From Congressional Research Service: "Introduction to U.S. Economy: Inflation" dated April 1, 2025
From page 2 of 3:
The link turned up as part of the AI Overview in Google Search results. The AI Overview response itself provides a different calculation:
To convert a nominal value to a real value, you need to adjust for inflation using a price index. The formula is: Real Value = Nominal Value / (Price Index / 100).
To remove inflation from nominal values, you divide it out of the nominals. The CRS would have us multiply inflation in.
An April Fools gag? New Trump policy?? Pure ignorance??? Hard to say.
2 comments:
Well, it's not a new Trump policy. I found the same wrong calculation in an old version of the CRS paper, dated November 7, 2019... Ah, but it could be a first-term Trump thing, couldn't it. There's always a wrinkle.
https://www.everycrsreport.com/files/2019-11-07_IF10477_c10f22cf94bfa4d155960da59e7ec4991a904ef2.pdf
Everybody uses the phrase "inflation-adjusted" when they mean "inflation removed from the nominal values" but nobody ever actually says this. So "adjusted" could mean anything.
The CRS paragraph describes the purpose of the calculation as:
"To determine the equivalent income in terms of purchasing power for 2023". That's not the same as converting nominal data to real values. At best, they are converting an old (1990) nominal value to a new (2023) nominal value. That could be interesting, if you want to see if your income is keeping up with inflation. But this is not a calculation that produces "real" values as economists use the word. Economists want to see how much is actually produced each year; actual production is the "real" part.
For "inflation adjusted" values, the "base year" price level is used for all of the years, so that inflation does not affect the resulting numbers , and how much is actually produced each year is easy to see.
Again, for Real or "inflation adjusted" values, the "base year" price level is used for all the years. But the CRS calculation takes the "base year" data and changes the price level from the base year value to some other year's value. Their process is exactly wrong, and exactly opposite the method that is used to calculate "Real" values.
They can calculate whatever they want, but they should not be saying they are determining the "Real Figure".
The worst part of this whole thing is that the bad arithmetic comes from the Congressional Research Service:
"The Congressional Research Service (CRS) serves the Congress throughout the legislative process by providing comprehensive and reliable legislative research and analysis that are timely, objective, authoritative, and confidential, thereby contributing to an informed national legislature."
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