Tuesday, January 1, 2008

Responses - to the essay

Responses (to the essay "The Government's Modest Proposal")

While this essay does not merit the technical writing expected of such a paper you would find circulating economist circles in the halls of academia or government think tanks, the goal was to clarify the CPI and Government economic data to the lay person. It’s the US consumers and investors being directly affected by changes to the economy and rely on the government’s ability to correctly assess the economic picture.

The consumers (and “talking heads”) blind faith that the government’s reporting accuracy and due diligence to clarify and notify the public of what it is measuring, how it is measuring, and how those measurements affect us (from the dollar’s value to Social Security benefits) is rather important and for the most part rather confusing, except if you are a magician. I hope my essay clarified how this magic (economic data reporting) is performed at a very rudimentary level. Maybe it has sparked your interested to take a more active accountable and responsible role of what is really going on behind the curtain.

However, even though this was not intended for economists or those educated in the economics, I found it important to get feedback from someone well respected and knowledgeable in the field. For I am not an economist, just a season trader that has been enlightened to the gulf that separates the world of “theoreticals” and the “real world”.

I sent an early draft of this essay to Dr. Clive Granger (Nobel Prize winner in Economics). Here was is a part of his response as to the content of the essay.

"You seem to be making the correct point that official statistics are sometimes not very good and it is certainly true that very little attention is paid to this by academic researchers. For a country with population of about a third of a billion it is very difficult to give a single figure that represents some aspect of the economy, such as unemployment, inflation or consumption. What is certainly true, as you point out, is that it is not very helpful if the definition keeps changing. By all means let there be an official value but what the value would have been under previous definitions should always be made available. It is the decision not to do this were political manipulation occurs.”

- Dr. Clive Granger

Special thanks to Dr. Clive Granger, whose time is extremely valuable and usually does not read or respond to inquiries or reviews, especially from outside the academic world or rudimentary essays.

Response from "Jack" Bogle (Founder of Vanguard) - 5/7/2008


Thanks for your note and your perceptive essay.

Given the press of time, I've only had the opportunity to scan your work. But I find myself in agreement with your analysis. Indeed, I have often commented on issues such as "core" and "hedonics," and share your concern that true inflation is far larger than the government data suggest. And yet the inflation-linked Treasury is priced to an assumed 2.3% (CPI) inflation rate. I'd argue that is absurdly low, even as our government (whichever party takes power next year) has an enormous vested interest in using that flawed data.

Keep up the fine work, and "Press On, Regardless."

Best, Jack Bogle

Response from Jim Rogers (co-founder of the Quantum Fund with George Soros) 4/24/08

Thanks for your terrific message. Yes, the numbers are clearly fabricated. Good insight.

Yes, the US has to change many things to correct the situation. Unlikely to happen without a crisis or a semi-crisis.

Jim Rogers

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