"Something Evil has Transpired"

Key Concepts

• Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services. Two versions are discussed: the original CPI and the CPI as calculated from 1982 onwards.
• Bureau of Labor Statistics (BLS): The U.S. government agency responsible for collecting and reporting labor economics and statistics, including the CPI.
• Gold Standard: A monetary system where a country’s currency is directly linked to a fixed quantity of gold. Abandonment of the gold standard is presented as a significant historical event.
• Actuarial Models: Statistical models used by actuaries to assess risk and uncertainty, particularly in insurance and finance.
• Federal Reserve: The central banking system of the United States. Its creation is linked to perceived economic disruption.

The Divergence of CPI Calculation and its Impact on Economic Modeling

The core discussion revolves around the perceived discrepancy between the original Consumer Price Index (CPI) and the CPI calculation methodology adopted by the Bureau of Labor Statistics (BLS) beginning in 1982. The speaker presents a visual representation – a graph with a blue line representing the original CPI and another line representing the CPI post-1982 – highlighting a divergence point. The speaker posits that the “truth lies somewhere in the middle” of these two calculations, but emphasizes the concerns raised by an individual named John, an actuary.

John’s experience forms a central argument. His actuarial models, which had proven reliable for years, abruptly ceased functioning accurately after 1982. His investigation led him to conclude that alterations made to the CPI calculation by the BLS were the root cause of this failure. This suggests a fundamental shift in how inflation is measured, impacting the validity of long-term economic projections based on the CPI.

Historical Context & Critical Dates

The speaker connects the change in CPI calculation to several key historical events. These events are presented as potentially causative factors or coinciding indicators of economic shifts:

• Franklin D. Roosevelt abandoning the gold standard: This is presented as a significant event preceding the changes in CPI calculation.
• Richard Nixon closing the “gold window”: This refers to Nixon’s decision in 1971 to end the direct convertibility of the U.S. dollar to gold, effectively ending the Bretton Woods system. This event is also positioned close to the start of the CPI alterations.
• CPI reporting alterations (starting in 1982): This is identified as the pivotal moment when the speaker and John believe the CPI began to deviate from a more accurate representation of inflation.

The speaker also references a longer-term chart extending back to 1665, during the period of the American colonies. This chart visually demonstrates the impact of the Federal Reserve’s creation, marked by a green dot, suggesting a negative consequence or disruption to the economic landscape.

The Actuary’s Perspective & Model Failure

The actuary’s perspective is crucial. The failure of his established models after 1982 isn’t presented as a mere coincidence. It’s framed as evidence that the altered CPI calculation doesn’t accurately reflect underlying economic realities. The speaker doesn’t explicitly detail how the CPI calculation was altered, but implies that the changes introduced a bias or inaccuracy that invalidated previously reliable economic forecasting tools. The implication is that the models were built on the assumption of a consistent CPI measurement methodology, and that assumption was broken in 1982.

A Critical View of the Federal Reserve

The speaker’s statement, “something evil has transpired” in connection with the Federal Reserve, represents a strongly negative perspective. While not elaborated upon, this statement suggests a belief that the Federal Reserve’s actions, or its very existence, have had detrimental effects on the economy. The visual representation of the long-term chart reinforces this view, linking the Federal Reserve’s creation to a perceived disruption in economic stability.

Synthesis & Main Takeaways

The central argument presented is that the CPI calculation methodology was altered in 1982, leading to a divergence from the original CPI and potentially distorting economic data. This alteration is linked to historical events like the abandonment of the gold standard and the closure of the gold window, and is viewed critically in relation to the Federal Reserve. The speaker highlights the experience of an actuary whose models ceased functioning accurately after 1982, suggesting that the altered CPI undermines the reliability of economic forecasting. The overall takeaway is a skepticism towards the current CPI as a true measure of inflation and a concern about the broader economic implications of these changes.