In a Perfect Storm of Economic Stagflation, the Yachting Set Says: "Let Them Eat Pizza"

Stagflation in America? Well, unless you're among the wealthiest, you're soaking in it and have been for quite a while.

But you're not likely to hear much about that story. Officially, the U.S. hasn't experienced stagflation -- a long period of rising prices amid sluggish economic growth -- since the 1970s. The word conjures up images of gas lines snaking around corners, a weary Jimmy Carter looking droopy and forlorn in the Oval Office and the general sense of "malaise" that sunny old Ronald Reagan exploited so adroitly to give rise to the New Conservative movement.

But looking beyond the official numbers -- the data on growth and inflation that most economic reporters bandy about -- reveals a deeper truth about the American economy. The reality is that those who aren't at the very top or the very bottom of America's economic food chain have been mired in a long period of painful stagflation. But it's a reality that's obscured by the ways in which we measure our nation's economic health.

So while anyone who draws a paycheck knows that prices are rising fast and salaries haven't kept up for a long time, the S-word is never mentioned in our economic discourse. There are two reasons for that. First, a number of government benefits like Social Security payments are indexed to inflation, and since the dawn of the Reagan era, a series of changes were made to the way the government measures it, largely as a back-door way of keeping the growth of entitlements in check without pissing off veterans' groups or the AARP.

Second, while our overall growth has outpaced inflation, America's income has also become much more highly concentrated at the top -- the paychecks of 9 out of 10 Americans have actually declined over the past three decades. It's been Bill Gates and his set who have done extremely well during that time.

As a result of both of these shifts, there's now a significant gap between the economy in which most Americans live and work and the one discussed in the business pages and on the cable news blab-fests.

Inflation Nation

Newsweek tells us that "the situation we're in is nowhere near stagflation." After all, "the Consumer Price Index is rising at a 3 percent annual rate, compared with 13 percent in 1979."

What Newsweek doesn't mention is that the measures of inflation commonly discussed today bear little resemblance to the stats used in the 1970s.

In large part, that's because the Consumer Price Index (CPI) -- the most frequently cited measure of inflation in media reports -- is used to determine government benefits like Social Security, federal and state pensions and Medicare payments. Until the late 1970s, the index was based on a relatively simple formula. Officials took a theoretical "basket of goods" that "typical" consumers required and averaged their current prices. But, as economist John Williams, author of the Shadow Government Statistics newsletter, explains, "miscreant politicians, who were and are intent upon stealing income from social security recipients," made dramatic changes to the way CPI is calculated in the 1980s and 1990s, resulting in a drop in the official inflation rate made with a stroke of the pen and with little fuss from the public.

To gauge what most of us are really experiencing on a day-to-day basis, one might imagine economic reporters relying on a monthly "pizza index" instead of the Consumer Price Index. According to a February report by Al Olson of MSNBC, "Pizza makers have seen their cheese costs soar this year from $1.30 a pound to $1.76 a pound. Even worse, the flour used to make the dough has gone from $3 to $7 a bushel to $25 a bushel in less than a year." Between the second quarters of 2007 and 2008, even the paperboard used to make pizza boxes increased by 8 percent. (Several years of inflation in tomato prices -- for the sauce -- have been blunted by the recent salmonella scare.)