[Editor’s Note: The following post is by TDV contributor, Christopher P. Casey, and originally appeared on WindRock Wealth Management's blog.]
“There are three kinds of lies: lies, damned lies, and statistics.” — Mark Twain
With all due respect to Mr. Twain, he did not extend the thought far enough – government statistics trump all lies. But then again, the government’s role as both preeminent statistical gatherer and manipulator is a phenomenon more applicable to our time. Today, various US bureaus and agencies monkey with every key macroeconomic indicator, most notably inflation, production (Gross Domestic Product), and unemployment. To wit:
Inflation
Since the early 1980s, the Bureau of Labor Statistics (BLS) has engineered a lower “inflation” rate in the Consumer Price Index (CPI) with such maneuvers as:
- Accounting for “quality” improvements in goods (“hedonic adjustments”);
- Replacing items in the basket of goods measured with lower-price items (“substitution”);
- Decreasing the impact of rising prices by any particular good within the basket (“geometric weighting”); and
- Changing how rents are measured (“imputation”).
The results? According to ShadowStats, which calculates inflation with the previous CPI methodology, inflation has been understated by five to six percentage points over recent years.
Gross Domestic Product
GDP, to the extent it is relevant at all, must be assessed in real terms (discounting the effects of inflation). Otherwise, how else could you discern economic growth from a mere rise in prices? Therefore economists “deflate” GDP statistics by the rate of inflation to determine real changes in economic output. Curiously, instead of utilizing the CPI in such calculations, the government utilizes a different price index entitled Personal Consumption Expenditures (PCE). Why? As the PCE index is chronically lower than the CPI, real economic growth appears higher than if the CPI was used. Not content with just this trick, the Bureau of Economic Analysis (there are a number of US agencies which compile economic statistics) rolled out new guidelines for GDP calculation on July 31, 2013: henceforth, expenses paid for research & development will be included to “capture” the benefits of intangible assets. GDP jumped 2.7% with the addition (every little bit helps) and future growth is projected to be higher with the change.
Unemployment
As of October 2013, unemployment stood at 7.3%. Notwithstanding the previous month’s rate of 7.2%, this represented its lowest level since December 2008 (7.3%) which appears an impressive rebound given its peak of 10.0% (October 2009). But the Labor Participation Rate, the statistic which measures the actively employed percentage of an economy’s work force, stands at a mere 62.8% (October) – a level not observed since 1978. The discrepancy? Literally millions of discouraged unemployed workers having ceased looking for work. In BLS calculations, if you do not have a job, you are unemployed. But if you have been looking for years and have become so disillusioned as to end your efforts, you are no longer unemployed – but you still do not have a job.
We understand that many areas of the economy cannot be measured with any precision. In fact, the Austrian school of economics, to which we subscribe, was the first to point out the difficulties of measuring something as seemingly innocuous as the price level.
Because of such difficulties, it is reasonable to believe economists seek to improve their accuracy and worth. But when do refinement and improvement become, not a purpose, but a pretense for goosing the numbers? The aforementioned machinations prove we are already there. [Editor's Note: The TDV Newsletter is unfailingly Austrian in its outlook and thus provides real facts and analysis that you just won't get in the mainstream. This means the newsletter also gives you actionable advice that works. Click here to learn more about how you can get access.]
However, worse than the manipulation of statistics to placate the populace and the financial markets is the reason the government is so interested in statistics. As explained by the noted economist Murray Rothbard:
“Statistics are the eyes and ears of the bureaucrat, the politician, the socialistic reformer. Only by statistics can they know, or at least have any idea about, what is going on in the economy. Only by statistics can they find out . . . who ‘needs’ what throughout the economy, and how much federal money should be channeled in what directions.” ("Statistics: Achilles’ Heel of Government" by Murray N. Rothbard)
Statistics are the critical tools of the central planners. Their growth in usage tracks the retrenchment of free markets from the economic landscape. Their manipulation reflects the deterioration of an economy.
Twain may have been a great author of fiction, but the US government wins the Pulitzer.
Comments or questions? Email us at TDV@dollarvigilante.com and we may use your email in our Feedback Friday each week.
Christopher P. Casey, CFA®, CPA is a Managing Director at WindRock Wealth Management (www.windrockwealth.com). Using Austrian economic theory, Mr. Casey advises wealthy individuals on their investment portfolios to maximize their returns and minimize risk in today’s world of significant government intervention. Mr. Casey can be reached at 312-650-9602 or at chris.casey@windrockwealth.com.
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It hurts our ears when people say "GDP" out loud as if it means anything. It's like listening to people explain the motion of the planets in terms of the mood of the angels responsible for pushing the planets around. It's nonsense on its face, clearly designed to keep the masses under control.
But there was a time when explanations of angels (whose creator chose the monarch) worked on the majority. Today explanations of money supply monoply, interest rate controls and GDP all work on the majority, too.
Back then, not buying the official explanation would have gotten you tortured and killed. Things are much better today. Your friends and family may think you're nuts…but getting analysis based on a real economic understanding and data is worth it because it means profiting immensely as everyone else gets burned financially.
To start getting that accurate data along with actionable, wealth-creating advise, just click here to find out more about subscribing to the TDV Newsletter.
Regards,
Gary Gibson
Editor, The Dollar Vigilante
