{"id":1518249,"date":"2022-06-16T07:50:25","date_gmt":"2022-06-16T11:50:25","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1518249"},"modified":"2022-06-16T07:50:33","modified_gmt":"2022-06-16T11:50:33","slug":"study-from-former-treasury-secretary-finds-inflation-is-much-worse-than-the-government-claims","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/study-from-former-treasury-secretary-finds-inflation-is-much-worse-than-the-government-claims\/","title":{"rendered":"Study From Former Treasury Secretary Finds Inflation Is Much Worse Than The Government Claims"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"&quot;\"><div class=\"counts mashsbcount\">28<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fstudy-from-former-treasury-secretary-finds-inflation-is-much-worse-than-the-government-claims%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1518249&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><div><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/06\/51360298211_5dbdc0d7b4_k.jpg\" class=\"ff-og-image-inserted\" alt=\"image\" \/><\/div>\n<p>Even though inflation has reached 40-year highs, topping out at <a href=\"https:\/\/www.wsj.com\/articles\/us-inflation-consumer-price-index-may-2022-11654810079?mod=trending_now_news_2\">8.6 percent for the month of May<\/a>, some took minor solace in the fact that prices haven\u2019t increased at the rates seen during the Jimmy Carter era. But one influential analyst thinks that solving skyrocketing prices will require nearly as much effort\u2014and quite possibly, economic pain\u2014as breaking the back of inflation did during the 1970s and early 1980s.<\/p>\n<p>Former Treasury Secretary and longtime Democrat Larry Summers recently co-authored an <a href=\"https:\/\/www.nber.org\/system\/files\/working_papers\/w30116\/w30116.pdf\">important paper<\/a> analyzing long-term inflation trends and statistics. The paper demonstrates that changes to the way the federal government measures inflation via the Consumer Price Index since the Carter era understate the current scope of the problem\u2014and the challenge the Federal Reserve faces in getting inflation under control today.<\/p>\n<h2><strong>Measuring Housing Costs<\/strong><\/h2>\n<p>Two changes to the inflation measure\u2014one a one-time methodological change, and the other a long-running trend\u2014explain much of the apparent difference in CPI rates between the late 1970s and today. The first comes from a 1983 move by the Bureau of Labor Statistics to remove homeownership costs from the CPI measurement and replace them with a metric called owners\u2019 equivalent rent.<\/p>\n<p>The new metric quantifies what homeowners would receive for their homes on the rental market. As one might expect, the metric closely tracks the rental market. (Rent is a separate component of the CPI.) Most importantly, shifting from homeownership costs to owners\u2019 equivalent rent to calculate homeownership costs eliminated the direct effect of mortgage rates\u2014and therefore interest rate policy\u2014on calculating the rate of inflation.<\/p>\n<p>Prior to the 1983 methodological change, the very direct link between interest rates and the homeownership component of the CPI magnified the effects of efforts to combat inflation. Consider the two possible scenarios:<\/p>\n<ol type=\"1\">\n<li>The Federal Reserve raises interest rates to combat rising inflation. When interest rates go up, so do mortgage costs\u2014and therefore the cost of homeownership, as reflected in the CPI. Paradoxically, a measure designed to mitigate the effects of rising prices actually increases them, at least with respect to one component of the CPI.<\/li>\n<li>Conversely, when the Federal Reserve lowers interest rates, mortgage rates also fall in tandem, so the homeownership costs component of the CPI also declines. Rather than the vicious cycle of scenario one, this scenario would lead to a virtuous cycle, one in which declining inflation would allow the Fed to lower interest rates\u2014which would lower CPI still further.<\/li>\n<\/ol>\n<p>Summers and his co-authors argue that the \u201cinterest rate CPI ratchet\u201d (my words, not theirs) of scenario one helped lead to the double-digit inflation rates of the late 1970s and early 1980s. While the 1983 change to the methodology means we will no longer see this \u201cratchet\u201d in the monthly inflation statistics\u2014which explains why inflation hasn\u2019t risen above 10 percent\u2014it also means we won\u2019t benefit from the benefits of scenario two (i.e., a downward \u201cratchet\u201d) once inflation starts to get under control.<\/p>\n<h2><strong>Longer-Term Trends<\/strong><\/h2>\n<p>Summers and company also note that, compared to past decades, a smaller portion of the Consumer Price Index consists of goods with volatile prices. This suggests that combating inflation will require a longer and more sustained effort.<\/p>\n<p>For instance, in the early 1950s, food and clothing comprised roughly half of the total Consumer Price Index, as opposed to approximately 17 percent today. The shift means that more elements of the CPI come from \u201csticky\u201d industries and sectors\u2014ones less amenable to sudden price shifts.<\/p>\n<p>While a grocery store or clothing retailer changes its prices quite often, for instance, manufacturers of computers or other durable goods alter their prices less frequently. The fact that the latter types of sectors dominate the CPI compared to prior decades suggests that wringing inflation out of the economy will not happen overnight, nor very easily.<\/p>\n<h2>Worse <strong>Dangers Ahead<\/strong><\/h2>\n<p>Summers famously <a href=\"https:\/\/www.bing.com\/ck\/a?!&#038;&#038;p=2080a9e1467aa4a4b0c5e3148d41ecd5e93fe355acf27a5d64a0e4f83a74e34aJmltdHM9MTY1NTIyNzM4NiZpZ3VpZD1jNjQ1M2RhZS0xZDMyLTQyY2UtOTBiMC1kMDg5NTI0YzBmZDkmaW5zaWQ9NTE4MQ&#038;ptn=3&#038;fclid=a7624383-ec06-11ec-a7c4-9356113fa484&#038;u=a1aHR0cHM6Ly93d3cud2FzaGluZ3RvbnBvc3QuY29tL29waW5pb25zLzIwMjEvMDIvMDQvbGFycnktc3VtbWVycy1iaWRlbi1jb3ZpZC1zdGltdWx1cy8&#038;ntb=1\">predicted last February<\/a> that inflation would accelerate if Democrats rammed through their $1.9 trillion \u201cstimulus\u201d legislation. Sure enough, it did. His newest analysis therefore bears watching, as does one ominous conclusion: that bringing inflation down to the Fed\u2019s desired 2 percent level \u201cwill\u2026require nearly the same amount of disinflation as achieved under [Federal Reserve] Chairman [Paul] Volcker.\u201d<\/p>\n<p>Volcker, who served from 1979 to 1987, eventually tamed inflation\u2014but not before having to raise interest rates as high as 20 percent, sparking the deep recession of the early 1980s. American families could face a reprise of these hardships in the coming months and years, thanks in no small part to the profligacy of <a href=\"https:\/\/thefederalist.com\/2021\/11\/17\/how-the-federal-reserve-keeps-stoking-inflation\/\">both the Federal Reserve<\/a> and spendthrift lawmakers over the last 70 years.<\/p>\n<hr class=\"wp-block-separator\" \/>\n<div class=\"article-author-description fst-italic\">\n  Chris Jacobs is founder and CEO of Juniper Research Group, and author of the book, &#8220;<a href=\"https:\/\/www.amazon.com\/dp\/1645720020\">The Case Against Single Payer<\/a>.&#8221; He is on Twitter: <a href=\"http:\/\/www.twitter.com\/chrisjacobshc\">@chrisjacobsHC<\/a>. Previously he was a senior health policy analyst for the Texas Public Policy Foundation, a senior policy analyst in The Heritage Foundation\u2019s Center for Health Policy Studies, and a senior policy analyst with the Joint Economic Committee\u2019s Senate Republican staff. During the debate over the Patient Protection and Affordable Care Act, popularly known as Obamacare, Jacobs was a policy adviser for the House Republican Conference under then-Chairman Mike Pence. In the first two years of the law\u2019s implementation, he was a health policy analyst for the Senate Republican Policy Committee. Jacobs got his start on Capitol Hill as an intern for then-Rep. Pat Toomey (R-Pa.). He holds a bachelor\u2019s degree in political science and history from American University, where he is a part-time teacher of health policy. He currently resides in Washington, D.C.<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Even though inflation has reached 40-year highs, topping out at 8.6 percent for the month of May, some took minor solace in the fact that prices haven\u2019t increased at the<\/p>\n","protected":false},"author":521,"featured_media":2315279,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1518249","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1518249","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/521"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1518249"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1518249\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/2315279"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1518249"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1518249"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1518249"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}