<< Books: The Adventures of Kavalier and Clay | Knock Knock! >>
Math Cop: Moneylie?

Math Cop: On Lou Dobb's Moneyline yesterday they featured a segment called "Reality Check" which asserted that, by and large, the perception that prices have gone up in recent years is chimerical. The argument:

[Have prices gone up?] Well, how about [a] hamburger? Food prices have actually gone down in the last decade. Fifteen percent of disposable income was spent on food in 1990, now down to 13 percent.

OK, so what about gas? Certainly that has gone up. Just look at the hearings on Capitol Hill. The one issue drawing bipartisan outrage these days is the price of gas. Tell this to the Hill: Gas prices have actually gone down, from 3.7 to 3.4 percent of income since 1990.

What the- !? Who's doing this math, sea anemones?

They start by postulating that prices have not, in fact, gone up in recent years. Taken literally, this hypothesis is obviously false: in absolute terms of dollars and cents a gallon of gas costs more now than it did in 1990. This is to be expected due to inflation, and that's why, when comparing prices historically, analysts rely on "adjusted for inflation" numbers (as in "when adjusted for inflation, a gallon of gas actually costs less now than it did in 1990"). But these jokers aren't even doing that. Instead, they "prove" that the price of gasoline has gone down by showing that a smaller percentage of disposable income is being spent on gasoline now than 1990.

Is it apparent how specious this line of reasoning is? If not, consider this. What happens if we all wake up tomorrow to find that gas now costs $10 a gallon? I'll tell you what: a lot of people who used to drive would start taking the bus. And since all those people would now be eliminating 10 car trips a week from their budget, the percentage of disposable income spent on gas would probably decrease despite the jump in cost. But could you then, with a straight face, claim that prices had gone down as a result of the prices going up?

Well, you could if you worked for CNN, I guess.

Posted on May 07, 2002 to