Crash Course Chapter 16: Fuzzy Numbers

What if it turned out that our individual, corporate and government decision making was based on deeply misleading, if not provably false, data?

To explore that question, we need to examine the ways that inflation and Gross Domestic Product, or GDP, are measured.

As you now know, inflation is a matter of active policy. Too little and our current banking system risks failure. Too much and the majority of people noticeably lose their savings which makes them politically restive. So keeping inflation at a goldilocks temperature – not too hot and not too cold – is the name of the game.

Inflation has two components; the first is the simple pressure on prices due to too much money floating around. The second component lies with people’s expectations of future inflation. Accordingly, official inflation policy has two components; the first is regulating the money supply and the second is anchoring your expectations.

And how exactly is this anchoring accomplished? Over time this has evolved into little more than telling you that inflation is a bit lower, or even a lot lower, than it actually is. The details of how this is done are more complicated but are worthy of your attention.