The public has begun to see the incoherence of the image candidate Obama presented vs. the reality of President Obama. Candidate Obama vigorously opposed the individual mandate to buy health insurance that Hillary Clinton advocated. He soothingly said that this was the wrong path. You haven't heard much about that view of his lately: that was so 2008! Candidate Obama wanted a quick withdrawal from Iraq. Huh? Candidate Obama favored openness in Govt. Wrong! Candidate Obama and also President Obama made nice to the "Muslim world" (whatever that is), only to be rewarded with jihadists (sorry, isolated extremists) attacking America's military at Fort Hood and then on flight 253 two weeks ago.
Now the President has carefully stated that America is at war with al Qaeda. But Major Hasan was not an al Qaeda member and I'm not sure if the Pantybomber was one either. The obvious truth is that America is at war with Islamic terrorists. It is not the world's most difficult task to rule out the great majority of air travelers from needing screening. Conversely, it is not that difficult to identify Muslims as Muslims and pay more attention to them than to Confucians or Christians. (And because Umar was a Nigerian, the many Christian Nigerians are to be treated as just as dangerous as Muslim Nigerians when flying.)
The politically correct idiocy of refusing to overtly profile air travelers is coming home to roost. The breezy argument that if no group but Muslims were carefully searched when flying, the jihadists would simply convert grandmas from Wisconsin to become suicide bombers lacks persuasiveness. It is DIFFICULT to convert someone to a new religion, much less to blow oneself up in the air and murder hundreds of people. These types of converts, such as Richard Reid, John Walker Lindh (not a suicide bomber, just a traitor), and the Pantybomber gave plenty of warning before joining the war on America.
Instead we got a President who bowed and scraped before the king of Saudi Arabia and who solemnly asserted that the United States would respect the "right" of women to wear the jihab (the right, that is, that their male masters asserted along with the right to murder women for allegedly violating shariah law).
Economies deteriorate gradually, just as over time, authoritarian governments often lose power due to the loss of successive power groups in the country switching loyalties. As the Western world begins to irradiate air travelers whether or not they are priests, Sikhs, Congresspeople, etc.; and forces people to devote more and more time to getting to airports early, it must realize there is a price to pay and the economy will pay it.
The same common sense that makes people rebel against health insurance "reform" that begins primarily with tax increases and delays the (alleged) benefits of the "reform" for several years makes people detest a government that can't focus on identifying Islamic radicals who want to travel on airplanes and that instead reserves the right to virtually strip search a modern-day Friar Tuck for any or no reason.
The same common sense that people use when they see small businesses shrinking makes them recoil in horror when they learn that the Bureau of Labor Statistics imputes significant growth month after month in small business employment based on nothing more than hope.
The public does not expect miracles from the abstraction called "the economy". It simply expects its elected and appointed officials to think clearly and tell the truth. Instead we get evasions about who the enemy is and lies about the economy.
More and more this is an extend and pretend government that needs to leave Fantasyland and come home. Investors need to know that this applies to their money as well.
Copyright (C) Long Lake LLC 2010
Showing posts with label Bureau of Labor Statistics. Show all posts
Showing posts with label Bureau of Labor Statistics. Show all posts
Saturday, January 9, 2010
Wednesday, June 17, 2009
Why the CPI Chronically Understates Housing Deflation After a Boom
The Consumer Price Index is out today and is reported to show prices down 1.3% yr on yr, the largest drop since 1950. However, this index understates the drop in prices. Here is a link to the Bureau of Labor Statistics description of how it estimates housing costs in the CPI: http://www.bls.gov/cpi/cpifacnewrent.pdf.
This total is 30.4% of all costs. There is one fundamental flaw, which is conceptual. 24.4% of the entire CPI is supposedly from what a homeowner would pay to rent the home he/she lives in. The problem is that this cost is theoretical, imaginary and unvalidatable. What is validatable is what the house is worth as an asset, what the mortgage would be on the house, what the taxes and other expenses of maintaining the home are, etc.: in other words, what the cost of OWNING is. The idea that an owner would in effect rent to himself and that that guesstimated cost is part of the cost of living is strange.
The practical problem stemming from this technique is that the owner is asked what his house is worth as a rental unit. Well, most people are going to overestimate the value, and in truth most people who own their own home live in communities without well-developed home rental markets, and often the rental homes are not as well-maintained as the owned homes, so who knows what the rent would be? Further, if all owners rented their homes out, there would be more supply, and rents would then drop.
The beancounters at BLS insist that rents are rising and that "owner-equivalent rent" (that 24.4% of the CPI) has risen over the past year and rose last month.
In other words, the CPI probably understated housing inflation somewhat during the housing boom, but because of the technique of owner-equivalent rent, most homeowners were probably generous in their estimate of OER increases. However, most homeowners are loathe to acknowledge that their home is declining in price, and so they are understating the OER decline. Numerous studies show that people will agree that the housing market is in a decline locally, but believe that their individual house price is resisting that tide. That's human nature, apparently.
Thus, 24.4% of the CPI is, most importantly, an inappropriate measure of inflation, but we can't change that.
What we can do is realize that within the confines of using owner's-equivalent rent as a measure of price changes to live in a home, there is likely a systematic bias for the CPI to keep up with price increases in a housing boom but to lag price decreases in a housing bust.
Copyright (C) Long Lake LLC 2009
This total is 30.4% of all costs. There is one fundamental flaw, which is conceptual. 24.4% of the entire CPI is supposedly from what a homeowner would pay to rent the home he/she lives in. The problem is that this cost is theoretical, imaginary and unvalidatable. What is validatable is what the house is worth as an asset, what the mortgage would be on the house, what the taxes and other expenses of maintaining the home are, etc.: in other words, what the cost of OWNING is. The idea that an owner would in effect rent to himself and that that guesstimated cost is part of the cost of living is strange.
The practical problem stemming from this technique is that the owner is asked what his house is worth as a rental unit. Well, most people are going to overestimate the value, and in truth most people who own their own home live in communities without well-developed home rental markets, and often the rental homes are not as well-maintained as the owned homes, so who knows what the rent would be? Further, if all owners rented their homes out, there would be more supply, and rents would then drop.
The beancounters at BLS insist that rents are rising and that "owner-equivalent rent" (that 24.4% of the CPI) has risen over the past year and rose last month.
In other words, the CPI probably understated housing inflation somewhat during the housing boom, but because of the technique of owner-equivalent rent, most homeowners were probably generous in their estimate of OER increases. However, most homeowners are loathe to acknowledge that their home is declining in price, and so they are understating the OER decline. Numerous studies show that people will agree that the housing market is in a decline locally, but believe that their individual house price is resisting that tide. That's human nature, apparently.
Thus, 24.4% of the CPI is, most importantly, an inappropriate measure of inflation, but we can't change that.
What we can do is realize that within the confines of using owner's-equivalent rent as a measure of price changes to live in a home, there is likely a systematic bias for the CPI to keep up with price increases in a housing boom but to lag price decreases in a housing bust.
Copyright (C) Long Lake LLC 2009
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