Inflation Is Up, But the Inflation Truthers Are Still Wrong

A guest post by John Aziz

Way back in the early 2010s, some people predicted that quantitative easing would lead to high inflation. When that failed to happen, there sprung up a sort of cottage industry of websites telling people that the government numbers were wrong and that inflation was actually much higher than the authorities were telling you. The most famous of these websites was Shadowstats. In a memorable post back in 2013, economics blogger John Aziz explained why this website was selling people nonsense.

Eight years later, we find ourselves in a period of actual high-ish inflation. But even though inflation is real this time, the cottage industry of websites telling people that it’s even higher than you’ve been told is still going strong. Our old friend Shadowstats is back in the news, assuring us that inflation is actually 15% instead of 6%. So I asked John Aziz to come back and reprise his role as the slayer of inflation disinformation. Here is his post:

With the rate of inflation as measured by the CPI climbing to the highest levels seen since the 1980s, hordes of inflation truthers and hyperinflation fantasists have emerged out from their subterranean haunts swinging their metaphorical battle axes, proudly proclaiming that they were right about inflation all along.

Twitter CEO and erstwhile Bitcoin guru Jack Dorsey tweeted:

The inflation truther narrative popularised by Austrian economics institutions such as the Ludwig von Mises Institute, as well as websites such as Zero Hedge, and Walter John Williams’ Shadowstats boils down to the idea that the government is lying about inflation and inflation is actually much higher than officially stated. 

As alluded to by Jack Dorsey, the inflation truthers contend that some time around the Clinton era, the government changed the methodology used to calculate the CPI rate in order to distort or hide the truth about the direction of prices in the economy.

I first came across the inflation truthers during the early 2010s. Back then the narrative was that quantitative easing, which was seen to be a form of “money printing” would lead to high inflation or hyperinflation. According to the inflation truthers, inflation was about to take off, but the government was doing just about everything they could in order to hide the soaring prices. The expectation was that eventually like Ridley Scott’s alien parasite, the hidden inflation would burst out of the chest of the economy, triggering a Weimar-style disaster.

Of course, these concerns about quantitative easing being a form of Weimarian money printing turned out to be wrong. What we actually got was 10 years of low and stable inflation, up until this bump up in rate which we are seeing after a global pandemic shut down large parts of the economy, causing supply chain bottlenecks and blockages. This is hardly the money printing disaster a la Zimbabwe or Venezuela that the inflation truthers projected. 

The trouble is that Shadowstats’ “alternative inflation” methodology is actually doing the very thing they accuse the government of doing. They are mangling the inflation data in order to mislead:

Do you see how the Shadowstats index line in blue and the red CPI have precisely the same shape? Go ahead—trace out the dips of each. They are mirrored. As I noted back in 2013 ( the only difference is that the Shadowstats line is being transposed upward. Essentially they are taking the official CPI data, adding a series of arbitrary constants and saying that the higher rate is the actual inflation rate (In fact Matt Darling of the Niskanen Center and others have noted that by simply adding a constant and a linear time trend, you can exactly reproduce Shadowstats’ numbers). They are not using any kind of pre-1990s inflation methodology at all. Their only “contribution”is a caveman-like grunt that inflation is higher. Why did they pick this series of arbitrary constants to add to the official data? No detailed explanation is given in the graph, nor in their vintage 1990s-style wall-of-text website. 

But nowadays, it’s not just Shadowstats. Other pseudo-scientific inflation indices have started popping up, such as the Chapwood Index ( which rather than just mangling official CPI data like Shadowstats instead uses price data gathered from asking about the spending habits of the personal friends of the index creator. That sounds like a fun project for a statistics class in school or university but it’s not a meaningful alternative inflation index, because of its tiny sample size and selection bias.

This doesn’t mean that there are not legitimate questions over the validity of inflation statistics. Making the CPI is something of an arcane art involving the collection of price data as well as the methodology of trying to create a representative sample of goods and services to base the inflation rate calculation upon. The New York Federal Reserve Bank published a paper by Charles Steindel ( looking at criticisms of the CPI, which concluded that the CPI is roughly correct but “probably tends to overstate the true rate of inflation”, rather than understate it as the inflation truthers vehemently argue, swinging their battle axes in the air.

The Billion Prices Project, an effort from MIT to use much greater quantities of data gathered online which ran from 2008-16 reached similar conclusions. The CPI is roughly correct.

And in a strange way, the recent upswing in inflation confirms the same thing: no, the government is not rigging the inflation data to hide inflation. If prices go up, the inflation rate will actually go up, as it has done.

So why are the inflation truthers still pumping out obviously wrong and biased misinformation, and why is it becoming more popular?

Well, while the hyperinflation projections made by early 2010s libertarians may not have gone anywhere, another libertarian project from that era has gone hyperbolic.

Bitcoin’s rampant price rise over the last decade has brought more people into the inflation truthers’ circles. Satoshi Nakamoto signed the genesis block of Bitcoin with a protest over British bank bailouts. Bitcoin was designed as an alternative monetary system, a protest against the modern-day fiat monetary system which the inflation truthers hate and decry. The inflation truthers’ projections of hyperinflation back in the early 2010s were not even so much about quantitative easing as they were about fiat money in general. Inflation truthers tend to have a hard money fetish, which is to say that they tend to believe that monetary systems not linked to the production of a commodity like gold (or in the case of Bitcoin, algorithmic hashes) will always lead to hyperinflation. And for them, their projections cannot be falsified, because they do not believe in empirical evidence-based economics, but rather praxeology. 

Praxeology argues that because human decision making is extremely complex and unpredictable, economics is a subject where experiments are impossible and so the most valid way to do economics is through logical reasoning from first principles. But this is nonsensical. Experimental economics is perfectly possible, and advances in that field of economics have been fruitful. Look for instance at the Nobel-winning Card & Krueger minimum wage study which constructed a natural experiment from a policy change to test the hypothesis that raising the minimum wage would cause unemployment, and found that it did not. 

What this means in practice is that praxeology acts as an excuse for Austrian economists to reason from their guts. Their gut says that “money printing” leads to inflation, so they assume it does, and any empirical evidence it doesn’t gets dismissed. Their gut says that the minimum wage causes unemployment, so they assume it does, and any empirical evidence it doesn’t gets dismissed. No need to look at empirical evidence, or natural experiments. Of course, it is also true humans are extremely complex and hard to predict, but throwing out all empirical evidence and just going with your gut doesn’t address that problem at all. 

But this goes beyond resistance to evidence. The inflation truthers, their numbers buoyed by the addition of newly-blooded Bitcoiners don’t just predict hyperinflation. They want hyperinflation to happen, because they think that the fiat monetary system collapsing will be beneficial to them. This is usually due to them owning Bitcoin or some other cryptocurrency or commodity like gold which they believe will become a new monetary medium.

Of course, (like gold before it) Bitcoin has proven itself to be notoriously bad as a monetary medium. How can you have a monetary system with transaction fees of $10-60 per transaction? Nobody is going to spend $60 on a $5 coffee transaction. The Bitcoin network simply doesn’t have the capacity to be the sole monetary system for the world (hence the high fees), and initiatives to improve it such as raising the block size to increase network capacity, or adding additional layers with lower transaction fees have so far proven fruitless. But the Bitcoin price as well as the wider crypto market continues to go up and up in a speculative frenzy, bringing more and more speculators, technologically curious people, and dupes into contact with the pseudo-science of Shadowstats and Chapwood. 

Of course, the burst of inflation we are seeing isn’t going to unleash hyperinflation in the United States or wider Western world. The inflation truthers were wrong about hyperinflation in the wake of quantitative easing, and COVID-related supply bottlenecks are not going to hand them ultimate victory. The supply chains will work themselves out because corporations have profit incentives to work them out. Not to mention that although it has been a rocky road, the COVID era is dwindling thanks to vaccination, immunity, and therapeutics.

But I doubt this will stop the inflation truthers. Just as they moved on after quantitative easing, they will move on after COVID. Their assumptions tell them they are right, and they would rather believe their assumptions than they would believe the real world. Indeed, their assumptions have been very lucrative. Crypto has proven that there is billions of dollars to be made in selling people the fantasy of hyperinflation.