soundtracks for George Lucas and Steven Spielberg). Alas, CNBC did not have the clip online, but here’s what he says:

John Williams, who spent more than two decades as an economic consultant to Fortune 500 companies, said the government figures understate the true rate of inflation.

Williams, who runs Shadow Government Statistics in Oakland, which tracks changes in inflation, unemployment, the gross national product and other data, said that over the past 25 years, the government has changed the method of calculating price increases in ways that have lowered the reported inflation rate.

The changes include measuring the cost of shelter by rental prices instead of home values, as well as giving nearly as much weight to high-ticket items such as cars and electronics as to daily necessities such as food and gasoline.

According to Williams, if the government measured inflation based on pre-1982 methods, it would be running at 11.6 percent right now, or 7.3 percent using pre-1998 calculations.

“I don’t think the government numbers are too credible,” Williams said.

That’s right, the real inflation rate, as measured 25 years ago, would be more like 11%. And keep in mind that you have bills that didn’t exist when Reagan took office: you might not have had a cable bill, you probably didn’t have a cell phone bill, and you certainly didn’t have an internet services bill. No wonder our personal budgets are out of control, particularly when you consider that wages have not kept pace with the under-reported inflation we currently have.

That seems much more in line with your experience at the mall and grocery store, doesn’t it? I wonder what the real unemployment rate is.