Recession Since 2022: US Economic Income and Output Have Fallen Overall for Four Years
Many have questioned the accuracy of official inflation statistics, with dozens of academic papers written on the topic and doubts voiced by sources ranging from the New York Times1 to former President Donald Trump.2
This matters not only because of the political salience of rising prices, but also because official inflation numbers are used to calculate real economic growth by adjusting nominal dollars to inflation-adjusted dollars.
In this study we aim to quantify some of the more egregious biases in inflation statistics in order to get us closer to a true understanding of inflation since 2019, hence of true economic growth since 2019.
The difficulty in measuring the size of a nation’s economy is two-fold.3 First, there is insufficient data to directly measure the number and size of all transactions in an economy, or to monitor all economic activity. Second, the measuring tool used (in this case, the Federal Reserve note) changes value over time. Thus, fluctuations in the nominal value of economic activity can be due to real changes in economic activity, measurement error of economic activity, or changes in the value of a currency.
The government metrics for inflation suffer from various problems which tend to underestimate the rise in prices over time. These shortcomings have been more pronounced over the last four years during a relatively rapid depreciation of the currency. This study does not attempt to address difficulties concerning measuring the nominal value of economic activity but instead offers an alternative adjustment for converting nominal growth to real growth by more accurately reflecting changes in the cost of living over time.
