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Subject:  Re: On Argentina, Krugman, Mosler, and Wenzel Date:  2/8/2013  1:24 PM
Author:  smartmuffin Number:  394080 of 404

Although I too don't allege an active conspiracy, we do have to keep in mind the cardinal rule of economics:  incentives matter.  So let's review the government's incentives to lie/fudge/manipulate the CPI: 

1.  Social security payments/entitlement programs are tied to it.  If the government says that the cost of living has only increased 2%, but it has actually increased 10%, they only increase payments by 2%, recipients get less real money in return, and the government pockets the difference.

2.  Same thing with most of their labor force.  Military pay raises, veterans benefits, and union contracts are primarily negotiated with pay and benefits tied to cost of living.  If they under-estimate the CPI, they keep the difference.

3.  TIPS.  Everyone insists TIPS are a great investment if you're worried about inflation.  I wouldn't touch one of these things with a ten foot pole.  TIPS are a good investment only if you trust that the government is completely telling the 100% accurate and objective truth about inflation.  When they have every incentive to lie, leaving the value of your securities low, and once again, keeping the difference for themselves.

Those are just the three examples that pop into my head first.  Now let's review the incentives the government has to over-estimate inflation.

Anyone?  Bueller?

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