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Statistics Lie on the True Cost of Living
Published on Wednesday, March 17, 2004 by the Boston Globe
Statistics Lie on the True Cost of Living
by Robert Kuttner
 

WHAT IS THE MATTER with the whiny American voters? They keep telling pollsters that they think America is on the "wrong path." But don't they read the statistics? Don't they know that unemployment is at a comfortable 5.6 percent, that inflation is almost nonexistent, that the economy is growing smartly at around 4 percent?

These happy statistics, alas, don't accurately capture the economic reality of ordinary people. Take inflation. It's true that measured inflation is very low, but look at all that's left out.

In the case of health care, the government's consumer price index tracks the cost of medical services. But it is less precise about tracking who pays for them. If your employer's health plan is increasing your share of premiums and cutting the company's contribution or if the plan is increasing out-of-pocket charges or reducing what drugs it will cover, this shift is accounted for indirectly, after a lag of two years. But it hits your pocketbook immediately. And if rising medical costs deter you from seeing the doctor, that doesn't show up in the index at all.

Or consider housing. There are parts of the country where housing prices have been declining for a decade because few people want to move there. Statistically, these declines get averaged with astronomical housing costs in major metropolitan areas to show only modest average housing inflation. Around big cities, prices have plateaued at very high levels that are plainly outstripping incomes. Try telling a young person in Greater Boston or New York or LA that there's no serious housing inflation or that rents have not increased faster than earnings.

Another case of hidden inflation: A great many people in late middle age find themselves subsidizing their newly launched young. The causes of this trend are multiple: low starting salaries, skyrocketing rents, and the high cost of college tuitions and health insurance. Is this a dent in the cost of living for the middle aged? You bet. Does it show up in government statistics? Nope.

The inflation numbers also fail to capture pocketbook realities for retired Americans. A low official inflation rate plays a cruel trick on seniors. For starters, it means that cost-of-living adjustments in Security Security checks are mere pocket change. One new prescription can more than eat up this year's Social Security increase.

Further, a low rate of inflation translates into a low interest rate on savings accounts, Treasury securities, and other prudent investments for the elderly. Moreover, older people on fixed incomes who are not homeowners are also at the mercy of rising rents.

And the same deficiencies in the consumer price index that fail to capture cost shifting in health care particularly affect the elderly, who spend a disproportionate share of their income on doctor's bills, hospital costs, and drugs.

Or take energy costs. Gasoline is near an all-time high. That doesn't affect the overall index much because energy costs are a relatively small share of average total consumer spending. But if you need your car for your business, you certainly feel it.

Then we have the unemployment numbers. Nominally, unemployment is a nice, manageable 5.6 percent -- about where it was during much of the booming 1990s. But that statistic leaves out all the people who left the labor force because they gave up on ever finding a job. If you include those, the real unemployment number is more like 7.7 percent. The proof of the soft job market is that earnings have not kept up with inflation. In 2003, the official inflation rate was 2.3 percent. The median wage increase was just 2 percent. And the 2004 statistics are likely to be worse.

The "average" voter got a tax decrease that the administration likes to put at around $1,000. But that artful statistic averages Joe Sixpack with Bill Gates. The typical voter got a federal income tax cut of more like $300, and in many cases that small federal tax cut was overwhelmed by local property tax increases that were caused by declining federal aid to states and cities.

President Bush may have gotten away with telling the voters things about Iraq that just aren't true. But he'd better watch out when the evidence against his rosy statistics is right in voters' pocketbooks.

Ordinary people may not be professional statisticians, but they are not fools. America's voters know better than the experts whether their own personal economy is thriving. Bogus economic optimism only reinforces the growing sense that this president speaks with a forked tongue.

Robert Kuttner is co-editor of The American Prospect.

Copyright 2004 Globe Newspaper Company.

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