Enlightened Economics

Economics for an Enlightened Age

Archive for December, 2007

• The US Consumer Price Index: Let’s Have An Enlightened Approach!

Posted by Ron Robins on December 13, 2007

Update December 14, 2007

Media relentlessly publish the latest government statistics, and markets react to them, sometimes violently. Often your paycheque, government support payments and investment income are significantly influenced by them. But are they valid? Some astute economists and statisticians conclude there is obfuscation of these statistics, and subsequent misrepresentation of them in the media – who usually have neither the time nor expertise to examine them. Take the US ‘consumer price index’ or CPI. These authoritative observers note that the current US CPI incorporates numerous and continuous changes in components and weightings of components within the index, rendering it a mostly theoretical exercise based on highly questionable hypotheses.

According to John Williams (a private New Jersey consulting economist who has specialized in government statistics for several decades), the “Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.” (The old system, Mr. Williams says, existed prior to the Clinton Administration.)

On his website at http://www.shadowstats.com/cgi-bin/sgs/article/id=343, Mr. Williams states that, “Inflation, as reported by the [US] Consumer Price Index (CPI) is understated by roughly 2.7% per year… due to recent redefinitions of the series as well as to flawed methodologies, particularly adjustments to price measures for quality changes.”

Mr. Williams discusses how the government statisticians include a concept called ‘hedonics’ to adjust values in the index. He states, “Hedonics adjusts the prices of goods for the increased pleasure the consumer derives from them. That new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial, according to the BLS [US Bureau of Labor Statistics].”

Williams continues, “When gasoline rises 10 cents per gallon because of a federally mandated gasoline additive, the increased gasoline cost does not contribute to inflation. Instead, the 10 cents is eliminated from the CPI because of the offsetting hedonic thrills the consumer gets from breathing cleaner air. The same principle applies to federally mandated safety features in automobiles. I have not attempted to quantify the effects of questionable quality adjustments to the CPI, but they are substantial.”

The way US housing costs are included is another oddity, keeping that component — at 32% of the CPI — low. Despite two-thirds of the US population living in their own homes, the statisticians use theorized ‘imputed’ home rents as the basis for the housing statistic! Of course rents have been virtually stagnant for years — even going down in many cities due to overbuilding — while home purchase prices, insurance and local taxes, etc., have been going through the roof!

For those Americans dependent on CPI adjustments to their welfare, social security or other government payments, they have had their payments massively depressed. Williams says that US government welfare and social security payments are now 70% lower than what they would have been had the old 1970s style CPI been used with its fixed basket of goods.

Another astute statistician, Jim Willie, elaborates further on this point. In Domino Distortions from Inflation, an article on his website at http://www.goldenjackass.com/jwarticles.html, he comments, “In my view, the [US] CPI has become little more than a measure intended to exploit the trend of falling imported finished product prices, in order to keep cost of living raises down in US Government pensions of various types…The CPI is kept low by ignoring numerous rising prices, such as property taxes, town usage fees (water, sewer, sanitation), professional services (doctor, dental, lawyer), home services (carpentry, plumbing, electrical, roofing), college tuition, restaurant meals, sports club fees, and more.”

The US CPI affects not only Americans, but consumers and investors everywhere. US domestic and global interest rates, bond yields, and returns from many other investments — all are significantly influenced by it.

It is worth remembering that the BLS is headed by a political appointee, who just may have certain biases towards statistical methodologies that most please the government — as well as to what gets out to the media.

Reviewing the December 2007 charts on Mr. Williams’ website, we can easily see the startling differences in outcomes with the varying CPI methodologies used over the past thirty years. Using the CPI methodology as it was in 1980 shows inflation today rising +12% year-over-year; employing the CPI methodology as of 1990 shows inflation higher now by +7.5%. However, today’s BLS press release has their CPI-U (urban dwellers) gaining just +4.3% over the past year!

Is the current US government reported CPI presented to play down inflation, to artificially reduce interest rates, social secuurity payments, and government payouts dependent on CPI indexing? I believe so. And it is simply unethical. As the public begins to see through these deceptions, an enlightened economics can begin to truly flourish!


© Ron Robins, 2007.

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• Unethical US Job Numbers?

Posted by Ron Robins on December 6, 2007

The business world waits with trepidation, the first Friday of each month, the release of the US unemployment/employment numbers. Stock, bond, currency and commodity markets often swing wildly with their release. The media focus on the numbers presented, and discuss their relevance to economic activity. But where is the analysis, the critique, of how these numbers are generated — or of their actual reliability?

Do all economists really believe that the US government’s unemployment data (and other statistics too) are beyond reproach? Are the big banks’ economists too afraid to dig into the numbers for fear of offending or confusing employers and clients? Where is the role of honesty, of ethical responsibility, to the publics these institutions serve?

Fortunately, discussion concerning the ethics and reliability of economic statistics does occasionally appear.

For instance, last year Philipp Bagus asserted in an article, The Problem of Accuracy of Economic Data, August 17, 2006, (http://www.mises.org/story/2280) “[That] we … face the question of why the problem of accuracy of economic data is rarely mentioned or passed over in silence in economics, while in the physical sciences this problem is widely acknowledged.” Further, “In contrast to physics, there is still no estimate of statistical error within economics. The various sources of error that come into play in the social sciences suggest that the error in economic observations is substantial… Economic statistics cannot be accepted at face value.”

In my research on US unemployment data, I have discovered some disquieting information. First of all, they concern the elimination of ‘discouraged workers,’ who used to be in the figures.

Discouraged workers are those who have been looking for employment for more than a year and have given-up looking for a job. They used to be included in the main unemployment numbers, but are now, conveniently left out! John Williams, statistician and economist, believes that when ‘discouraged’ workers and other ‘distorting factors’ are accounted for, then the true unemployment rate, measured in much the same way as it had been historically, would be closer to 12%! (See Welling@Weedon, February 21, 2006, Shadowing Reality interview with John Williams). At the time of Mr. Williams citing this, the US February 2006 unemployment rate was 4.7%, which is the same as for November 2007.

The second major concern is the inclusion in the non-seasonalized data — which influences the media headlined seasonally adjusted numbers — of escalating theoretically derived employment numbers from the business ‘Birth-Death Model.’ This model created by the US Bureau of Labor Statistics (BLS), tracks the purported, yet hypothetical, net employment changes caused by business births and deaths.

Notice how the job gains in the Birth-Death Model have grown from less than half in 2004 to almost equalling the total employment gains in 2007? It begs the question as to how much of 2007’s employment gains are theoretically derived from the Birth-Death Model, and how much are real? The BLS appears silent on this point. With regard to the Birth-Death Model, the BLS states, “[The] BLS will continue researching alternative model-based techniques for the net birth/death component; it is likely to remain as the most problematic part of the estimation process.” Yes, it is certainly problematic.

The lack of analysis of jobs and other US economic data by mainstream economists and media is abysmal. Let economists and business journalists especially, take a lead in an illuminating debate around the make-up and ethics of such economic statistics. So far these individuals have really let down the publics they serve in this regard.


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• The Missing Ingredient In Economics — Consciousness!

Posted by Ron Robins on December 3, 2007

Revised January 13, 2008

Lost to modern economics: Consciousness governs human economic behaviour. Enlightened Economics brings consciousness back.
Modern economics seems to have forgotten the obvious. The quality and actions of our individual and collective consciousness governs economic behaviour. For example, in the US it has become fashionable to believe that accumulating debt does not matter. That is fine until the bills mount, become unpaid, and causes debt defaults which then precipitate an economic crisis! Thus, the quality of our consciousness and thinking process profoundly impacts economics. Yet there is no discussion of this in economics today.

A new economics that accounts for changes in the quality and development of our individual and collective consciousness is needed. I call this new economics, Enlightened Economics! Here I examine what consciousness is, its underpinning in natural law, and how it functions. I emphasize that consciousness in its fulfilled, developed state, will bring the ‘dismal science’ of economics to an evolved and higher level — to the status of Enlightened Economics.

What is consciousness?
Human consciousness is defined in many ways. I find it preferable to understand it in an Indian Vedic, or Jungian, sense. That is, at its basis it is interconnected to everything else, is supremely intelligent, and infinitely dimensioned. In physics, it is represented as the ultimate field of super-unification in unified field theories. In Vedic terms, it is spoken of ‘Brahm’ or totality, the ultimate universal entity, and embodied as ‘atma’ in the individual.

For if our very own consciousness is at the basis of everything, it then also possesses the ability to be ‘all-knowing.’ From a ‘markets sense’ this infers the theoretical ability to be knowledgeable about all things at all times. Not that one is cognizant of all things simultaneously, but one has the ability to act from that level of all knowledge in a way that proves spontaneously in accord with the fundamental laws of nature. In this way, individuals with a developed consciousness think and act in accordance with natural law.

Consciousness, the basis of evolution
Nature is forever changing and evolving. However, when one looks back over millennia, for many of us it seems as if there is pattern, an underlying intelligence governing change and the evolution of the entire universe. For instance, the human embryo grows into a baby. It does not grow into an elephant! Natural laws exist governing the evolution of all life.

Consciousness the governor of individual activity
For individuals to fully engage this level of nature’s functioning requires transcending the surface levels of thought and mental functioning. Arriving at that source of thought, the fountainhead of consciousness, is the unified field of natural law. Here the individual experiences peace, silence and bliss. (Personally, I have found Transcendental Meditation to be the most effortless, practical and effective scientific technique to accomplish this. On a collective level, extraordinary research shows that it only takes a few individuals rising in higher consciousness to effect positive changes in collective consciousness. Another research project, among many, demonstrating the existence of a collective consciousness is based at Princeton University, and called the Global Consciousness Research Project.)

The quality of our consciousness governs what we buy as well as our ability to fulfill desires
I believe human evolution is all about the development of our consciousness and its alignment with natural law. And that this is where humanity is heading. Our desires, wants, actions and purchases will be reflective of what nature ‘itself” (us) wants and increasingly reflective of the higher aspirations of a more integrated collective consciousness. Since humans everywhere want very similar things – prosperity, happiness, health, safety, and higher consciousness – it will mean that as human consciousness evolves our needs will be more refined.

The goods and services purchased by people with stressed-out, unfulfilled minds – and likely the largest consumers of tobacco, gambling products, etc. – will be be very different from individuals who enjoy higher consciousness and fulfilled minds. As an example, the latter may well be greater consumers of ‘green’ products, educational services, etc. In addition, a fully-developed mind will have the ability, creativity, and capacity to much more easily fulfill desires.

Unevolved consciousness and its headlong pursuit of Gross Domestic Product (GDP), debt, and other sins
The maddening preoccupation with GDP today is typical of the stressed, unfulfilled, unenlightened mind. Without the experience of the profundity of the peace and bliss that characterizes the enlightened mind, individuals believe their desires and happiness can only be fulfilled in the material world. For such individuals, they are as if lost in a fog containing fleeting worldly pleasures. Driven like a drug addict they borrow (as mentioned earlier) far beyond their means to keep spending. Last year (2007), according to Stephen Roach of Morgan Stanley, consumption in the US was at an all time high of 72% of GDP. This is significantly beyond the range of other developed countries. It leaves a legacy of extraordinarily bloated trade and current account deficits and total credit market debt of over 350% of GDP.

There has never been a time in US history, nor in any modern developed country, where debt has grown to such a staggering proportion of its economy. The vast majority of Americans are unable to appreciate the formidable challenge this poses to its economic viability. (And, unfortunately, the prescription being advanced by economic elites and most of the American presidential hopefuls to heal this wound in US society is – more spending and debt!)

Consciousness is the missing ingredient to advancing economic understanding
No, the only way out for Americans to avoid an extraordinary economic decline in the years ahead is for them to experience that field of inner peace and intelligence within their own consciousness. It will create greater balance and creativity in their minds and eliminate their ‘drug dependent’ like attachment to the fog of only desiring material wants.

Thus the missing ingredient — the introduction of the role of consciousness (and the knowledge of natural law) — is what will bring fulfillment to economics, both in America and around the world. Enlightened Economics and its incorporation of consciousness will bring a new light to the dismal science.


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