Tuesday, 3 June 2008

:: Behind the falsification of US economic data
Joanne98 (1000+ posts) Click to send private message to this author Click to view this author's profile Click to add this author to your buddy list Click to add this author to your Ignore list Mon Jun-02-08 11:26 PM
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Behind the falsification of US economic data
In recent years, it has become increasingly clear to those who follow US economic statistics that there is something dubious about the numbers released by official government agencies and used to guide many aspects of social and public policy.

The details and chronology of the corruption of economic data are presented in a new book by Kevin Phillips, the political commentator and former Republican Party adviser who has become something of a muckraking critic of the “excesses” that he helped set in motion. The book is entitled, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism Phillips summarizes some of his main conclusions in an article in the current issue of Harper’s Magazine.

The article focuses primarily on three measures: the monthly Consumer Price Index (CPI), the quarterly Gross Domestic Product (GDP), and the monthly figure for the unemployment rate. Phillips convincingly demonstrates that the real unemployment rate in the United States is between 9 and 12 percent, not the 5 percent or less that is officially claimed. The real rate of inflation is not 2 or 3 percent, but instead, between 7 and 10 percent. And real economic growth has been about 1 percent, not the 3-4 percent officially claimed during the most recent Wall Street and housing bubble that has burst.

Phillips’s background makes his statements all the more significant. He was a prime strategist for Nixon’s 1968 presidential campaign and one of the main architects of the notorious “Southern strategy,” through which the old Republican Party of Wall Street and Main Street refashioned itself with a right-wing populist appeal, stoking racial antagonisms while above all capitalizing on the bankruptcy of American liberalism to shift the political spectrum sharply to the right.

The corruption of official statistics is not the work of one administration, and Phillips traces it back nearly 50 years. The current occupant of the White House has, in fact, been somewhat less active on this front than his predecessors.

Soon after John F. Kennedy took office in 1961, Phillips points out, he appointed a committee to recommend possible changes in the measurement of official joblessness. What soon followed was the use of the category of “discouraged workers” to exclude all those who had stopped looking for jobs because they weren’t available. Many who had lost employment in basic industry, in a trend that was just beginning to pick up steam with automation and the rise of global competitors in such industries as steel and auto production, were no longer counted as unemployed.

During the administration of Lyndon Johnson, the federal government began using the concept of a “unified budget” that combined Social Security with other expenditures, thus allowing the current Social Security surplus to disguise growing budget deficits.

As Phillips reports, Nixon tried to tackle the “problem” of statistics in typically Nixonian fashion: he actually proposed that the Labor Department simply publish whichever was the lower figure between seasonally adjusted and unadjusted unemployment numbers. This was apparently deemed too brazen an attempt at manipulation and was never implemented.

Under Nixon’s Federal Reserve chairman, Arthur Burns, however, the concept of “core inflation” was devised. This became the means of excluding certain areas like food and energy, on grounds of the “volatility” of these sectors. The suggestion was that these prices jumped and then sometimes fell, so that it was best to remove them from the prices surveyed. In fact, food and energy together accounted for an enormous portion of spending for most sections of the working class and, as Phillips also explains, these two sectors are “now verging on another 1970s-style price surge.” As of last January, Phillips writes, the price of imported goods had increased 13.7 percent compared with a year earlier, the biggest jump since these statistics began in 1982. Gasoline prices, meanwhile, have soared by more than 30 percent since just the beginning of this year.

The Reagan administration addressed itself to the pesky problem of housing in the inflation index. An “Owner Equivalent Rent” measurement was dreamed up for the purpose of artificially lowering the cost of housing—from a purely abstract statistical standpoint. Under Reagan, Phillips also points out, the armed forces began to be included in the labor force and among the employed, thus reducing the unemployment rate, even though these same members of the military would in many cases have no employment in civilian life.


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