The Crash Course, Revised Edition

CHAPTER 14Fuzzy Numbers

What if it's true, as author Kevin Phillips states, that “[e]ver since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the vigor and muscle of the American economy are measured”?¹ What if it turns out that our individual, corporate, and government decision making was based on deeply misleading, if not provably false, data?

That's what we're going to examine here, uncovering the ways that inflation and gross domestic product, or GDP, are measured, or, as we might say, mismeasured. The instrumentation of the United States is rigged to make things look better than they actually are and this is preventing us from having the sort of honest conversation we ought to be having. After all, if you've convinced yourself you are 25 but you are actually 55, you are going to make a few errors out in the field of life.

Inflation is an active policy goal of the Federal Reserve,² and for good reason: Too little inflation, and our current banking system risks failure; too much and the majority of people noticeably lose their savings, which makes them angry and politically restive. So, keeping inflation at a “Goldilocks” temperature—not too hot and not too cold—is the name of the game.

On January 25, 2012, the Fed made a historic shift when Ben Bernanke announced that the Fed would adopt an explicit inflation target of 2%. Before then it had been known that the Fed favored inflation, but it wasn't ...