Inflation, the Economics of Traffic Accidents

if you think governments are understating inflation, you are probably right. read below excerpts of a newsletter by John Mauldin

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The government and central banks also contribute to higher inflation by pretending inflation is always under control. For example, throughout the Greenspan and Bernanke years, the Fed consistently chose to focus on lower inflation measures whenever doing so suited the central bank. You can see this in the semiannual monetary policy reports to Congress, specifically in the inflation forecasts made by the members of the Federal Open Market Committee. Until July 1988, inflation forecasts used the implicit deflator of the gross national product, but then the Fed switched to the Consumer Price Index. In February 2000, the Fed replaced CPI with the personal consumption expenditures (PCE) deflator. Thus from July 2004 onward, inflation forecasts have employed the core PCE deflator that excludes food and energy prices. Using lower and lower, less comprehensive estimates for inflation has allowed the Fed to pretend that it is meeting its mandate – but by ignoring high in flation readings. In the meantime, interest rates have been kept too low, and the inflation rate has consistently remained above the Federal Funds rate.

But measuring inflation is not so easy. The vast majority of readers have no idea about the rather contentious nature of the debates that go on in academic conferences about arcane topics such as the minutiae of how to measure some minor aspect of inflation. Passions run deep. Careers are made. Once you delve into how things are actually done, you realize that what we think of as an inflation number is actually an approximation of an idea the very definition of which can change over time.

Your perception of inflation (and everyone else's) has a very close relationship to how stock markets perform over time. Indeed, one of the questions we are both regularly asked wherever we speak is something along the lines of "What do you think inflation or deflation will be?" And the answer is not easy: it depends on a number of factors that vary from country to country.

In general, the trend for the last 75 years has been one of inflation. Sometimes, in some countries, inflation has spun out of control. At other times you see outright deflation. Neither one promises good times for investors. Ever-falling inflation or low inflation is the best environment for investing. But given the paramount importance of the inflation/deflation debate, we need to briefly investigate what inflation is and is not.

There has been a great deal written about the difficulty of measuring inflation and about the potential manipulation of inflation statistics over the last 30 years. John Williams of ShadowStats is the most-noted proponent of the position that inflation is running well above the current US government's number of 2% (for the 12 months ending February 2013).

Employing the methodology that was used in 1980 under the Carter administration, inflation would currently be about 9.6% (see chart below). Using the government methodology from 1990, inflation today turns out to be a little under 6%.

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i have a strange theory on the economics of traffic accidents - they occur more frequently or more seriously when the economy is in recession, why? 

because people are under stress in their daily life, so they are more likely to commit errors when driving a vehicle, a vessel, a train or an aircraft. we have seen serious accidents since the 2008 recession, a cruise vessel capsized near Italy, a train smashed just recently in Spain, another - a Korean aircraft crashed in San Francisco.

well, after all, theory has to be proved by empirical evidence which is hard to come by unless someone is doing research work on the subject who then has the money and time to plough through the statistics in various countries and compare recession eras with good times.