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Actual CPI vs. Official CPI

As I was surfin’ the ‘net last week I ran into a rather interesting article that claimed that Americans indeed are better off economically under the Bush regime. The article is compelling, except for (at least) two glaring flaws: it uses the discredited official CPI index to measure inflation levels and it does not account for the massive new debt loads, due in large part to the wars in Iraq and Afghanistan, that current and future generations of Americans will have to pay back. Below is the full-text of the article:

New Income and Poverty Figures Spoil the Pity Party

Cato@Liberty Blog

The Census Bureau’s release this morning of the latest income, poverty and health insurance numbers did not follow the script of those who want to paint a picture of a nation in crisis.

Opponents of free trade, immigration, and limited government constantly tell us that the middle class is shrinking, the poor are getting poorer and more numerous, and the number of Americans without health insurance is climbing inexorably. Their solution is always to restrict trade and immigration and launch expensive new programs to alleviate the obvious misery.

Spoiling the pity party is this morning’s widely anticipated report, “Income, Poverty and Health Insurance Coverage in the United States: 2007.” Among its major findings:

• The number and percentage of Americans without health insurance actually declined slightly in 2007 compared to 2006. The share without insurance in 2007, 15.3 percent, is actually lower than it was a decade ago.
• Median household income is not falling: “Between 2006 and 2007, real median household income rose 1.3 percent, from $49,568 to $50,233—a level not statistically different from the 1999 prerecession income peak.”
• The share of households earning a middle-class income of between $35,000 and $100,000 in real 2007 dollars has indeed shrunk slightly compared to a decade ago, but so too has the share earning less than $35,000 a year, while the share earning more than $100,000 continues to rise. The middle class is not shrinking; it is moving up.
• The 12.5 percent of Americans living below the poverty line in 2007 was statistically unchanged from 2006, and remains below the 13.3 poverty rate in 1997. The poverty rate has been trending downward since the early 1990s during a time of growing trade and immigration flows.
• The Gini coefficient, a statistical measure of income inequality, was .463 in 2007, down slightly from earlier in the decade and virtually the same as it was a decade ago.

We can argue all day about what policies should be adopted to spur growth and higher incomes for the broadest swath of Americans. We certainly have plenty of ideas here at Cato. But it flies in the face of reality to argue that the major indicators of economic well being in America are trending downward in some sort of crisis that demands sweeping government intervention.

posted by Daniel Griswold on 08.26.08 @ 1:23 pm

Sorry to rain on your anti-pity-party-party, Daniel, but it looks like you forgot that the official CPI is highly discredited. Some analysts put actual inflation numbers near 12-15%. Stack that onto the 1.3% increase in pay and the situation isn’t so great. Believe me, I wish the news was this good, but anyone who has been to a store recently can account for higher price levels.

Also, the 3 Trillion dollar Iraq war can’t be good news for the U.S. Economy. Any way you cut it, this is going to result in higher taxes in the future or the total bankruptcy of our government. Neither situation is appealing.

To the casual reader of articles like this, please take into account the basic assumptions made and question whether they fit with reality.