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TheStreet Open House

CPI Manipulation Has Exacerbated the Income Gap

Courtesy of ShadowStats

The second graph shows the growth in the official CPI, Average Hourly Earnings, Corporate Profits, and the ShadowStats (John Williams) computation of inflation.

As you can see from the graph, wages have only kept pace with "official" CPI, but corporate profits have grown more in line with the ShadowStats inflation rate (ShadowStats Alternative CPI, 1980-based), interrupted only by an occasional recession. It is also clear from the graph that the real divergence between the series began in the mid-1990s, about the time the government began to seriously manipulate the computation of inflation.

Courtesy of ShadowStats

The growing gap between the wealthy, as represented by corporate profits, and the middle class, as represented by wage earnings, has been, in no small part, caused by the understated rate of inflation.

The political class, of course, rails against this growing gap. Nevertheless, it appears to be an unintended consequence of the policy of that political class, which understates inflation so as to slow the increasing cost of entitlements.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Robert Barone is a partner, economist and portfolio manager at Universal Value Advisors, an investment advisory firm in Reno, NV.

He previously held positions as an economist for Cleveland Trust Company and as professor of finance at the University of Nevada. During his tenure at Comstock Bancorp in 1996 he became a Director of the Federal Home Loan Bank of San Francisco, serving as its Chair in 2004.

Barone also served as Director of AAA of Northern California, Nevada and Utah and a Director of its associated insurance company. He currently serves on AAA's Finance and Investment Committee. Along with his son Joshua, he founded Adagio Trust Company in 2000. Barone received a Ph.D. in Economics from Georgetown University.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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