Naked Statistics: Stripping the Dread from the Data

by Charles Wheelan

instead, they overlook a more subtle example of apples and oranges: inflation. A dollar today is not the same as a dollar sixty years ago; it buys much less. Because of inflation, something that cost $1 in 1950 would cost $9.37 in 2011. As a result, any monetary comparison between 1950 and 2011 without adjusting for changes in the value of the dollar would be less accurate than comparing figures in euros and pounds—since the euro and the pound are closer to each other in value than a 1950 dollar is to a 2011 dollar. This is such an important phenomenon that economists have terms to denote whether figures have been adjusted for inflation or not. Nominal figures are not adjusted for inflation. A comparison of the nominal cost of a government program in 1970 to the nominal cost of the same program in 2011 merely compares the size of the checks that the Treasury wrote in those two years—without any recognition that a dollar in 1970 bought more stuff than a dollar in 2011. If we spent $10 million on a program in 1970 to provide war veterans with housing assistance and $40 million on the same program in 2011, the federal commitment to that program has actually gone down. Yes, spending has gone up in nominal terms, but that does not reflect the changing value of the dollars being spent. One 1970 dollar is equal to $5.83 in 2011; the government would need to spend $58.3 million on veterans’ housing benefits in 2011 to provide support comparable to the $10 million it was spending i...