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Government Underreporting og Inflation - Mark Brandly of the Mises Institute

Mark Brandly of the Mises Institute. This article describes the motivations for underreporting even better than I have, here is a snippet:

"The CPI is a government statistic, and since the government's expansionary monetary policy creates the inflation, officials have an incentive to underestimate these numbers. Underreporting inflation helps government officials in at least three ways.

First of all, it provides more favorable economic news. Elected officials want to report and take credit for any positive economic announcements.

Second, if the government reports a rate of inflation that is lower than the actual inflation rate, this will increases tax revenues through bracket creep. If the actual inflation rate is 10%, but the measured rate of inflation is 4%, some taxpayers will be pushed into higher tax brackets even though their real income has not increased.

And third, a lower reported inflation statistic reduces government spending by limiting the spending increases that are tied to inflation. The state can take credit for cost of living adjustments that are allegedly keeping up with inflation although in real terms the payments are falling.

My point is that given the incentives facing government officials, we should be reluctant to put any credence in government statistics."