Maybe Neighborhood Grocers Should Set Economic Policy

Published April 21, 2011

The United States would be a better country—and we would have better lives—if the Federal Reserve were as trustworthy as our local grocery store.

When you buy something from a grocer—say a pound of hamburger—you expect to receive 16 ounces of meat. If your grocer gets caught giving customers less than 16 ounces of hamburger while charging for a pound, the grocer could be fined, imprisoned, or both.

Yet we allow the Federal Reserve to defraud us—and tell us it’s defrauding us!—and there are no fines or prison terms.

In fact, some people actually respect this institution that makes our money worth less as time goes by, like a grocer devaluing meat by calling 15 ounces, and then 14 ounces, a pound.

We wouldn’t stand for this from a grocer, or from any other business. Imagine a gas station operator charging the gallon price for three quarts of gasoline, or a carpenter building a house with a tape measure that says 10 inches equals one foot.

Yet the Federal Reserve has an official annual inflation “target.” Inflation means dollars we earn today are worth less in the future. So the Federal Reserve intentionally devalues our money. Today’s “dollar” is worth about four cents compared to the dollar in 1913, when the Federal Reserve was created.

The Fed’s inflation target is 2 percent. As we’ve seen over the years—and are seeing now at grocery stores, gas stations, clothing stores, and other places where we shop—the Fed consistently fails to hit that target.

Right now, true price inflation is approaching an annual rate of 10 percent. It hit 9.6 percent in February, according to economist John Williams, who runs a Web site called The government tells us the inflation rate in February was 2.1 percent, 7.5 percentage points lower than what Shadowstats is telling us. (The official government inflation data for March were released April 15. The Bureau of Labor Statistics reported inflation climbed 0.5 percent. That’s an annualized rate of 6 percent, and this just in … the World Bank reports global food prices have surged 36 percent in 12 months.)

How can there be such a huge discrepancy? Because Shadowstats uses the government’s raw data to arrive at economic numbers as the government would have measured them in the 1970s.

Over the past few decades, the government has done things to make inflation and other economic measures look better than they really are. For price inflation, the government has removed items such as food and energy costs from the formula. This is fine, I suppose, if you can live without eating, heating your home, using electric lights and appliances, or driving a motor vehicle. Even if you have a car that runs on electricity, you have to plug it every now and again.

And to throw salt into the wound, the Federal Reserve manipulates interest rates. For years now it has been putting interest rates at such artificially low levels that it’s hardly worth the bother to save any of our ever-devaluing dollars. Interest rates are so low that banks and money markets are paying almost no interest on deposits.

As is always the case when government manipulates things, there are winners and losers in the Federal Reserve’s inflation game. The winners are borrowers, who get to repay their debts with cheaper dollars. The United States government, of course, is the world’s largest borrower.

Losers include savers and people who live on fixed incomes. Members of the American Association of Retired Persons might want to ask the AARP leadership why they keep shilling for politicians whose government lies about wage and price inflation, thus lowering the amount retirees collect from Social Security and reducing the value of pensions and other retirement accounts.

And all of us might want to contact our so-called representatives in Congress and ask why conduct that they would call fraud if done by a neighborhood grocer is considered good economic policy when done by our Federal Reserve.


Steve Stanek ([email protected]) is a research fellow at The Heartland Institute in Chicago.