Wednesday, July 18, 2012

Words to Hide the Obvious in Economics

One way to reveal the history of the changes in the economic landscape is to study how official meanings to key concepts have been altered over time.  "Knowing things that ain't so", as Josh Billings once said, presents much more trouble for folks as their simply being "ignorant".  

I present a selection of words - here used in the context of the writing of others - that I believe present great danger to the reader in their ability to hide the 'obvious':

“Oil” (2007 and after)
“… the definition of "oil" was changed in 2007 to include synthetic liquids.[*]…” [1]
[Not to confuse ‘oil’ with ‘energy’]
“…there are at least 3 factors that are ignored in the total liquids graphs …. One - NGL's and ethanol have only 70% the energy that crude contains. Two - the EROEI of all liquids is dropping - fracking and deep water drilling, just to name two, require much greater inputs per unit of return than does conventional on-shore. Three - the population continues to grow, so per capita available net energy is what matters. And as a corollary to that, the portion of the global population that is reliant upon and has lifestyle expectations based on readily available liquid energy grows every year, so the call on the decreasing net available energy grows even more rapidly than does population itself.

Only a graph that takes into account energy density, net energy and population can accurately paint a picture of the global liquid fuel situation.” [2]

“Retirement age”
In the United States, while the normal retirement age for Social Security, or Old Age Survivors Insurance (OASI), historically has been age 65 to receive unreduced benefits, it is gradually increasing to age 67. For those turning 65 in 2008, full benefits will be payable beginning at age 66.[**] In France, the retirement age has been extended to 62 and 67 respectively, over the next eight years.[***]  In Spain, the retirement age will be extended to 63 and 67 respectively, this increase will be progressively done from 2013 to 2027 at a rate of 1 month during the first 6 years and 2 months during the other 9.[****]  [3]
[**]  Normal Retirement Age [NRA]
 [***]  "Pension rallies hit French cities". BBC News. September 7, 2010.
[****]  "Spain to Raise Retirement Age to 67". The New York Times. January 27, 2011. http://www.nytimes.com/2011/01/28/world/europe/28iht-spain28.html

Inflation
“The government used the same calculation for the CPI from 1913 to 1980.  In 1980, after seeing ....inflation in late 1970s, the government changed the calculation and dropped food and energy from the Core Inflation Index
While the U.S. government repeatedly states that we currently [2011] have about 1% inflation, by using the older pre-1980 government calculation of inflation, we find that the true inflation rate is closer to 10.7% as of May 2011 based on the SGS “Alternate CPI” calculation from shadowstats.com. [4]

“Unemployment”
“…estimated long-term discouraged workers… were defined out of official existence in 1994 [in the US].
Short term discouraged workers are not included in the US ‘monthly headline number’ (U3) but only in the government’s broadest measure of UE at the Bureau of Labor Statistics (U6). [5]

Employed Person
US term for an individual 16 years old or older who, in a given week, (a) works minimum one hour for an emolument or minimum 15 hours of unpaid work in a family business, or (b) who is not working but has a job or business from which he or she is temporarily absent, whether or not being paid for the time off. [6]

Capitalism” (1955)
capitalism, n.
…. the concentration of capital in the hands of a few, or the resulting power or influence…... a system favoring such concentration of wealth.[7]
Capitalism” (1941)
“…An economic system in which capital and capitalists play the principal part; specif., the system of modern countries in which the ownership of land and natural wealth, the operation of the system itself, are effected by private enterprise and control under competitive conditions.” [8]
_________________________________
REFERENCES :
[1]  [*]  International Energy Statistics
As quoted in ‘Peak Oil’ Wikipedia, Monday 16th July 2012

[2]  clifman on February 25, 2012
http://www.theoildrum.com/node/8959#more

[3]  Retirement, Wikipedia 18th July 2012.http://en.wikipedia.org/wiki/Retirement

[4]  ‘Lessen the load of Rising Inflation - How to maintain purchasing power’. Whiteside Wealth Management, Inc.  http://www.whitesidewealthmanagement.com/risinginflation.pdf

[5]  Alternate Unemployment Charts.http://www.shadowstats.com/alternate_data/unemployment-charts


[7] The American College Encyclopedic Dictionary, 1955
As quoted in:
Economics: changing definitions
WEDNESDAY, APRIL 22, 2009
http://badgermum.blogspot.com.au/2009/04/economics-changing-definitions.html

[8]  Webster’s Collegiate Dictionary, Fifth Edition, “date unknown as the relevant page is missing, but the latest population information in the back of the book is from 1941”
As quoted in:
Economics: changing definitions
WEDNESDAY, APRIL 22, 2009
http://badgermum.blogspot.com.au/2009/04/economics-changing-definitions.html

12 comments:

Economic Logician said...

What a horrible post. Congratulations for falling into all sorts of conspiracy theories.

For starters, I do not see a change of definition for the retirement age. People get older, they have less strenuous jobs, it is normal that the retirement age changes.

The CPI has always included food and energy. Core inflation has been used by central banks to avoid *seasonal fluctuations* and large *short-term* price movements typical of food and energy to influence monetary policy.

Etc.

Brenda Rosser said...

I stand to be corrected, EL. If I've misrepresented the CPI. Will look into it further tomorrow. It past midnight in Australia...

Brenda Rosser said...

The quote in the article is: "“The government used the same calculation for the CPI from 1913 to 1980. In 1980, after seeing hyperinflation in late 1970s, the government changed the calculation and dropped food and energy from the Core Inflation Index.."

Yes, there does seem to be an inappropriate mixing of the terms 'cpi' and 'core inflation. but Wikipedia confirms that 'core inflation' measurement excludes food and energy.

I'm not sure why you are being so reactive. I was trying to emphasise the importance of focussing on the 'meanings' of terms used. Especially in the political arena of economics.

Unlearningecon said...

There is some truth in this post but shadowstats is a highly questionable source. One need only google it to find many people questioning their methods - at worse, they simply take CPI and add 7-8%.

Don Levit said...

I like the part of the capitalism definition regarding competition.
I guess we need to define competition itself.
For example, are health insurers really competing with each other, when they all offer basically the same "stuff?"
In 1986, Blue Cross and Blue Shield lost its federal tax exempt status with the passage of IRC section 501(m).
The primary reason for the loss of tax-advantaged status was that the Blues had morphed into their for-profit competitors; it was no longer the distinctive company it had been originally.
This was a wake-up call for not-for-profits to enter the market, offer innovative products and services, and really compete in the market. Yet, here we are 26 years later, and almost miraculously, every insurer, to my knowledge, has "toed the line."
Don Levit

Will said...

Correction: there was simply not "hyperinflation" in the US or other developed countries in the 70s. To use "hyperinflation" to describe what happened would be to redefine it. The annual inflation rate in the 70s got slightly north of 10 percent. In a true hyperinflation, the currency depreciates more than 100 percent many times over, over much shorter stretches of time. What developed economies experienced in the 70s was mild compared to what Brazil and other countries tolerated for many decades.

I would also note that while the framing of inflation as a bad thing is conventional wisdom, there is another approach out there. Inflation transfers wealth from creditors to debtors, from savers to borrowers, and in the short term allows people who would be unemployed to find work. In the United States, this framing had a huge constituency from colonial times up through World War II. I am uncertain why it was forgotten.

sergei2b471 said...

The government change of CPI in 1980 was so powerful that it also managed to cause the GDP deflator to report drastically reduced inflation!

Brenda Rosser said...

Re: "shadowstats is a highly questionable source.."(unlearningecon). I've had a closer look at ShadowStats tonight. There does appear to be a certain amount of judgement call in assertions made about what may be a 'better' measure of inflation. However, the site is helpful for the history of changes to the CPI and other measures of inflation. And the text there makes it clear just how subjective the measurement is for everyone involved in the compilation of inflation measures. The prime message of ShadowStats is that later measures of inflation tend to understate it relative to earlier measures.

Re: "I guess we need to define competition itself." (Don Levit). Yeah. Forget the terminology and concentrate of meanings, in general.

'Will', thanks for your helpful comments. Re: "Inflation transfers wealth from creditors to debtors, from savers to borrowers, and in the short term allows people who would be unemployed to find work. In the United States, this framing had a huge constituency from colonial times up through World War II. I am uncertain why it was forgotten." The change in the elites response to inflation may have a lot to do with the explosion in the size of the EuroMarket and in the price of oil at the time.

Sergie2b471, do you have more information about the nature of this change in 1980?

spencer said...

There was no measure of core inflation before the mid-1970 when it was first introduced.

Are you really ready to believe that true inflation is 10% and the economy is still not in a massive freefall.

I never take anyone seriously who takes shadow stats seriously.

Brenda Rosser said...

Re: "Are you really ready to believe that true inflation is 10% and the economy is still not in a massive freefall?"

The level of 'inflation' a household is subjected to depends on their circumstances. For instance, look at today's headline at Doctor Housing Bubble: www.doctorhousingbubble.com/

A $226,000 starter home for a family on $33,000. Is this affordable? Some commercial interests say that it is. However, house-price inflation has occurred and housing is now unaffordable for a sizeable proportion of the population. In Australia the situation is even worse.

Perhaps the truth is that no one knows how to measure inflation appropriately, but there's no doubt that household income buys a lot less of the essentials (energy, food, housing) than it used to.

Will said...

"The change in the elites response to inflation may have a lot to do with the explosion in the size of the EuroMarket and in the price of oil at the time."

I don't understand the suggestion about the European Common Market.

I think "elites" have always wanted price stability. I'm mainly familiar with American history, but it was not the elites who supported William Jennings Bryan in 1896 or Franklin Roosevelt in 1933.

It seems amusing now that when my economics professor at college walked us through the CPI in the late 90s, the complaints he mentioned about it were all the opposite of what you hear now: people worried that it *exaggerated* inflation, leading Social Security adjustments to be too generous.

Brenda Rosser said...

Will said: "I don't understand the suggestion about the European Common Market..."
Sorry, I meant to write "Eurodollars". They began to explode in their quantity in early 1971, I understand.

Re: "I think "elites" have always wanted price stability...." As long as they're not in business, I suppose. It wasn't the commoners who raised oil prices 9 fold in the 1970s. When global interest rates (the price of money) began to rise to such extraordinary heights in late 1979 and 1980/81 the pleas for restraint came from poor nations.