The Real Threat of Fake Numbers

Will Trump cook the books? Why assume he won’t?

On Wednesday Elon Musk suddenly admitted that his Department of Government Efficiency, which he promised during the campaign would cut federal spending by $2 trillion a year by reading random tweets ferreting out waste, wasn’t going to be able to meet its goal. Were you surprised to learn that Musk’s obviously fraudulent venture was a fraud? If so, you really shouldn’t be allowed to operate heavy machinery.

Musk’s walk-back on the budget came a few weeks after Donald Trump — who campaigned largely on a pledge to bring grocery prices back down to where they were a few years ago — admitted that doing so would be “very hard” and probably won’t happen.

So will any of the Trump campaign’s pledges be honored? Doubtful.

Which has me thinking about TIPS — Treasury Inflation-Protected Securities. I’ll explain why below.

It’s a near certainty that Trump’s policies will raise both budget deficits and inflation. What’s less clear is whether Trump’s minions will admit that they failed to deliver. In particular, if things go as badly on the inflation and budget fronts as seems likely, how long will we be able to trust government numbers?

I know that this may sound as if I’m getting into tinfoil-hat territory. Worse, I may be sounding like a Republican — because whenever there’s a Democrat in the White House, right-wing “inflation truthers” come out of the woodwork, claiming that official numbers are hiding the terrible reality of soaring prices. And, of course, Trump spent the whole campaign making utterly false claims about how much prices — for example, the price of bacon, with which he seemed oddly obsessed — had risen.

In fact, U.S. statistical agencies have a long record of being scrupulously honest. But the same can’t be said of every country. There are, for example, some well-known cases of populist regimes falsifying the numbers to make inflation look lower than it really is. Most famously, Argentina’s statistical agency systematically and massively understated inflation from 2007 to 2015:

In 2023 independent academics credibly accused Turkey’s government of doing the same thing.

And other numbers have been manipulated too. The European debt crisis of the early 2010s was set off by the revelation that Greece had been massively fudging fiscal data to make its budget deficit look much smaller than it really was. China has been doing the opposite with its trade data, playing three-card-monte with the numbers to hugely understate the size of its trade surplus.

Still, these are tales about other countries. Nothing like that has ever happened in America.

But will America still be the same country a couple of years into Trump’s second reign?

You may say that the statistical agencies are staffed by civil servants, protected from political pressure and with a strong professional culture of telling it like it is. And all of that is true — for now.

But in the last days of his first term, Donald Trump signed an executive order — “Schedule F” — that could have turned tens of thousands of career civil servants into political appointees. President Biden reversed that order, but Project 2025 — which, after all the denials, turns out in fact to be an assembly manual for the new administration — called for bringing Schedule F back. And Schedule F wouldn’t be the only way to politicize the civil service; as the Federal News Network has reported, Trump will have a whole “arsenal” of ways to target federal employees.

And one agency that is currently completely professional, but might not stay that way, is the Bureau of Labor Statistics, which produces inflation data. Former heads of the B.L.S. have been sounding the alarm. For example, Erica Groshen, who ran the agency from 2017 to 2021, warned just before the last election that

If you convert a large swath of the senior civil servants to political appointees, then you’re really going to seriously undermine trust in the objectivity of the data.

True, she focused on the issue of trust rather than the data themselves. But why assume that the data will, in fact, remain objective? Imagine that we’re heading into an election and inflation numbers are running at, say, 4 or 5 percent. Do you have any doubts that Trump will insist that the inflation is fake news and pressure the B.L.S. to report better numbers?

OK, maybe Trump and those around him won’t try to meddle with the data, or American institutions will be strong enough to stop them if they try. But exactly when over the past 8 years has anyone insisting that there are some things Trump won’t do or that he will be constrained by our institutions — which, after all, ultimately consist of people — been right?

Now, if Trump appointees begin fudging economic data, we’ll know — there are enough independent ways to estimate inflation, ranging from purchasing manager surveys to internet-based algorithms, that any major understatement of inflation will quickly become obvious to economists. And for that matter, the professional staff at the agencies will probably speak up.

But many contracts and policies — for example, Social Security cost-of-living adjustments — are tied to official inflation, even if everyone knows the numbers were cooked.

Which brings me to TIPS. When I was working on my recent post about interest rates, among the things I was looking at was the “breakeven inflation rate.” You see, TIPS are indexed to the Consumer Price Index, protecting investors against inflation, and the spread between the interest rate on TIPS and that on ordinary bonds is an implicit market forecast of inflation:

It occurred to me, however, that TIPS don’t exactly protect investors from inflation; they protect investors from the inflation the government reports. In the past, that distinction hasn’t mattered. In the brave new world we’re about to enter, it might matter a lot.

Investors considering buying TIPS might want to think about that.

MUSICAL CODA

Songs about official statistics are also lacking. But remembered this, which does catch my current mood. PS: My cousin the violinist is in the string section.