Tuesday, January 03, 2012

Economics 101 - The Great Lie

This topic is for something I call The Great Lie.

I call it this, because everyone in America, and much of the Western World, has been lied to about some basic facts of life. These facts concern an idea fundamental to Western thought in the Modern Tradition, and that is the idea of progress.

Basically, we're all told things will get better with time. Science advances, society becomes more progressive, and the economy grows, so your standard of living will be better than that of your parents, and that your children will have it better than you did.

Without going into the philosophical arguments for this, I want to point out one simple fact: since the early Clinton Administration, we've been lied to about the growth of the economy.
Growth is much lower than reported.
Source: http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

So, what does this graph show? Simply, it shows the old measure of GDP (Gross Domestic Product) in blue, vs. the new measure of GDP, in red. GDP is used to measure if the economy is growing or shrinking. Basically, the Clinton Admin changed the way GDP was measured, so that the economy looked better than it really was. 

What does this mean for you? It means for the last 20 years or so, (look at the blue line) the economy has been declining, and in recession for almost all of the 21st Century. This decline was hidden during the 1990s. The 'average' of the red graph is almost a straight line, showing constant growth, while the 'average' of the blue line shows a steady decline. The red line starts to give up after 2000 and the average can't hide the decline anymore, while the blue line continues the steady decline into negative growth.

So, in practical terms, things have been getting worse. But living with the belief that things get better, many people have had to rely on credit cards and refinancing their homes in order to MAINTAIN a standard of living from 20 years ago!

Don't believe the lies! The mainsteam media wants you to believe that the bubble and housing crisis was purely the result of people being too excited, and greedy, and wanting more and more. Yes, this is true for some people, but many others were living at the same standard they always did, not realizing it was getting harder and harder to maintain that standard.

Why didn't they know? Because a bunch of economists decided to change the methodology of economic measures.

Want to see another one? Here's inflation.
Inflation is much higher than reported.
Source: http://www.shadowstats.com/alternate_data/inflation-charts
What does this chart represent? It shows inflation, which is the change in prices over time. For example, something that cost $1.00 in 1990 now costs roughly $2.00.* Things get more expensive with time. Look at that graph! Using the old measure, (the blue line), inflation has been approaching 10% for the entire 21st Century.

What does this cart mean for you? Well, the Clinton Administration also changed the way inflation was measured. Before, they'd take a bunch of food, and things people typically need to live (called a basket of goods) and measure how much it cost. Then, each month, they'd compare the cost this month to the cost last month, and tell you how much more expensive things are. That's inflation. They were measuring changes in the cost of living.

But now, with changes in the methodology, they use several techniques to change the measured rate of inflation. I'll explain one of them here, called substitution.

In a free market, people choose how they spend their money. Economists believe that if something gets too expensive, you'll switch your buying habit and buy something else. So if butter gets too expensive, you'll buy margarine. If steak gets too expensive, you'll buy hamburger.

Well, this makes sense. It shows how people behave, and how much money they're spending, right? 

WRONG! While it may reflect consumer behavior, it's no longer measuring the cost of LIVING, now it's measuring the cost of SURVIVING. Making substitutions of better quality foods for lower quality foods means you're just surviving. There's a big difference. They actually changed what they're measuring, but didn't tell you.

There are other things they do, but this is a big one because it's easy to see how you're being lied to!

As the story goes:
A little before the French Revolution, Marie Antoinette, the queen of France, was told that the peasants couldn't afford to buy bread, because of the heavy taxation.
She callously replied, "Well, let them eat cake."
Soon after, the French Revolution began.
 Well, The System is telling the American people is exactly the same: can't afford butter? Eat margarine instead.

Want to learn more about basic Economics? 

John Williams' Shadow Government Statistics.

Chris Martenson's Economic Crash Course.

* I pulled this is off the top of my head for the sake of example. People in the know, please don't shoot me over the specific value of this number.


mizjo said...

Marie Antoinette says it all. I'm sure the politicians and Wall Street, the two parties that have callously brought us to this ugly economic mess to enrich themselves, are saying the same thing about the 99%.
Economics 101: Lie or no Lie, my children are not going to live better than I did, and certainly far worse than they did as kids in my household.
I am dumbfounded each day as I look around me at the wasteland that is this country now. It used to be a great country, the land of opportunity. How could this have happened? Greed.

kevin21 said...
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