Lies and Statistics
I am pinching whole a comment by Stirling Newberry which is a great summary of why economic statistics are so easy to manipulate:
In the world of econometrics - that is, finding ways to measure economic activity - the question of cooking numbers is a delicate one. One man's "adjustment" is another man's "cooking the books". Within the range of what we know, some numbers can be, arguably, to either side. All economic numbers have error bands.
Where the real cooking is going on is by the focus on a few "headline" numbers. Any headline number can be primped up, at the cost of some other headline number. The tactic is to primp one number at the cost of another, and then dismiss the bad number. For example, run a big federal budget deficit to keep the employment numbers from looking so bad, and then say "well deficits don't matter".
Another problem is that many numbers are accurate, but they don't measure what people think they measure. Let me take my favorite - the unemployment rate. The unemployment rate represents a variable in various macro-economic equations, and it is measured in such a way so that the macro-equations produce predictive results. In short, it is fiddled with so that other numbers, some of which are also fiddled with, yield the right results. The unemployment rate, specifically, measures the demand for labor. Now in an inflationary enough environment, supply and demand for labor will clear, and all unemployment is frictional, and therefore a lack of demand which can be fixed by lowering interest rates - and so long as the inflation rate is low enough that's what the central bank does, lower rates until inflation shows up.
However when the labor market doesn't clear there is something that the unemployment rate doesn't cover, and that is the demand for jobs. And that was the case starting in the late 1950's - which is one reason for the New Frontier and Great Society - and it is the case starting in 2001 now. People are told "the unemployment rate is low". Wonderful, bankers rejoice. But what is important to people is whether "job supply is high" and that isn't the case. Low job supply means few jobs created, few increases in real wages, less upward mobility, longer times being unemployed - all of which have happened. Finding a number to represent this, and getting that number out, is important. CAP has its "constructed unemployment rate", I use "labor slack", and the bls puts out other measures of unemployment which include "discouraged and marginally attached workers plus part time for economic reasons".
The CPI-U is another such number. It measures the ability to stay at a constant level of access to living standard relative to others. That sounds like a mouthful. Let me put it another way: it is the cost of keeping up with the Joneses. It is different from CPI-W, which is constant access to standard of living, and it is different from the GDP deflator, which is a better measure of overall inflation in the economy. There are also inflation measures for producer prices and other "baskets" of goods and services, though consumer, economic and producer inflation are the most important.
Thus when people are told "the Consumer Price Index is low" that doesn't mean what they think it means. What it means is that the cost of staying in place, relative to others has remained the same. When the way the CPI-U was calculated changed, it changed GDP figures and a host of other economic numbers. It was, importantly, a change in policy. We no longer promised people, particularly retirees, that they would be held at a constant standard of living merely that we would keep them in the same place on the scale. If the scale drops and people have to start buying chicken rather than beef, then you will to. If the scale drops and people watch movies at home because they can't afford a theatre, you will do.
This is the biggest form of cookery - telling people a number, and then implying a context that doesn't exist. In the present circumstances, unemployment being low isn't really good news. It says that the economy cannot soak up the workers who were pushed out of the workforce in the last recession. It also means that Greenspan has to stay on a tightening course, because there is no overhead in the macro-economy to lower rates, despite what several emminent economists (such as Bob Riech) would like the Fed to do, and that is lower rates. Unfortunately we can't.
And that is at the root of what I have been saying over and over again. The problem isn't down turns. There are always going to be recessions and downturns, at least as far as the eye can see. The question is where the long term trend of growth is, and whether that long term trend is going up or down, and whether our policy decisions are making that long term trend of growth go up or down. In terms of policy, I can't promise that liberal policies with progressive government will produce endless prosperity. I can promise that they will produce higher growth over the longer term, spread the risks of the temporary down turns over a large group of people, that they will avoid unsustainable situations where demand for oil is going up faster with no substitute for it, that when downturns come those who are unfortunate enough to be caught in them will be cushioned against the full blow, and that those who are marginalized and left out during times of prosperity will get access into the affluence the rest of us enjoy.
Since I'm not predicting "a crash or even the beginnings of a crash", to quote on recent diary, I'm not going to say why one hasn't happened. I am saying that regardless of how the economic cycles play out, that current policies produce substandard growth, and will do so as far as they eye can see. That in the short term that means that with each recession people will fall farther and farther behind, and that, eventually, this will mean that other nations can dispense with us as the "designated loser" of the world economic system, and, at that point, stop extending us credit. On the contrary, they will come to collect.
Ask the British what that feels like.
Posted by Jérôme à Paris on May 13, 2005 at 14:49 UTC | Permalink
This seems to be a very clever move by the Russians, paying off a loan in cheap dollars. I wonder if this was foreseen by the players who have devalued the dollar.
Posted by: dan of steele | May 13 2005 17:35 utc | 2
I don't know who said this (apart from my daughter's university professor of statistics) but I like it very much:
"There is a lie, there is a damn lie and there is statistic"
Great comparison...
Posted by: vbo | May 14 2005 14:13 utc | 3
Darrell Huff.
recent bk:
http://www.amazon.com/exec/obidos/tg/detail/-/0393310728/002-4574065-2480034?v=glance>Amazon
Posted by: Blackie | May 14 2005 18:40 utc | 5
The unemployment rates need to be questioned thoroughly. They are not in sync with the streets and certainly not in sync with any past methods of reporting. The Bureau of Labor Statistics no longer uses the unemployment insurance offices in any count because only about 38% of all workers qualify for unemployment these days. The BLS also admits that there are at least 4 million workers not being reported since they gave up trying to find work. The number most likely is much higher than that.
Today, a worker making only a $100 a month is considered employed. In the 1970s this would be laughable since the unemployment rate was primarily based on full time jobs with benefits.
Today the Bureau of Labor Statistics compiles their count by polling households. They actually have about six ways they count the rate. One method shows about a 10% unemployment rate.
It also must be noted that there is a vast number of people who are missing in action from any kind of reporting. These variations should be studied and reported. There are about 180 million potential workers in this country but there is only about 90 million working full time. We wish someone would confirm these numbers because it means there are millions in limbo. Also we should know how many workers are counted per job. If a person has up to three part-time jobs are they counted as three jobs = three persons or one person with three jobs.
Reportedly, a person who is looking for a paying job while working in a family business or on a family farm for nothing is still considered employed.
Another question arises about the term underemployment. This term was used frequently in the recent past but now is hardly ever used. The term was applied to those who wanted to find a full time job but were not able to do so.
The Get America Working Forum says that 50% of all of human resources in the United States are not being used.
The big question is to ask how did this all happened and who steered the situation to fit in a low unemployment rate.
A Canadian Forum reported that if they use the unemployment reporting methods used in the USA, Canada would have only a 1 percent unemployment rate.
Finally Hurricane Katrina exposed a Silent Depression with a vast population not having enough money to escape the storms.
Who is behind all this fabrication?
For more information visit Tapart News and Art that Talks at http://tapsearch.com/taparnews or see http://tapsearch.com/tradetraps and http://tapsearch.com/tradetraps/id1.html
Workers Dignity - What does Fraternal Love have to do with it.
See also the editorial art by Ray Tapajna featured in Tapart News at http://arklineart.fotopages.com
Posted by: Tapsearch Editor | Feb 5 2006 2:56 utc | 6
@Tapsearch Editor
You address a personal bugbear for me and I thank you. I, too, have noticed that what is being reported is not in sync with the reality on the ground, and there are a few reasons for this.
If I watch the Nightly Business Report, they are always smilingly informing us that the unemployment rate is at some preposterously low level. This does not necessarily represent a sinister complicity with an agenda to lie to us; the Nightly Business Report (and various business-related shows like them) are obligated to put a smiling face on since their reporting has a direct effect upon what is being reported (viz. It has a one-to-one relationship with investor confidence). Simply put, they can not report news that is too bad for fear of creating news that is worse (and thereby losing a lot of people a lot of money), so any "official" numbers that sound good are the ones they will perpetuate. That's not sinister, per se, but common sense will tell you that what they report is meaningless (or at best serves the purpose of self-fulfillment).
What is sinister are the "official" sources for the numbers who consistently under-report. Just as common sense must necessarily reject the prattlings of a stock analyst, it must also conclude that a government agency that deliberately suppresses or misrepresents data does so with a very definite agenda (For an example of this, please see my December posting about the National Bankruptcy Review Committee). The NBRC deliberately skewed their data to further their agenda. I do not know if the Bureau of Labor and Statistics or the Congressional Budget Office are under-reporting things deliberately or not.
Not all misrepresentation is deliberate obfuscation. During the most recent State of the Union address, George the Younger made the asanine statement that "Violent crime rates have fallen to their lowest levels since the 1970s. Welfare cases have dropped by more than half over the past decade. Drug use among youth is down 19 percent since 2001. There are fewer abortions in America than at any point in the last three decades, and the number of children born to teenage mothers has been falling for a dozen years in a row." His citation of that faulty data was intentional and carried out with a specific agenda; the production of that faulty data, however, is probably just a systemic weakness.
The crime rate is calculated by the FBI by voluntary submission of Uniform Crime Reports (UCR) from local police agencies. The accuracy of the data are contigent upon successful arrests and prosecutions, numbers of police available for dispatch, unenforced and unregulated submission of the data, and many other variables. This means that nobody can say with any authority how much crime (violent or otherwise) is actually going on at any given time. The UCR do not attempt to obfuscate, they attempt to estimate. Knowing this, anyone citing the UCR as fact on the ground has an agenda. (I will concede that the claim about drug use being down might be accurate since 50% of the American prison population is currently serving non-violent drug related sentences, although once again, the claim is based upon what is actually caught and reported.)
Likewise the claim about welfare receipt and abortion rates. There may be fewer welfare recipients and clinical abortions, but this has nothing whatsoever to do with the need for these services lessening. Beginning under President Clinton, a program was enacted which decreased the number of welfare recipients (but not the number of poor and needy) by placing draconian limitations upon who qualified for welfare benefits and how long they could draw upon them. As time passes, even those who can demonstrate that they qualify for welfare programs eventually run through the expiration of the term that they can receive them. In the case of abortions and teenaged pregnancies, those who have the greatest need for medical attention have no medical insurance benefits and are excluded from the official count.
One could make the case that even if the President's statements were accurate (and I hope that we may conclude from the above that they aren't), they say less about the American people embracing any kind of moral paradigm than they make a case that there is a greater police state than existed before. There was, to my knowledge, very little violent crime, drug use, abortions or welfare under the regimes of Hitler, Stalin or their ilk. That does not make those regimes desirable for the people.
So the question becomes: Is this consistent under-reporting of the unemployment rate in America by census-generating agencies (like the BLS) intentional? Citing the under-representation is definitely intentional and reveals an agenda (either benign as in the case of business analysts or to further policies as in the case of the White House)... but are the agencies who produce this skewed data doing so in complicity with that agenda? All I can say with any authority is that there are many, many more un- and under-employed people in America than the offical numbers are telling us... and there needs to either be a greater transparency for those who would wish to "cook the books" in this respect or we need to seriously revamp our methodology for generating these estimates.
Posted by: Monolycus | Feb 5 2006 21:28 utc | 7
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Others agree: Roach on the Fed`s cooking of inflation numbers
Posted by: b | May 13 2005 15:01 utc | 1