Lies, Statistics and Economic Statistics
Weathering a blizzard of statistics is the fate of the public minded. Numbers come at us from all points of the compass. Some are raw data, some massaged, some naked and some fitted out for the occasion by their sponsors. In this wintry economic season, they all come with a message and meaning. Making sense of the figures demands a large measure of skepticism and an eye for misrepresentation and forgery.
Here is a quick everyman's guide to economic statistics. First, the "recession." No term has been more abusive of statistics. There is a narrow technical meaning for economists. It is strictly a matter of GDP numbers having nothing to do with our feelings of being "in the money or out of the money." If the economy registers a quarter in which GDP rises - by however small an amount, we are no longer in recession. That's it. That happened in the third quarter of this year when it rose at a 3.4 annualized rate.
If GDP drops 4 percent in the fourth quarter and then rises just 0.4 percent in the first quarter of 2010, the business headlines could rightly proclaim that the "recession" is still over. The public understanding of the term "end of recession" is that we have hard data of a return to prosperity - or, at least, that a growth cycle is imminent. Nothing of the sort is in the numbers per se. The discrepancy between these two meanings are cynically played upon by all those who have a vested interest - political, intellectual, or financial - in creating the impression of an economic morning in America. That covers just about everyone marketing the news.
Then there are GDP numbers. Politicians and markets alike rise and fall on these magic numerals. In fact, they are as soft as statistics get. At times they are fanciful. Consider the financial sector. The "virtual" wealth generated by the razzle-dazzle of recent years may have created nothing of tangible economic value - whether goods or services. Indeed, the
largest part of the value created by the trading of exotic financial instruments is fictitious. President Obama admitted as much in remarking on one occasion that we shouldn't worry that much about the evaporation of trillions in investment accounts since it wasn't real money anyway. Economists routinely talk blithely of the "financial" economy and the "real" economy. Yet GDP - and all other aggregate statistics - make no distinction whatsoever. Nor do economic models.
GDP figures are no more than the sum of all expenditures. Every time a piece of financial paper (actually, electronic dots) with little intrinsic value is transferred from one party to another the national cash register records it as a number in the tally, and does so at the face value of the transaction. This is an absurd methodology based on an absurd measure of value. We all may have been living in a world of statistical make believe. The latest numbers, for example, say that GDP grew at a 3 percent annualized rate. But if that reflects the big Wall Street banks reverting to go-go of virtual assets, then the real number is substantially lower.
Rates of economic growth are further overstated by discounting population increase. If the number of Americans increases by 3 percent and GDP numbers grow by 3 percent, we are no better off in real terms. This relationship is prominent in calculating economic dynamics in poor countries but for some inexplicable reason largely ignored in the U.S.
The implications of all this slips through our mental fingers. Yet the implications are profound for calculating national wealth, the United States' place in international league standings, productivity and even inflation. Inflation as represented in the government's cost of living index is another statistical fiction.
For one thing, the formula was rigged by Bill Clinton to produce lower numbers in order to keep down increases in Social Security payments that are tied to annual inflation. The method was crude: When the price of one item in the index rises sharply, a cheaper item that supposedly is a functional equivalent is substituted. More generally, there are a plethora of distortions in data gathering that bias the index toward the low side. One small example, when all of my personal medical expenditures rose due to changes in my employer provided plan (as happened this year to millions), they never registered in the official inflation numbers.
Productivity statistics are also manipulable. Every time a company "downsizes" - that is to say, fires workers - its productivity figures go up if the same quantity of goods/services is produced. Heavier work burdens for remaining employees do not count. Unpaid overtime does not count. Nor do the costs borne by customers who must wait longer for help in a box store, or on lines at an airline ticket counter, or go through the ordeal of dealing with mechanical telephone programs intended to be as painful as possible so as to force you to spend your time on the Web. Corporate and government statistics register none of this. Economists' models do not either.
The common thread running through this recitation of how economic statistics are abused is that it is the little person - as employee, as customer, as retiree - who gets the short end. Surprise, surprise.
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So the GDP is misleading? How about giving us some available figures that are more reliable? Say, the Dow, S&P 500, price of Yogurt (adjusted for the decrease in size from 8 oz to 5 oz.
Anyone who has studied economics knows that statistics are never pure and rarely descriptive unless they are clearly and concisely compared to other statistics in a precise way. That having been said, the present state of the American economy, all current popular descriptions aside, is dismal. The GDP is to some extent pumped up by the stimuli presently in effect, especially aid to states, unemployment payments, and "Cash for Clunkers." If we eliminate those forces, we are left with a bare drop of 2% or more. If we remove the financial sector, the drop is probably three times that much. The media and the oligarchs persist in trying to shape public opinion. That is a losing battle, since the public doesn't really believe very much of what it hears these days, because the disconnect has been dramatic, from the President and Congress to Fox News, and sponsored advertising by the proponents and opponents of every public and private initiative.
One must work hard these days to find the truth.
I find it amusing that the one-year period taken for comparisons of President Obama's economic performance starts at 11/04/08.
Perhaps the wizards should be reminded that:
1. President Obama took office on 1/21/09 - about 10 months ago;
2. From 11/4/08 to 1/21/09 the man in charge was George W. Bush, "ably" assisted by a certain Dick Cheney, or was it the other way around?
3. President Obama took over an 8% unemployment rate, with all economic indicators guaranteeing a further increase of unemployment; a deficit approaching 1 trillion dollars; a foreign policy that existed in name only, but was better described as "who can we antagonize next".
4. Even though this President was ELECTED by an overwhelming majority of voters in 2008, he and his administration are subjected to the most persistent and viciuos obstruction we have seen
in this country in decades; contrast this with George W. Bush who was - essentially - appointed by the Supreme Court, but still enjoyed the respect and cooperation of a Democratic oppositiojnh in both Houses, who put the interests of the country first.
Let's just all cool it a bit and give the President, the Administration and yes, our Country a break.
Let's keep in mind that Unity makes Strength and let's not make things easier for our enemies by tearing each other and our country apart.
NOSMAVAN
I guess in this new age one of the three big lies needs to be rewritten. From "We are from the government. Trust us." to " These figures come from the government. Trust them".
Corporations all over North America love misleading GDP and inflation figures. My son got a 0.1% cost-of-living increase in his pay this year. Why so chintzy? Because inflation is "down" in our city. The price of food is up about 10%, rents are up 10%, gas is still up, bus fares went up -- BUT the price of real estate went down a little bit.
So none of the rent-paying, food-consuming, bus-riding staff are pleased. Neither are the two managers who are now paying off mortgages more than their houses are worth.
Your son received a pay raise this year? If only the rest of us were so lucky... Granted I am glad to be employed, but complaining about how low the increase is falls on many a deaf ear these days.
I wish the media would wake up to the fact that many working people do not automatically receive cost-of-living increases. I've worked my entire adult life and only received them when paid by the government. The private sector, particularly the beloved small business so touted by the Republicrats among us, do not automatically dole these out.
I have been struggling with the illegal alien problem since 1993 and the manipulations in the data provided by the Census staggered me. I held on to the allusions that the American Government was there to protect the American People anyway, and until recently. When you look and hard, you discover the Sub-Prime Mortgages was developed by a senior Democrat for the specific purpose of allowing illegal aliens who wanted to buy a home, the mortgages they needed. I discovered the Matricular Card was allowed for I.D. in that loan, and that they would fail was clear to me in 2006. I did not know the level of failure and obviously, it was deep. But it tells us there is a huge story in that business that has not been released and until the illegal aliens are provided amnesty, won't be released. It probably was criminal misuse of taxpayer money and going to jail is something to prevent if you are a Senior Congressman.
We can lose this government. I think the debts would remain, and the ability to function in a rational way would be jeopardised in no uncertain terms. We need, and very badly, a national ballot initiative. Until we control Congress, we are in jeopardy and we do not control Congress. Congressional Loyalty is to the Party.. not the people. Congressional loyalty is to the party, and perhaps to the extent of '...no matter what.' We ..need.. a ballot initiative.
Thank you for the article. This article demonstrates why we should be skeptical of all of the cheerleaders in the media claiming that the recession is over and that growth is around the corner. It just may be a while before jobs return, but don't worry about that because the recession is over.
I can remember when Hoover said, "PROSPERITY IS JUST AROUND THE CORNER".
(As quoted in the San Francisco Examiner)
We were an agricultural and manufacturing economy then.
What have we now? Financiers and financial wizzards who can quote figures ad nauseum.
I liked my son's assessment: I figure my budget is what I've got in my pocket.
Oh, for simpler reckoning.
A note on the fictitious values of financial instruments: the total value of the over-the-counter derivatives market is about eight times larger than the global economy. IOW, Wall Street has invented a way to create value out of thin air.
http://www.osborneink.com/2009/10/imaginary-money.html
In other words, derivatives are the pet rocks of the financial sector of the economy.
Yes and some of this fictitious value is recorded on the books of these banks that gets included in our GDP. In truth, we may be growing financially (have more dollars in this country), but we are certainly not growing in real value.
didn't mention on how outsourcing jobs also provides a productivity boost (on paper) for united states, even though all of the work is now done overseas.
This stuff is right in line with the progressive agenda to save the middle class, I would like to see more blogs do more with documenting and highlighting facts, lets show that the numbers are fudged against the people, and lets win that argument beyond any question.
Statistics is a pseudo means to get some sort of picture in order to grasp an overall pattern. The real problem with statistics is that we haven't figured out the questions that would give us a reasonable picture. We give mathematics an accolade it never deserved. It's just another language to sort of give us another picture cos we can only think in pictures.
Michigan is currently OFFICIALLY sporting a nearly 16% unemployment rate, not including those who gave up looking for work long ago, are working 3 jobs, are working 1-5 part time jobs, or are underemployed. My guess is, if you include all those variable, the REAL unemployment/underemployment rate here is probably closer to 30%-40%. Therefore, based on these sobering facts, you would think that the stores and streets here would be nearly empty - but that doesn't appear to be the case.
From my observations, gas prices are at least double the amount they were less than 3 years ago. Food prices WAY UP along with most everything else. In some cases that I've observed, close to 50% in the last 2 years. Yet traffic is as bad as ever, stores appear to be as populated as ever, restaurants, bars, busy as ever. Yet foreclosure is still rampant, home building is non-existent, lots of vacant and boarded up commercial properties.
From these personal observations, I can only conclude that the so called "experts" have about as much talent for predicting what the economic future holds for this nation as I do. My gut feeling on the latest GDP numbers is that the increase is due primarily to retailers stocking up on inventory for the holiday shopping season. We’ll find out if I’m right around 4/15/2010. My advice for people hungering for accurate economic data:
Look about you . . .
You may be confusing people who are bored and wandering around looking for something to do with people who have actual money to spend. You can tell by the amount of local shops closing their doors that they don't have enough customers to pay the bills. They may be getting a lot of 'browsers' who are just 'window shopping' but that doesn't mean they are cracking open their wallets and buying stuff.
There are lies, dammed lies and statistics.
A little example.
Comparing GDP you use the socalled PPP-value.
If you compare the GDP pc for Denmark and USA it is as follows( allnumbers from 2006):
The US GDP/pc was c.45.000 USD.
The Danish GDP/pc was c 300.000 DKR
The PPP exchange rate was 8.7 DKR to 1 USD giving 35.000 USD/pc
The real exchange rate was about 5 DKR to 1 USD giving 60.000 USD/pc
Just for fun I compared danush and US supermarket catalogues, and the prices, when sales taxes and VAT was removed gave an exchange rate of about 4.4 DKR to 1 USD giving 69.000 USD.
The IKEA prices signalled 3.50 DKR to 1 USD giving 85.000 USD.
From 35.000 to 85.000 USD? That is nonsense.
Who in blazes do you work for, are you rich by God. It occurs to me that someone who would argue that his premises are all made up lies is probably working for the powers that be and his his or her bread buttered by them. That is the only reason I could think of for defending the opposing view. Either you missed his point entirely and got off on this tangent of trying to disprove him with your counter numbers argument or you don't understand him at all. Which is it. Are you one of "Them"?
I was disturbed when I learned that more than 50% of our GNP was driven by consumer spending rather than manufacturing. We consume but we do not manufacture.
50%? Try 70%.
Consumer spending has been about 2/3 of the economy for a LONG TIME. Post 1950s for sure.
Hence, the importance of using debt to cover for falling wages - especially since the 1980s.
Indeed! Instead of giving the lower level workers cost of living or increased productivity raises, the business community jurt stuffed our mailboxes withy credit card applications. It was a large scale version of the company store. As our basic living expenses went through the roof cheap products manufactured by third world labor was imported and skewed the inflation statistics down again.
Even though Clinton embraced the new paradigm it was Reaganomics that started this mess and got us here. It's good to see there are people who understand the dynamics behind this and are finally addressing the jobs/wages issue.
BTW, a large portion of our health care crisis is due to the physical breakdown of our workforce from trying to carry these back breaking workloads and stress factors involved with unreasonable management demands. Insurance companies are charging such high premiums because they have a larger percentage of policy owners making claims on the system with health problems and prescription benefits. Prescriptions workers need in order to keep their bodies going in the face of it all.
In terms of the employment base manufacturing has gone steadily down since 1946 when it was 35% of the employees to about 8% now. That is not all globalization since we were losing jobs in manufacturing to automation all those years in between
What does not lie is how prosperous America was under the Clintons and how the Republicans lead by Bush nearly destroyed America.
We will turn this Republican engineered disaster around. The signs of recovery are srouting here and there.
The Republicans controlled Congress during the Clinton era. So what does that tell us?
And they were there when Bush became president until 2006. But you don't mention that do you? So much for that surplus, aye. The time to show your great fiscal responsibility would have been then, not now. We want our government to to treat money as we do in our own lives when it comes to saving. But when that government had a nice savings you guys squandered it. So what does that tell us? LOL, nice try.
What may have seemed to be apparent prosperity may very well have been merely setting the stage for our present debacle. All Ponzi schemes make the original investors seem extremely wealthy, but then Profitability drops off and at some point the prosperity runs down to a dribble. NAFTA was one of the tools that the Conservatives made use of to bring us to this end. The Clinton Era is an era of prosperity if you want to look at it that way or............
GDP is based on three things.
Consumer spending - which was down
Investments (by businesses) which was down
Government spending - Extremely high
Government spending is what propelled the GDP up...how long will that last and how much will it continue to cost the taxpaeyer?
Don't for get Net Exports (exports - imports). The full formula is GDP = C + I +G + NX.
C = consumption
I = investment
G = gov spending
NX = net exports
What has it cost the taxpayer so far?
Outside of additional taxes on cigarettes I am not aware of increased federal taxes.
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