David R. Henderson  

Ed Dolan on ShadowStats

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It is hard to think of a website so loved by its followers and so scorned by economists as John Williams' ShadowStats, a widely cited source of alternative economic data on inflation and other economic indicators.
So begins economist Ed Dolan in "Deconstructing ShadowStats. Why is it so Loved by its Followers but Scorned by Economists?" I've blogged about this before, but I've never done close to as thorough a job as Ed has done. His post--and it's long--is simply outstanding.

For those of you have commented on my previous posts and have not been convinced that the Bureau of Labor Statistics does a much better job of measuring inflation than John Williams does, I highly recommend his piece.

I have not yet worked through Dolan's analysis near the end in which he claims to show (and I'm willing to bet he does show) that Williams is double-counting.

For those who think he's simply bashing Williams, I recommend especially Dolan's last two paragraphs, not for the analytics--those are elsewhere in the piece--but for the good will it shows on the part of both Dolan and Williams:

It is worth noting that Williams himself makes no such claim. He is a fierce critic of BLS methodology, but he acknowledges that the agency follows its own published methods. He argues that the BLS has adopted methods that produce low inflation indicators, but not for motives of short-term partisan politics. Rather, he sees the choice of methodology as driven by a longstanding, bipartisan desire to reduce the cost of Social Security and other inflation-indexed transfer payments. It would be hard to deny that he is at least partly right about that motivation.

Finally, in closing, I would like to thank Williams for taking the time to make detailed comments on an earlier draft of this post. Our private dialog has not yet led to a complete resolution of the issues I have raised here, but I hope that he will address them in future public comments. The search for alternative inflation indicators goes on.


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CATEGORIES: Macroeconomics




COMMENTS (4 to date)
Kevin Erdmann writes:

It's funny that shadowstats tends to be cited by conspiracy folks and economic cynics, because the implication would be that banks have been lending regular folks money at highly negative real rates and investors have been earning negative total returns for years, if not decades.

Rick Hull writes:

> It's funny that shadowstats tends to be cited by conspiracy folks and economic cynics, because the implication would be that banks have been lending regular folks money at highly negative real rates and investors have been earning negative total returns for years, if not decades.

If I can be charitable to the conspiracy folks and economic cynics:

The concern is that real rates are uneconomic while nominal rates are manipulated yet still in the realm of economic. So yes, banks can make money in the nominal (and real?) world by acting in accordance with political mandates.

Tom West writes:

There is a reasonable sized niche for sites that can provide a significant amount of truthiness for a particular narrative.

You want the aura of statistics, lots of numbers, and most importantly of all, reliably producing results that conform to the narrative.

I don't know about ShadowStats, but what I find interesting is when sites that started as provider of facts that happened to match a particular narrative end up being controlled by the narrative.

This happens when the the methodology stops producing numbers that match the narrative, or when investigation turns up facts that don't conform.

The owners begin to realize that their popularity/funding is coming from the supporters of that particular narrative, and then are faced with an awful choice: remain true to their original methods/investigation and spiral into irrelevance/bankruptcy or start adjusting things to keep their readers happy.

Certainly I could see ShadowStats being in the difficult position of courting their own destruction if they correct the mistakes that the referenced article pointed out.

Brendan riske writes:

The piece is very good. At least it acknowledges how bad the bls is at calculating inflation. Makes you wonder why the fed targets inflation based on such a flawed metric.

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