The true state of the American economy in a post-2008 Financial Crisis world is not what it 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 gross 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 via 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 – as judged by cooked metrics - alongside consistent reports openly discussing rising homelessness and crime in urban and even suburban areas, collapsing retail spending, and a reprising real estate correction – trends which traditionally indicate widespread and growing economic distress.
The reasons for such purposeful statistical 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 nonetheless oddly, willingly admits. This ‘officially’ propped up 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 4.5% for the month of March 2017. Said reported rate had ranged between 4.6% and 5.0% throughout 2016. The March 2017 number was even touted as being “the lowest in [a] decade”, with the November 2016 figure of 4.6% having been praised as 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 economists, 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 & 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 March 2017 U5 figure listed at 5.4%, while the U6 came in at 8.9%, clearly nearly twice the “official”, headline-grabbing U3 number.
Lastly, a valuable independent economic research organization based in Northern California entitled Shadow Government Statistics (“ShadowStats”), calculates a separate, much wider metric entitled 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 currently 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 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, 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 (I.E. entitlement expenditures and the U.S. federal budget deficit) as well as vital foreign considerations (I.E. international perception of the U.S. economy, trust in the U.S. Dollar as global reserve currency, continuing necessary reliance on a Petrodollar Standard, etc.).
Thus, when ShadowStats calculates formal inflation figures while relying upon the more data-inclusive yet shrewdly abandoned methods from past decades – methods which, again, incorporate vital consumer costs – they naturally arrive at much higher percentages:
Questioning the official CPI figures has persisted for some time by contrarian and “heterodox” economists and hard money (I.E. gold standard) advocates, with even divisions of the U.S. Federal Reserve attesting to government metrics differing from household experiences.
U.S. GDP: Overstated?
Although the U.S.GDP figure has been contested as a viable measure of a nation’s genuine economic development, sustainability and wellbeing, it is nonetheless relied upon as a core measure of economic strength. That said, and as related to the above quantitative phenomena, 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
Per 18th Century philosopher and accepted father of modern capitalism, Adam Smith, the marketplace is ultimately guided by an “invisible hand”. I.E. 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 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 orchestrating interventions to provide ‘circuit breakers’ when mass frenzy threatens the financial system (which, on its own, questions the overall sustainability of said 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 cerebral, ‘wonkish’ contradictions in economic theory?
Yet theory must, at some point, be reconciled with reality (especially if it’s an invalid theory...). Meaning government interference in so-called “free 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, private and hybrid 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.
The false reasoning over the government’s shifting of methodology over key economic metrics involved the seeking of ‘information-age efficiencies’ that were assumed to accompany the dawning of the Internet Age back in the mid-1990s. Yet these ‘efficiencies’ resulted in the hollowing out of the US work force over the past two decades. They also contributed to the reversal of rising wages, both factors of which are directly killing off the middle class that had been built up over the prior five decades. Indeed, for the sake of critical transparency, this is partly where the value of history matters to economics and finance, which are fields in dire need of interdisciplinary salvaging from excessive, shaky mathematical assumptions regarding human behavior.
Subsequently, we have supposedly been in a “Recovery” since 2009, yet the Federal Reserve hasn’t been able to substantively raise interest rates to match what a traditional recovery has warranted in the past. Instead, there have merely been micro-adjustments higher – ultimately to give short shrift to defending the increasingly risky US dollar – while Negative Interest Rate Policy (“NIRP”) is now even being considered, as it had been with futility in Japan and Europe - to try and resolve chronic lack of demand. Much of these systemic dysfunctions can be owed to poor data reporting – or outright omitting – over decades.
Pye Ian, Newsbud Senior Analyst & Commentator, is an independent economic and geopolitical researcher as well as a strategic planning and business development advisor. His articles and analyses on international affairs, economic trends and cultural topics have been published in various mainstream and alternative press sources. Mr. Ian’s wider intellectual interests are reflected in his writings on the convergence of foreign affairs, political philosophy, history, global finance and energy policy. He has undergraduate degrees in economics and political science from the University of California and a Master’s degree in finance from Cambridge University. In addition to English, Mr. Ian has proficiency in Farsi.