Article Title: “U.S. Economic Reality Versus How It Is Reported”
Author: Pye Ian
Date: 23 December 2016
The true state of the American economy in a post-2008 financial crisis world is not what is depicted and sold as being by the U.S. government and the sycophantic mainstream corporate financial press which remains mostly obedient to its dictations. Credible statistics for such vital economic indicators as the "official" rates of unemployment, inflation and the growth domestic product (GDP) growth rate are vastly different from what is routinely reported by government entities including the Bureau of Labor Statistics (BLS), Bureau of Economic Analysis (BEA), U.S. Treasury and most certainly the U.S. Federal Reserve itself, which practically runs the economy due to diktat monetary and fiscal policies with little to no oversight by any formal constitutional branch of the U.S. government.
Proof of said divergences in data reporting can be found by critically observing the key differences in how said metrics had been measured in decades past by the government versus how they are being measured today, and why. Confirmation can also be found by contrasting the differences in stories reported in said mainstream press itself; namely, reports relaying supposed economic strength judging cooked metrics alongside articles openly discussing rising homelessness and crime in urban and even suburban areas – trends which traditionally indicate widespread and growing economic duress.
The reasons for such tactical misreporting include key political ones involving the need by the government for maintaining an image of the US economy as still the strongest on Earth despite enduring the “worst economic crisis since the Great Depression," as the financial press willingly admits. This image helps justify foreigners keeping US Treasury Bonds. Reasons also include the government avoiding adjusting entitlement payments higher due to the real rate of inflation, considering already record-level U.S. debt.
America's (‘Massaged’) Unemployment Diagnosis
The current “official” U.S. unemployment rate – meaning that which is revealed by the BLS (a division of the U.S. Department of Labor) – listed as 4.6% for the month of November 2016. Said reported rate has ranged between 4.6% and 5.0% throughout 2016. The November number was even touted as being at a “nine-year low," seemingly indicating that the U.S. economy is back on track after a brutal 2007-2009 financial crisis, which – again -- heaved many sustaining aftershocks for years.
The problem, and resulting controversy, with how the BLS tabulates monthly, seasonal and yearly unemployment figures is that the means of data collection involve a limited survey which skews the meaning of incentives for people seeking work. The Current Population Survey conducted monthly by U.S. Census employees reaches out to only a limited number of households as a supposedly accurate, representative sample of tens of millions of Americans. Said survey uses opaquely random sampling methods while rendering household participants who are “not actively looking” for work as effectively out of the counted labor force. Per Investopedia, “[t]his is a controversial issue, as many feel the unemployment rate excludes a large number of people who are out of the labor force, not because they do not want a job, but because they have simply given up looking [for work]."
The BLS's official unemployment figure – labeled the “U3" - is expectedly not the definitive metric for all economics, analysts and money managers, despite serving as the monthly news headline figure. There is also the “U5” figure, which counts the U3 along with “discouraged workers” who have stopped looking for work because current economic conditions make them believe that viable work is simply unavailable. The U5 also includes “loosely attached workers” who are capable and prefer to work, yet haven't actively sought it in recent months (perhaps due to lowered self-esteem resulting from months of unemployment – again, not a concern for government economists). There is also the “U6” unemployment figure, which includes the U5 along with part-time workers who prefer full-time labor yet cannot secure it due to more systemic or structural economic faults such as “underemployment."
The November 2016 U5 figure listed at 5.8%, while the U6 came in at 9.3%, clearly over twice the “official," headline-grabbing U3 number.
Lastly, an independent economic research organization based in Northern California titled Shadow Government Statistics (“ShadowStats”), calculates a separate, much wider metric titled the “ShadowStats Alternate” unemployment estimate, which purposefully includes much longer term discouraged American workers who've been unemployed for over a year. I.E. People tactically ignored by the BLS for said tabulations. Per ShadowStats, their estimate relies upon means of government calculations which were abandoned – ostensibly for political reasons -- by the BLS in 1994.
Said ShadowStats Alternate unemployment figure registers at a staggering 23% - well in range for what America endured during The Great Depression (although the government and press ‘urge’ us not to go near that phrase again...).
America's (‘Massaged’) Inflation Diagnosis
The U.S. Government will tout current low inflation, with many mainstream commentators even warning of outright chronic deflation. Yet, Americans feel the clearly rising burdens of paying rents and fuel, medical costs, insurance premiums, certain foods, medicinal drug prices and a myriad other consumer staples.
Similar to how determinant metrics for unemployment were changed by the BLS in 1994 as per changes in census measurements, the BLS performed methodological shifts in calculating and reporting consumer inflation, as displayed monthly by the Consumer-Price Index (CPI). The resulting numbers have been consistently lowered, with the underlying reasons remaining perceptual and firmly political.
Again, per ShadowStats, the CPI has been remolded since the early 1980s so as to purposefully understate the “official” rate of inflation, versus the actual consumer experiences:
"CPI no longer measures the cost of maintaining a constant standard of living. CPI no longer measures full inflation for out-of-pocket expenditures. With the misused cover of academic theory, politicians forced significant underreporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc.
Use of the CPI to adjust retirement benefits, private income or to set investment goals impairs the ability of retirees, income earners and investors to stay ahead of inflation. Understated inflation used in estimating inflation-adjusted growth has created the illusion of recovery in reported GDP.”
Hence, these critical statistical figures are purposefully misstated for both domestic political reasons (entitlement expenditures and the U.S. federal budget deficit) as well as vital foreign considerations (international perception of the U.S. economy, trust in the U.S. dollar as global reserve currency, continuing reliance on a Petrodollar Standard, etc.).
Thus, when ShadowStats calculate formal inflation figures while relying upon the more data inclusive yet shrewdly abandoned methods from decades past, they naturally arrive at much higher percentages:
Questioning the official CPI figures has persisted for some time by contrarian economists and hard money (I.E. gold standard) advocates, with even divisions of the U.S. Federal Reserve attesting to government metrics differing from some household experiences.
U.S. GDP: OVERSTATED?
Although the GDP has been contested as a viable measure of a nation's genuine economic development, sustainability and wellbeing, it is nonetheless relied upon in the U.S. as a core measure of economic strength. That said, and as related to the above metrics, questions also linger over the credibility of U.S. GDP growth rate figures.
We defer again to ShadowStats, which conveniently provides an “SGS-Alternate GDP” annual rate of growth. This more transparent figure “… reflects the inflation-adjusted, or real, year-to-year GDP change, adjusted for distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias to official reporting.”
Their estimated blue line for the SGS-Alternate below illustrates the multiple percentage point reduction from the official, BEA-issued U.S. GDP growth rate:
U.S. EQUITY MARKETS: THE “INVISIBLE HAND” MADE INCREASINGLY VISIBLE
As per 18th century philosopher and accepted father of modern capitalism, Adam Smith, the marketplace is ultimately guided by an “invisible hand." Meaning an "unobservable market force” helps the supply and demand of goods and services in free markets "automatically” reach an equilibrium position for trade. It sounds great in theory, until one studiously observes movement behavior in the indices of major U.S. stock and equity markets over the past few decades.
“There are no markets anymore, just interventions.” - Chris Powell of GATA.org
After the October 1987 U.S. stock market crash, President Ronald Reagan assembled what later became known as “The Plunge Protection Team” (PPT) in order to prevent future fiscal crises by intervening directly in markets should there be panic selling. This outfit included the U.S. Federal Reserve, Treasury and other critical entities tasked with carefully calibrating interventions to provide ‘circuit breakers’ when mass frenzy threatens the financial system. Yet warranted concerns linger over the ‘graduated scale and scope' of what this outfit, or its ancillaries among large banks, exchanges and increasingly, technologically complex high frequency trading tools, are committing, considering consistent, seemingly fortuitous reversals in direction for U.S. stock markets after aggressive corrections in recent years.
For many rote investors, traders, financial salespeople and certainly government bureaus tasked with reporting items like, well, the U.S. GDP, there is a collective shrugging of shoulders over the PPT's proven or even potential actions, let alone the need for its existence in supposedly “free market” conditions. If the PPT's actions benefit them and the country's economy overall, then what's the point of referencing pointless contradictions in economic theory?
Yet theory must, at some point, meet reality, whether it's valid theory or not. Meaning government interfering in markets as well as manipulating vital economic indicators such as unemployment, inflation and GDP numbers, eventually leads, ironically, to distortions in the economy which get increasingly harder to fix. Vital, accurate asset price discovery becomes warped over time. Contradictions between ‘free, open trade’ and said interventions (read: manipulations) result in the hoarding of commodities and other goods by those (i.e. foreign central banks) who become aware of such ‘noble lies’ (to paraphrase Plato).
Ultimately, the very philosophical edifice underlying the economic and political system of a nation (the U.S. or U.K.) or system (market fundamentalism) is drawn into question, as are the capabilities of the so-called enlightened leadership backing them. The same leadership which perennially preaches to the rest of the world to conform to its beliefs and practices.