Page 4 of 6
Here, over time, is the government's estimate of Gross Domestic Product, compared with Williams' estimate.
If you disregard what Williams regards as official distortions and look at the economy with cold eyes, these numbers are utterly dismaying. They're an aggregation of catastrophe, an economy that has gone simply catatonic. Williams stares this straight in the face and doesn't flinch.
"People can't make ends meet, and they have to cut back," he said. "And so you're not going to see positive economic growth until the incomes are growing relative to prices or people go into debt some more. And neither of those things will happen soon. We're in for a protracted downturn here. We can see down into the valley, and it's an absolute disaster."
Of course, he's been saying this for quite some time. In 1989, for example, Williams said the stock market would take a nosedive, but the Dow Jones closed out the year with almost twice the value he predicted. And frankly, most economists regard his ideas with utter contempt, when they take the time to address them at all. Almost none of the UC Berkeley economics faculty approached for this story bothered to respond, and many who did, like Martha Olney, warned against naive reporters "writing this up as some big conspiracy."
"There's certainly no conspiracy among economists to suppress the true information," added UC Berkeley economist Alan Auerbach. "I've never heard of a criticism that the CPI understates inflation. Virtually everyone who criticizes it criticizes it for overstating inflation."
Far from being a subterfuge to cook the books, Auerbach said, changes to how the CPI is measured actually reflect a more supple understanding of consumer behavior. Take the hedonic adjustment, for example. "When new goods become available, it's in a sense like lowering prices, because we can buy goods we couldn't before," Auerbach said. "As far as product substitution goes, well, that's what people do. Take margarine. You can shift to margarine without changing your budget at all. ... Or suppose that I'm pretty indifferent to buying two different cuts of meat. Now the first cut of meat goes up by a lot. How much has my purchasing power gone down? Not very much."
Maurine Haver is the chair of the statistics committee for the National Association for Business Economics, and she regards people like Williams as a plague upon her profession. "I realize that there are certain people who just won't talk to you because they hear John Williams, and they just say forget it," she said. "But I think it's important to take the time to explain this, because otherwise there's no one to speak up against it. ... I've read a few pieces that I think came from him, that I found rather infuriating and uninformed. Everyone is welcome to their point of view; that's what's wonderful about this country."
For example, Haver has little regard for Williams' argument about discouraged workers. "If someone has done absolutely nothing in one year's time, I frankly think they're not very serious about working," she said. "The U-6 gives you a measure of the very worst in unemployment, period. I don't think there are any more people who truly are out of a job beyond that, people who won't get their butt out of bed. If you have done nothing in a year, do you really think that person is a member of the labor force?"
But it's Williams' critique of inflation that really gets Haver's blood going. Tweaking how we measure inflation is hardly a recent move; economists have been rejiggering price models since they started the project in 1919. Hedonic adjustment, for example, is designed to reflect that fact that as technology improves, you get a better computer — a more valuable computer — for the same price as the previous version. Without hedonic adjustment, the CPI would still measure what it would cost to buy a first-generation Macintosh — but that would be next to useless, since Apple doesn't sell them and no one buys them anymore. Without it, she said, "We would have buggy whips and slide rules and all sorts of things in the CPI," she said. "Products come and go, and what you're trying to do with the CPI is measure the cost of living for an American urban consumer. I don't know about you, but I don't have any buggy whips in my market basket."
In fact, Haver argues that Williams' most effective argument — that government economists are distorting truths that we all know in our gut — is what exasperates her the most. Take inflation again. How is it, Williams asks, that inflation can be reported in the press at 2 or 3 percent year after year when housing and gas have both shot through the roof in recent years? It doesn't seem to make sense.
Haver responds that it's because you're not really looking at the real price of housing, for example. Yes, the retail price of a house zoomed upward in the last few years. But how many people actually bought a house in any given year? Not that many. Instead, most people either rented or paid a mortgage. Back in the 1980s, economists changed the price to reflect this reality, casting the price of shelter as what you could reasonably charge if you decided to move out of your house and rent it to someone else. And that rate, Haver claims, has remained fairly steady.
Seven Days - February 21, 3:30 PM
Seven Days - February 18, 5:00 PM
Seven Days - February 17, 4:09 PM
Seven Days - February 16, 3:24 PM
Seven Days - February 13, 11:39 AM