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Behind the falsification of US economic data
- Text size
Peter Daniels
WSWS
June 4, 2008
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.
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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.
George H.W. Bush and his Council of Economic Advisers proposed the recalculation of inflation statistics to give greater weight to the service and retail sectors and, again, reduce the official rate of inflation.
This change was actually implemented during the Clinton administration. Clinton also carried out other changes, including a reduction in the monthly household sampling from 60,000 to 50,000, a decrease that was concentrated in the inner cities and had the effect of reducing official jobless figures among African-Americans.
The Clinton years were an especially active time for imaginative tinkering with economic data. Three other “adjustments” in the Consumer Price Index were implemented under the Democratic administration: product substitution, geometric weighting, and hedonic adjustment.
Product substitution means that, for example, if steak gets too expensive, individuals substitute hamburger. Steak is simply removed from the typical food basket even though it has been used in the past to track price changes.
Geometric weighting is defined as lower weighting in the price index for those goods and services that are rising most rapidly in cost, on the assumption that they are consumed in lower quantities. This may of course be true, but the aim is to reduce the inflation figure, covering up the fact that some items are no longer affordable for tens of millions of people.
Phillips is particularly scathing about “hedonic adjustment,” also implemented during Clinton’s presidency. In this concept, the supposedly improved quality of some products and services is translated into a reduction in their effective cost. This is another obvious attempt to reduce official inflation. “Reversing the theory, however, the declining quality of goods or services should adjust effective prices and therefore add to inflation,” Phillips writes, “but that side of the equation generally goes missing.”
Phillips explains that every single one of the statistical revisions implemented over the past two generations have become permanent. Once initiated by a Democratic or Republican administration, they were carried over to the Bureau of Labor Statistics and other agencies in bipartisan fashion, no matter who the current occupant of the White House was.
To all of the above should be added one other element, which Phillips does not discuss, perhaps because it does not stem from the economic data itself. That is the explosive growth of the US prison population, which has soared over the last 30 years and now stands at 2.3 million, compared to an overall labor force of 153.1 million. This situation, the outcome of the misnamed war on drugs and the overall bipartisan law-and-order hysteria, keeps the official unemployment rate artificially low. Between the army and the prison system, official joblessness is reduced by perhaps 2 percent.
Phillips points out that all of the changes in economic recordkeeping over the past 50 years were not the result of some grand conspiracy. They certainly did not stem from a master plan hatched in the 1960s or 1970s, of course. This does not mean, however, that there is no logic to these developments, no broader economic and political source.
The corruption of economic data corresponds to deepening contradictions of US and world capitalism. These contradictions impelled the bourgeoisie to abandon a general policy of social reform that had lasted for more than three decades, and to embark on what has been termed a “one-sided class war,” in which the services of the pro-capitalist trade unions were utilized to carry out an unprecedented transfer of wealth from the working population to a tiny ruling elite.
There was a step-by-step logic to all of the measures that were taken to misrepresent basic economic statistics. Big business could not have carried out the policies it required without falsifying economic reality. Even though daily life became increasingly difficult for huge sections of the working class, it was necessary to divide and disorient, to intimidate millions with the claim that “there is no alternative,” and that what Reagan referred to as the magic of the marketplace was creating a veritable golden age from which everyone would benefit.
Some of the consequences of the falsification of data can be translated into dollars and cents. If the CPI had not been systematically understated, Phillips explains, Social Security checks would be 70 percent greater than they currently are.
Beyond the direct impact on Social Security and other government expenditures, an artificially low unemployment rate and poverty rate (officially reported as 12 percent, but in fact at least twice that figure) helped the financial and political establishment to reduce living standards and social conditions. How many countless think tank reports and magazine articles, trumpeted by Democratic and Republican politicians and academic figures alike, took as the gospel truth that the “Anglo-American” model of capitalism, compared to its more regulated rivals in France and Germany, meant lower unemployment? This and similar claims were based largely on lies.
American capitalism once prided itself on the accuracy of its economic statistics. An alphabet soup of regulatory agencies carried out this work. During the decades of the Cold War, the spokesmen for big business always pointed to the mockery of economic data produced by the Stalinist regimes as one more proof of the superiority of the profit system. Today, however, the growing crisis is producing a historic reversal. Where American capitalism once required accurate data, today it requires lies.
Phillips’s revelations share something with those of former White House press secretary Scott McClellan. They are not exactly news, but they represent a kind of barometer of the growing crisis that is forcing its way into the open within official and semi-official circles.
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June 4th, 2008 at 8:43 am
2.9% raise on my SSI. What a bunch of gov liars. At this net-loss rate in a few years, I’ll be using all my SSI just to buy toilet paper. Mark my words, next Jan the gov CPI will be 3.1% while real inflation will be 9 or more percent. Then it just gets worse down the road.
June 4th, 2008 at 9:08 am
The Department of Treasury is the public’s bank by use of bonds. The federal reserve is the private bank by use of bank notes (look at your money – they are notes). Sounds like American’s need to brush up on commercial and admiralty law. If we all placed what’s sitting in private back to public than you are relieve the national debt and giving this country it’s freedom from the federal reserve and its continuously accruing interest. They can’t do it…you have to. They know this and expect you to be too stupid to understand let alone act upon what you know. Well…are you?…
June 4th, 2008 at 9:59 am
It appears that the present and past Governments have increasingly regarded their primary role is to keep its own POLITICAL PARTY in power and to do this THEY MUST Lie and Lie some more and LIE much more to paint a rosy picture of everything in the country and dupe the people.
IMPORTANT QUESTION IS? How can THE PEOPLE OF A COUNTRY with so many schools and colleges and universities be so easily MORONISED? A Special detergent for BRAIN WASHING?
June 4th, 2008 at 10:05 am
geerish. You obviously have not lived in this country to say such garbage. If you did, you would be a little more empathetic as to how this all occurred. This is no time to insult others. That kind of behavior just creates more separation and separation (in many ways) is what has ultimately created this issue.
Help your fellowman, don’t condemn.
June 4th, 2008 at 10:59 am
USMOM truth(to you=garbage and perhaps this is where the problem lies) hurts so much and is so difficult to face but being in a constant sate of denial is no help to getting the country on the right path. Please pass on to us some your wise diagnosis as to how “this all occurred”?
June 4th, 2008 at 11:05 am
I can hardly afford to feed my family. At times it is a choice of feeding my vehicle to go and make more fiat monopoy money, or buy expensive GMO food to fill my children’s bellies. What a dilema. Any ideas?
June 4th, 2008 at 11:57 am
Great article. If history is any indicator, what happened after Nixon and Ford left office and Carter assumed…..will be a period of rapid inflation, unemployement, and economic downturn….in other words the “truth” will start to show its ugly head. It happens every time Republicans leave office.
If you think lying about economic numbers is terrible, you should see what BushCo has done with our military death and injured statistics. Remember the statement made by Bush at the start of the war…”there wont be any US casualties”. What he meant was, the casualties will be so under-reported that they will seem almost nonexistant, especially compared to Vietnam for example. why do you think the US is having such a hard time filling the ranks or the need to pay contractors 10x what a US soldier makes? Everyone is dying or being injured.
June 4th, 2008 at 12:30 pm
This is nothing new. people need to start paying attention and turn off their televisions.
http://www.TacticalWarfighterGear.com
June 4th, 2008 at 12:46 pm
This might be a weird thought but hear me out. If the hell breaks loose and you know that you will die of stravation or put in concentration camp, won’t it be better that you just find an exit in a very fun way? If you have someone you love with you, why don’t just party like no tomorrow .. hold each others close and just fall as sleep? Death is not something you should be scared of. I offen said to my spouse “if i were to die today, I am going to die a happy man. I have everything I have ever wanted right here”.
June 4th, 2008 at 3:06 pm
This morning Bernake had the gaul on one hand to say that comparatively the cost of gas is the same as it was during the 70’s oil crisis which is harmful to our economy but on the other hand says that currently inflation is only 1% as compared to 6% in the 70’s….Does he think we are total idiots!!!!!! Todays inflation stats do not count heating oil, gas, food or the like. We are currently experiencing inflation depending on the product anywhere from 10% to 200%!!!! A shitty made in china pressure washer 2 years ago was $49.95. Today it is $185.00. Eggs, gas milk, heating oil, clothes, life in general is way more expensive and americas home atm is now closed for the next 20 years. This guy needs to be strung up in the town square tarred and feathered and run out of town on a rail!!!! Where are your balls america?????? Oh yea they are made in China. Sad.
June 4th, 2008 at 3:12 pm
geerish Says:
June 4th, 2008 at 10:59 am
USMOM truth(to you=garbage and perhaps this is where the problem lies) hurts so much and is so difficult to face but being in a constant sate of denial is no help to getting the country on the right path. Please pass on to us some your wise diagnosis as to how “this all occurred”?
*****
This ought to help explain things. Brush up on commerical and admiralty laws, because this is where banks function.
I have no problem facing any truth in front of me. You won’t either….or will you?…
http://www.winstonshroutsolutionsincommerce.com
June 4th, 2008 at 3:41 pm
Did they have ever said they will helped you? Its a game your forced to play until youll get out of the fear of dying for living , You start in a system (family) that is itself regulated by other system that have been impossed on the population by the population to as like the most comon idividual think need to in order to have his own life in the order they think is the best for themself. The only problem i can think of for now is that by regulating other individual whit a system you have no control on is in fact preventing yourself to have effect so its meaning less and is the reason why you have no power to help other and maybe even yoursellf. This is is basic system for the evil people who care not about others , life , order and probably their proper way of living they are law less and are eassy to spot cuz they will impose their will and probably refuse to hear you like the other traped in the selfless system that make you slave to others to survive and rate your evolution on how mutch can you take and use whitout being eliminated. Real master on the top are Psy Vampire using your will as their own . Its mind over mathers or mind control ( you in mind control if your doing something you are not suposse to ,dont want to or are forced to do even knowledge supression is a form of mind control preventing you from achiving things)
June 4th, 2008 at 4:04 pm
To geerish : its simple in school they learn the system then they see it so they think its how its supposse to be. Powerfull people have created America whit Bank , politic , education and religion then its easy to see that they have used this to justefy or make you want what they want to offer you . And its just the control of the population.
June 4th, 2008 at 6:20 pm
Thomas Jefferson and Benjamin Franklin considered banning all Jews from entering this nation because of what the Jews do to EVERY NATION THEY SETTLE IN.
They take control of the money supply and enslave the population through usury and then manipulate markets to create boom and busts, inflation and deflation and we all end up homeless on the land our forefathers once owned.
England BANNED all Jews from entering for over 300 years !!!!
Obviously they knew something we have now forgetten.
NEVER FORGET THEY ORCHESTRATED THE 9-11 DEMOLITIONS.
June 4th, 2008 at 6:24 pm
Anyone surprised the price of oil tripled after Israel got control of IRAQI oil ????
Throughout history they have manipulated markets and caused great suffering for personal benefits.
June 4th, 2008 at 7:38 pm
lizajean: Joker has requested an appearance from
you at zeesea418@yahoo.com. Bring your friends
with you.
June 4th, 2008 at 8:01 pm
America is Babylon and Babylon is ruled by the Nazi Queen.
She makes all decisions on Social Security.
Based on the following information we are not parties to the
constitution. Our satanic rulers, the queen and her boss, the
vatican are out slave owner. Someone tell Michele O’Bumma
she should blame the popes and queen for genocide.
June 4th, 2008 at 11:18 pm
They are secretly forcing brokeness down our throats then turning to give a tiny morsal to lift your morale one day and saying here is four dollars an hour thats more than enough try eating cat food no one has died from that.Keep working and maybe some day you can move up to dog food.
June 4th, 2008 at 11:57 pm
Do you have access to a plot of dirt? Learn to grow some beans. Who said money doesn’t grow on trees?
June 5th, 2008 at 2:14 am
I am so sick of reading all of this crap about Jews. Yes, I know all about the high percentage of Jewish bankers and how corrupt Israel is so don’t start telling me about that. I work my ass off everyday to provide for my family and to get supplies for when the shit hits the fan. I don’t think that they will care if I’m Jewish or not when they come to put people in the camps. I am totally against and will fight the NWO and would no matter what religion I am. Once again you are letting yourselves be divided. We must all stand together if we are to defeat them.
June 5th, 2008 at 6:36 am
Hillbilly Jew Says:
June 5th, 2008 at 2:14 am
I am so sick of reading all of this crap about Jews. Yes, I know all about the high percentage of Jewish bankers and how corrupt Israel is so don’t start telling me about that. I work my ass off everyday to provide for my family and to get supplies for when the shit hits the fan. I don’t think that they will care if I’m Jewish or not when they come to put people in the camps. I am totally against and will fight the NWO and would no matter what religion I am. Once again you are letting yourselves be divided. We must all stand together if we are to defeat them.
********
Hillbilly Jew – I may not be jewish, but I too am getting pretty sick of reading it as well. This forum may not be my bag due to the disrespectful word slinging people engage in on this site. All the hatin’, but nobody’s truly getting anywhere with it. You’d think they’d notice they aren’t changing anything by hating others or blaming entire religious groups in their quest to be heard. I can see how people can lose productive focus on these website blogs while defending their opinions and views during this amazing time we live in. Thank God I’m not falling into the hate/fear trap. Sounds like many people are.
June 5th, 2008 at 11:48 am
00
June 5th, 2008 at 4:52 pm
“I can hardly afford to feed my family. At times it is a choice of feeding my vehicle to go and make more fiat monopoy money, or buy expensive GMO food to fill my children’s bellies. What a dilema. Any ideas?”
Get out of debt and Micro-farming.
June 5th, 2008 at 5:45 pm
There is no such thing as foreign, religious fundamentalist terrorism. It is used as a diversionary tactic. This phenomena is an offshoot of CFT or what I call Corporate Financial Terrorism. It is what was responsible for the annihilation of Native Americans; it was the motivation behind slavery, and other cultural atrocities and reveals the effects of its poisonous venom in war after war after endless war. The nuclear bomb is a firecracker compared to the poisonous blast of financial Fallout from a detonation of Corporate money worship. Poverty is a direct symptom of this disease. When you take more of anything than what you really need, you automatically qualify another from not getting. What the NWO (or disOrder) fail or care not to acknowledge, is that as elite as they IMAGINE themselves to be, because their out of control, deranged egos dupe them into thinking they are seperate and deserving from those they seek to destroy, they are double-blinded to the fact that we are ALL in this together; intimately interconnected in ways their power-infected minds refuse to see. If WE go down, it won’t be long before they’re sucked into their own self-created, destructive vortex.