- The Washington Times - Sunday, May 21, 2006

Treasury Secretary John Snow might find his credibility rising if he would recognize that his listeners are intelligent. Testifying May 17 before the House Financial Services Committee, he noted that “real [i.e., inflation-adjusted] GDP rose an impressive 4.8 percent at an annual rate in the first quarter of this year.” Moments later Mr. Snow, trying to “stress how broadly the benefits of this strong growth impact Americans,” cited as example that “average hourly earnings are picking up. We learned from this month’s jobs report that average hourly earnings have risen 3.8 percent over the past 12 months — their largest increase in nearly five years.”

Rep. Barney Frank asked Mr. Snow: “What’s the [consumer price index] increase over the past 12 months?” Presumably referring to the Labor Department’s consumer price index number for April, issued just an hour and a half before Mr. Snow began testifying, the Treasury secretary replied, “It came out recently, as you know. The headline [CPI rate] … ” He was interrupted by Mr. Frank, who repeated his request for the consumer price index number “over 12 months,” the precise period for which Mr. Snow had earlier boasted that “average hourly earnings have risen 3.8 percent.” The Treasury secretary replied, lamely, “Well, about 5 [percent], I think, 5.1 [percent].”

Mr. Frank then asked Mr. Snow to “acknowledge that [the] 3.8 percent increase in wages you’re talking about is nominal, not adjusted for inflation.” Mr. Snow, who holds a Ph.D. in economics, nevertheless hadn’t figured it out: “I’ll have to go back, congressman, and check these numbers.” Mr. Frank persisted. Perhaps helped by an assistant (perhaps without a Ph.D.), Mr. Snow conceded, “For the 12 months, it’s nominal.”

According to Mr. Snow’s own numbers, which Mr. Frank had to drag out of him, over the past 12 months average nominal wages, for production and nonsupervisory employees, who account for 80 percent of private-sector employment, have increased by 3.8 percent, while consumer prices have increased by 5.1 percent. That would mean that average real wages as adjusted for inflation had declined by about 1.3 percent. That can’t illustrate “how broadly the benefits of this strong growth impact Americans,” as Mr. Snow tried to suggest.

Nor, actually, is it quite as bad as the Treasury secretary grudgingly conceded. The relatively good news is that average real wages over the past 12 months actually increased by one-tenth of 1 percent, as the Labor Department announced in a companion report, “Real Earnings in April 2006,” which was issued at the same time as April’s consumer price index numbers. That’s better than the 1.3 percent decline Mr. Snow was forced to acknowledge.

But the actual not-so-good news, beyond the microscopic increase in average real wages, is that America’s secretary of the Treasury has no clue about the 12-month “headline” rate of inflation. As the Labor Department reported 90 minutes before Mr. Snow testified, the 12-month increase in the CPI was 3.5 percent, not the 5.1 percent Mr. Snow tried to suggest. He misstated the 12-month inflation rate by nearly half. The financial markets were obviously paying much closer attention to the inflation data. Reacting to the worrisome trends revealed by the consumer price index report, the Dow Jones Industrial Average suffered its largest point drop (214) in three years on the very day of Mr. Snow’s clueless testimony.

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