American Economy: Financial Wisdom From Wong's Palace

To set the scene, picture a non-descript, medium-sized restaurant on a commercial drag in South Knoxville - no windows and five or six beat-up cars in the parking lot. You walk in and the place is about 80 per cent empty, with a few tables of morbidly obese families eating in silence. In other words, not the type of place where you're likely to run into a lot of stockbrokers.

As I started in on my egg drop soup, I overheard one of the guys sitting at a table nearby ask his buddy, "Hey, did you see the stock market today?"

My ears perked up. When the friend replied that he hadn't, the guy made a high-to-low whistling sound accompanied by a hand gesture describing a plummeting trajectory. I could tell that I was about to learn something.

One of the things that make understanding the economy so difficult is that even "official" data is often manipulated or engineered to tell a story that the providers of the data want us to believe. For example, I surely don't need to go into a detailed analysis of why it might not be a great idea to take the National Association of Realtors outlook on the real estate market without at least a few grains of salt.

These days we are told by our government that the American economy is sound. To support this claim, we are shown data indicating that both unemployment and inflation are low. Low unemployment combined with low inflation is basically the definition of financial health, so if it is really true that we have both, it would indeed be strong evidence that our economy is in good shape. But the wrinkle is that it is notoriously difficult to actually measure these phenomena.

Consider inflation.