Statistics' ability to lie.

In chapter 5 of your economics AS book it wil state there are six main economic indicators:

1) Economic growth
2) Unemployment
3) Balance of payments
4) Productivity
5) Inflation/deflation
6) Ex.rates

Today I will be talking about the (mis)calculations in indicators 1,2, and 5.

The site www.shadowstats.com shows that there are alternative ways of measuring inlfation. There is a pre-Clinton way of measuring inflation. This way produced a way higher rate of inflation than the calculations do nowadays.


Why can the government decide to change their models?
Awnser: Nobody knows exactly how inflation should be measured. What we do know is that within the transition from the old way of calculating inflation to the new one there have been serious aims to reduce inflation in mainly 4 ways:

- Hedonistic changes: This means that the price of goods are being adjusted for quality. The higher the quality gets the lower the price gets (even though the nominal price people have to pay for the goods is constant, this is in severe contradictory with the definition of inflation.)
- Intervention-analysis: This is being used to reduce the changes in the CPI by season-bonded changes in the CPI E.G. Food and Energy. What basically happens is that the weight for those goods drop.
- Geometric weights: The normal weights have changed into geometrical weights througout the years causing goods that decline in price to weigh more and goods that increase in price weigh less.
- Changing by cheaper alternatives: If a piece of meat gets too expensive, then it will be changed in the 'inflation basket' to cheaper forms of meat (like a hamburger) because it is predicted that people will start looking for cheaper alternatives. However, the nominal price change still is there.

Also: There are some doubts about the official unemployment figures. There are profound reasons to believe that the unemployment numbers are way higher than officialy stated which makes ordinary people believe the economy 'isn't that bad because of the - still - relatively low unemployment numbers.

This forecast of shadowstats.com shows that they think the actual unemployment figure for the USA is closer to 20% than to the officialy registered 10%. This all because of changes in the way of calculating the figures.
Note: If the shadowstats.com is right in the predictions they make, we are getting closer and closer to 1930's unemployment levels.



Now I've talked about unemployment and inflation, I would also like to point out the GDP figures. The officialy stated GDP level (Y-Y change) is around -4%, according to shadowstats.com it should be around -6%.
Also note that the blue line is almost always beneath the red line, since this is a Y-Y change diagram this means that cumulative this makes a big difference.