Bill Clinton observed that, when it comes to elections, “It’s all about the economy, stupid.” Clinton might also have said, when it comes to elections, “It’s all about the appearance of the economy, stupid.” In either case, while there are other important considerations in elections, the economy is the voters’ primary concern and economic statistics are one of the politician’s principle weapons.
In the coming election, the Republicans can tar Obama with a number of economic statistics. For example, since Obama took office: 1) the number of people unemployed for more than 52 weeks rose from 15% to over 30%; 2) There are 1.2 million fewer jobs; 3) worker health insurance costs increased 23%; 4) the price of gasoline has increased by 90%; 5) home values have fallen by another 13%; 6) the number of new home sales hit consecutive record lows in A.D. 2009, 2010 and 2011; 7) the number of Americans living in poverty has increased by over 6 million; 8) Americans dependent on food stamps have increased by 14 million to 46 million; 9) the national debt has increased by 44%.
The previous statistics belie the Obama administration’s claims that the A.D. 2008 recession ended in 2009 and that America is in a state of “recovery”. Insofar as the economy continues to decline, there’s been no overall improvement, the recession didn’t really end in 2009 and we’re not in a “recovery”.
The previous statistics bode ill for Obama’s reelection, but I’m reminded of Joseph Stalin who once observed that it doesn’t matter who votes; it only matters who counts the votes. Similarly, in economics, it doesn’t matter what the economic statistics are, it only matters who counts the numbers that result in those statistics.
In other words, given that government counts the numbers that result in most economic statistics, it follows that the government can “cook” the economic “books” to produce statistics that support the “appearance” that we are in recovery rather than recession (or even depression). If the public buys that appearance, incumbent politicians can be reelected.
The single most politically-important economic issue is unemployment. It follows that the single economic statistic most likely to be manipulated is the unemployment rate.
Conventional wisdom indicates that if the unemployment rate is over 8% on election day, Obama will probably lose. If the rate is under 8%, Obama will probably win. In fact, if the rate merely appears to be under 8%, Obama may be reelected.
Thus, there’s always an incentive to manipulate unemployment numbers so as to at least create the appearance that the unemployment rate is low. That impulse is maximized in a presidential election year.
• Gov-co currently claims US unemployment is about 8.5% and falling. If that trend continues, Obama should win reelection this November.
But are the government’s statistics accurate?
John Williams (ShadowStats.com) says No. He calculates unemployment rates without the mathematical gimmicks that are currently used by government economists to create false or misleading results. According to Williams, the true unemployment rate is actually about 22%.
For American youth, 18 to 25, the unemployment rate runs nearer to 40%.
The unemployment problem is long-term. Each month the number of Americans unemployed for over a year rises by 34,000. These people are willing to work, but there are virtually no jobs available.
So long as unemployment remains high, the pressure to work for lower wages is also high. Thus, rising unemployment necessarily means America’s standard of living must come down (or tariff barriers must go up).
• One way government miscalculates the unemployment rate is by reducing the number of people who claim to be looking for work. As a result, the “official” number of able-bodied Americans no longer counted as part of the US labor force is growing. People who don’t have jobs and who’ve exhausted their unemployment compensation benefits are dropped from the list of the unemployed. Essentially, government presumes that if you’re no longer collecting unemployment compensation, you must therefore be employed and need not be counted in the unemployment statistics.
To illustrate this statistical “new math,” suppose there were 1,000 people in your community who wanted jobs, but only 900 could find work. 100 would be unemployed. The unemployment rate would be 10% and bad news for reelecting incumbents.
But suppose a statistical device could be used to reduce the apparent total number of people (1,000) who had or wanted jobs. Let’s say that 50 of those 100 people who were unemployed ran out of unemployment compensation. Then we’d just drop those 50 from the list of those wanting jobs—see?
Then, instead of having 900 employed out of 1,000 (10% unemployed), we’d have 900 employed out of just 950—and, ta-da!—the apparent unemployment rate would be only about 5% and incumbents would be reelected! Yay!
See, in the “new math” of economics, it doesn’t matter if you get the right answer—it’s only important that the statistical results make the people feel good about themselves, about the economy and, most importantly, about the incumbents.
As for the 50 people who no longer have jobs or unemployment compensation, screw ‘em. From a statistical POV, they no longer exist.
OK, OK—maybe they still exist, but only in the new economic classification of “Persons Not In the US Labor Force”. They are economic “DPs” (Displaced Persons). Presumably, they are still “Persons In the US Eating Force” (they want to eat)—but they have no jobs or unemployment compensation so, how they eat, or if they eat, is no longer the government’s concern. The important thing is that by not counting these people, the unemployment statistics can be kept low enough to reelect incumbents.
• Another way to miscalculate employment stats is by exaggerating the number of new jobs being created. For every new job created, there should be one less person who’s unemployed. And for every fictional new job created, the apparent unemployment rate should (fictionally) appear to decline.
For example, new Census numbers claim 243,000 new jobs were created in January. If there are 243,000 more jobs, it follows that there should be 243,000 less unemployed. Sounds good.
However, David Stockman (former Director of the Office of Management and Budget in the Ronald Reagan Administration) believes the government’s report of 243,000 new jobs in January is false. While interviewed by the Wall Street Examiner, Mr. Stockman attempted to clarify the government’s maze of unemployment numbers. His attempt seemed almost hilarious. It’s so hard to explain a web of lies as complex as unemployment statistics, that anyone who tries to do so risks seeming a fool:
“All of these mainstream economists treat the BLS [US Bureau of Labor Statistics] and BEA [US Bureau of Economic Analysis] data like it is holy writ, when it is evident that the reports are so massaged, estimated, deemed, revised, re-benchmarked, and seasonally adjusted that any month-to-month change has a decent chance of being noise. What deep secret might they be hiding?
“So on the ‘labor force participation rate’ they say, ‘No, it did not go down in January because the 2012 numbers are re-benchmarked for the 2010 Census’—but for some reason the BLS did not bother to update the 2011 civilian population numbers, including December.”
See how simple economics is? If you don’t like your results, just change the numbers on which those results are based.
“Thus, the BLS published apples to oranges numbers [for comparison purposes] on this particular variable and the footnote says the December participation rate would have been the same as January, if they had revised it!”
See? And you thought economics was hard. If the government’s numbers had been revised for December, they would’ve been the same as the January number. (Similarly, if I had been born a Rockefeller, today I’d be rich.)
In other words, in order to be a government economist, all you need to do is decide whatever number you want for your statistical conclusion, and then adjust your base numbers and formula so as to produce the required result.
For example suppose you added 3 + 3 in December and got the answer “6″. And suppose that in January, you added 2 + 2 and your answer was 4. Well, if it turns out in February that you realize that you want your December conclusion (6) to match your January conclusion (4), then you simply go back and “adjust” or “re-benchmark” the December formula so it reads “2 + 2″ rather than “3 + 3″.
Of course, the average layman might think that “adjusting” or “re-benchmarking” the December numbers in February to match the January numbers is unethical or even criminal, but that’s only because laymen lack a proper education in the fields of economics and politics. Most laymen don’t understand the Third Rule of Economics: When economics mixes with politics, it’s more important that the result be politically correct than factually accurate.
“Yet on another variable—the “establishment survey jobs count”—they were also busy re-benchmarking, but here they did update the originally-reported numbers for every month of 2011. Even then, it is hard to say what got updated because the originally-reported numbers each month are then revised during the next two reporting months, with any excess or shortfall reallocated to earlier months outside the three-month window, which are not published on a revised basis, even though they have been revised! This reflects a whacko thing called the ‘concurrent seasonal adjustment method’.”
Now, that’s what I call real economics—English enhanced to a seemingly sophisticated level of nearly incomprehensible gibberish.
I don’t blame Stockman. He’s merely trying to explain (make sense of) an endless series of “adjustments” (lies) in the government’s numbers and formulas used to calculate economic statistics. These governmental “adjustments” are particularly hard to describe because they aren’t intended to generate more accurate statistics, but rather to conceal the truth and generate numbers that are “politically correct” and therefore conducive to incumbent reelections. More, given that these numbers are in a state of regular “readjustment,” they are constantly changing, constantly “moving” and therefore not easily described.
• If you want to know what the unemployment rate was in December, you need to first declare whether you’re a Republican or a Democrat. The reported rate will depend on your political preferences.
Then, you’ll have to decide when you want to know what the December unemployment rate was.
Because the December unemployment rate is one thing in December, another (after “adjustments” and “re-benchmarking”) in January, another in February, and so on. So, because December’s unemployment rate is repeatedly readjusted in subsequent months, we need to know “when” you want to know December’s unemployment rate in order to know which of the several “versions” of the December unemployment rate to provide.
In essence, the December unemployment rate is repeatedly changing to be whatever it needs to be to support a particular political objective at any particular time. As political objectives shift, so can the “official” December unemployment rate.
• Two centuries ago, the Scottish author Sir Walter Scott observed, “Oh, what a tangled web we weave, when first we practice to deceive”.
If there were ever two fields of human endeavor where Scott’s observation applied—it’s politics and economics. Combine the two, and the lies seem automatic. Worse, each lie begets two or three more lies (“adjustments” and “re-benchmarking”), and each of those “adjustment-lies” begets two or three more lies, until you soon have nothing but a sea of lies dancing about under the heading of “statistics”.
These lies are dangerous since an economy can’t be “steered” without accurate information. It’s like driving a car without an accurate speedometer. You will eventually be ticketed or even involved in a crash.
Therefore, you might think that this multiplicity of lies would be rejected by all involved. But, hey, every lie stands to earn someone powerful some more money or help reelect another “very important man”. The lies pay so well (for a while, at least) that they seem irresistible. They can be so profitable, that they can even come to seem true.
But eventually . . . the truth will out . . . the economy and political system based on those lies will falter or collapse and the lying incumbents will be removed from office.
And then, a new set of politicians and economists will assume the reins of power. . . .
So, what do you do?
You know the government’s statistics are often fabricated. You know you can’t trust the government’s ever-changing statistics.
Therefore, you could either do your own research or at least look for a non-governmental source of statistics that you believe you can trust.
But, most importantly, you should avoid the daily “noise” of constantly changing statistics from any source. The lies tend to be short-term. The unemployment rate for a month like December is relatively easy to falsify. Falsifying the unemployment rate for the entire year of A.D. 2011 is possible but more difficult. Therefore, you should look for those fundamental principles and long-term trends that seem to have a measure of permanence.
Then, secure your wealth accordingly and wait for the day when the lies finally fail and the truth once again becomes profitable.