The U.S. government is consciously misrepresenting our sick economy

April 16, 2008 | By | 2 Replies More

How bad is the economy?  In the May issue of Harpers Magazine, Kevin Phillips cuts through the numbers in an article entitled “Numbers Racket:  Why the economy is worse than we know.” The revelations Phillips makes are shocking.  The U.S. government has been consciously cooking the books for decades.

How do you make inflation look lower than it is?  Just remove some items from consideration and create value out of thin air (e.g., “product substitution,” “geometric weighting” and “hedonic adjustments”).   Truly, you’ve GOT to read the details to believe what has been going on.  If you think that inflation is running between 2% – 4%, think again.  Using honest accounting methods, it’s more like 12%.  If CPI had been honestly reported for the past couple of decades, Social Security checks would be 70% greater than they currently are.

We have an official unemployment rate of 5%.  The government arrives at that nice low number by simply not counting all of the people who want jobs.  If you really counted those people, the U.S. has an employment rate of about 9%.

Who profits from these fake number of low inflation and low unemployment?

Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

Don’t forget the utterly ridiculous concept of “imputed income,” one of several forms of phantom income, which constitutes 15% of GDP.

Phillips see nothing but trouble resulting from the use of these methods of cooking the national books. An honest accounting “would reveal a nation in deep difficulty not just domestically but globally.”

The undermeasuring of inflation is especially insidious:

[I]t hangs over out heads like a guillotine.  To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt(from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy . . . The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.


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Category: American Culture, Economy, Politics, snake oil, Statistics

About the Author ()

Erich Vieth is an attorney focusing on consumer law litigation and appellate practice. He is also a working musician and a writer, having founded Dangerous Intersection in 2006. Erich lives in the Shaw Neighborhood of St. Louis, Missouri, where he lives half-time with his two extraordinary daughters.

Comments (2)

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  1. Arthur says:

    My roommate and I are just about to graduate college. He's an economics/business major and I'm a history/modern languages major.

    He's going to work in Wall Street; I'm going to work in academia.

    He thinks I'm crazy to go through 10+ years of education after high school and brags that he'll be making $100,000 a year when I'll be struggling to earn the equivalent of the cost of a Kia.

    Looking at things like this, though, who has the short end of the stick?

  2. Erich Vieth says:

    Phillips followed up regarding his Harper's article with a post at Huffpo:

    A late April survey of 120 U.S. institutional money managers by Barron's, the financial weekly, found that on average, they predicted a CPI inflation rate of 2.72% in December 2008 and just 2.79% in December 2009.

    Critics, by contrast, smell a potential disaster. Oil is up over 80 percent in the last twelve months. The New York Times' consumer reporter, W.P. Dunleavy, wrote on May 3 that his own groceries now cost $587 a month, up from $400 a year earlier. That's a 40 percent increase. Reports in the financial press make frequent reference to foreign investors who distrust the U.S. dollar because they calculate true U.S. inflation at 6% to 9% including food and energy.

    California economist John Williams, who runs an organization called Shadow Statistics, contends that if Washington still used the CPI measurements applied back in the 1970s, inflation would be in the 10 percent range.

    Subtracting a 6-9 percent inflation rate from nominal GDP growth would identify an economy that was deteriorating and shrinking, not growing.

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