Saturday, June 07, 2008

bad, and worse than you think

Some more bad economic news. Unemployment went up by 0.5 percentage points, the biggest jump since 1986. Oil prices have hit new record highs, and could be going higher. The US dollar grows weaker.

In Florida, John McCain said the numbers were disturbing - "They're the worst in 22 years, I'm told." And in reality, they are worse than you think because of decades of slow, creeping changes to how we actually report economic statistics.

In the May Harper's, Kevin Phillips summarized the changes (subscription required). It was a lot of little things.

For example, over the years the US government has redefined inflation by creating a category called "core inflation." That number excludes food, energy, and housing. In other words, it excludes the essentials. Absurd. And as Phillips writes, excluding these things has made inflation appear lower, fueling lower interest rates, which spurred higher housing prices, which created greater inflation that did not show up in "core" inflation... And about 20 years ago we quit describing the size of our economy in GNP (Gross National Product) terms, instead using GDP (Gross Domestic Product) for the simple reason that GNP was showing our heavily indebted economy in a far worse light.

How would you count unemployment? How about by counting people who wished they had jobs but didn't? Nope, you have to be actively seeking a job. If you've given up on finding a job, you don't count.

If we used the same statistical methods now as we did in 1983, per Phillips, we would be around 8.5% unemployment, not 5.5%; inflation would be 5% not 2%; growth would be 1% not 3-4%.

Doesn't look so good, does it? And honestly, don't these more negative, more honest numbers better reflect the economic reality that we feel in our guts? Just like the statistic I just came across somewhere, how 62,000 jobs in the $30,000-80,000 salary range in Silicon Valley have been lost, replaced by 66,000 jobs earning under $30,000.

These rose-colored economic glasses that make everything look better are masking the real concerns. And although the Democrats have also been responsible for cooking the figures, they have benefited the Republicans by creating numbers that allow the media to go on about the great economy - ignoring REAL unemployment rates, ignoring REAL declines in real wages, and ignoring greater income disparity.



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