While the unemployment and CPI figures have been fiddled with to make them appear smaller (as I discussed in yesterday’s post), the number that measures the size of the economy called the Gross Domestic Product (GDP) has also been fiddled with to make it appear larger than it is and thus appearing to show robust growth.

Kevin Philips, in an article titled NUMBERS RACKET: Why the economy is worse than we know in the May 2008 issue of Harper’s magazine describes the fiddles done with the GDP, which itself was adopted in 1991 when the previous measure of the economy the Gross National Product (GNP) became unpalatable due to rising international debt costs. One of the changes that made the GDP larger consisted of adding to it what is known as ‘imputed’ income to people’s actual income. Imputed income is what one is perceived to get because one is not directly paying for something. This includes “the imputed income from living in one’s own home, or the benefit one receives from a free checking account, or the value of employer-paid health- and life-insurance premiums.” In 2007, this phantom income added as much as 15% to the GDP.

One other major finagle occurred with Lyndon Johnson who was the first to create the ‘unified budget’ that added the surpluses in the social security account to the deficits in the government’s operating budget to make the latter seem smaller than they really were. That practice continues today. It was this disguise that enabled Ronald Reagan and George W. Bush and the Congresses of their time, aided and abetted by then Federal Reserve chair Alan Greenspan, to enact huge tax cuts for the rich.

The scam went like this. By creating a phony scare in the early 1980s (similar to the one we are seeing again now) that social security was going broke, they raised payroll taxes. Since there is a cap on the income that is subject to these taxes (in 2009 the cap was $106,800) most of the money in this trust fund comes from the poor and middle class, making it a regressive tax. This increase in payroll taxes resulted in huge surpluses in the social security current account that, because of the ‘unified’ budget, gave people the impression that there was plenty of money in the public treasury and hid the fact that the country was actually operating in the red. The government then rammed through tax cuts for the rich that used up this bogus ‘surplus’. So basically, the money that middle class and poor people were putting into their social security retirement trust fund was being used to provide huge tax cuts for the rich. This has to be one of the biggest swindles in American history. (See David Cay Johnson, Perfectly Legal: The covert system to rig our tax system to benefit the super rich – and cheat everybody else (2003), p. 123 for an excellent analysis on how this racket was perpetrated.)

This was a clear swindle knowingly perpetrated by the oligarchy. When it comes to fiddling the numbers on unemployment, CPI, and GDP, Phillips says, “Let me stipulate: the deception arose gradually, at no stage stemming from any concerted or cynical scheme. There was no grand conspiracy, just accumulating opportunisms. As we will see, the political blame for the slow, piecemeal distortion is bipartisan-both Democratic and Republican administrations had a hand in the abetting of political dishonesty, reckless debt, and a casino-like financial sector.” I am not as charitable as he in dismissing knowing cynical motives.

Phillips makes the correct point that the people who prepare government statistics are professionals who are careful, in their actual reports, to accurately explain what they are doing, at least in the footnotes, so that the reality is there for anyone willing to read carefully. But governments have realized that most reporters in the mainstream media are too lazy or stupid or ignorant or stressed for time to do this kind of careful reading and analysis and instead simply swallow the summaries, abstracts, and press releases put out by high-level government officials, thus allowing themselves to be manipulated. Reporters would do a much better job if they stopped trying to curry favor with high-level people and instead focused their efforts on reading official documents carefully and cultivating low and mid-level officials and whistle-blowers who can tell them exactly what is going on. The latter have less of an ideological or political ax to grind and thus are more likely to tell the unvarnished truth.

Public ignorance of the true state of the economy benefits the government. Phillips adds:

Readers should ask themselves how much angrier the electorate might be if the media, over the past five years, had been citing 8 percent unemployment (instead of 5 percent), 5 percent inflation (instead of 2 percent) and average annual growth in the I percent range (instead of the 3-4 percent range). We might ponder as well who profits from a low-growth U.S. economy hidden under statistical camouflage. Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markers, and tamp down expensive cost-of-living increases for wages and pensions?

Phillips has to be given credit for warning us in early 2008, before the total collapse of the housing market, of the danger of mortgage debt. He was, however, wrong in predicting that official unemployment figures of 8 percent might make the electorate angry. We are now close to 10 percent with little signs of widespread outrage. This might change with time because the current recession has resulted in unemployment staying high for much longer than previous recessions. I am sure that all of us personally know people who have been laid off and are finding it hard to get work comparable to what they did before.

Next: What is gained by cooking the books?

POST SCRIPT: The Big Brother state

A truly disturbing post from Glenn Greenwald on the assault on our privacy by a government-private sector collaboration, done in order to circumvent laws. I will not excerpt it because you should really read the whole thing.

[UPDATE: Glenn Greenwald has posted an update that the claims of Project Vigilant are highly exaggerated and they may just be publicity seekers.]

In yesterday’s post I discussed the different measures labeled U-1 through U-6 that are used to measure the rate of unemployment. Kevin Philips, in an interesting article titled NUMBERS RACKET: Why the economy is worse than we know in the May 2008 issue of Harper’s magazine, points out how the ‘official’ unemployment rate U-3 masks the true state of affairs.

In January 2008, the U-4 to U-6 series produced unemployment numbers ranging from 5.2 percent to 9.0 percent, all above the “official” number [U-3]. The series nearest to real world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the “marginally attached,” a new catchall meaning those not looking for a job but who say they want one. Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been “bought off the unemployment rolls” by government programs such as Social Security disability, whose recipients are classified as outside the labor force.

[Read more…]

In a previous post, I said that “One of the things that seems obvious to me but most people seem unaware of is that the US is a country in deep decline and if no corrective action is taken soon it will end up just like many other failed empire in history, collapsing from within due to a combination of hubris, arrogance, and greed.” Readers might have been excused for being somewhat skeptical since things don’t seem so dire and we hear upbeat reports about how things are getting better. In the next series of posts I will show how the real state of the economy is being kept hidden to make things look good, or at least not terrible.

In any democratic society, the most sensitive number politically is the level of unemployment. If it is high, then one has public unrest and strong dissatisfaction with the government. If it is low, then workers can bargain for better wages and benefits and so the business sector’s profits get reduced, which makes corporate CEOs and their shareholders unhappy. In oligarchic societies like the US, the needs of the corporate sector always win out so governments tend to pursue policies that prevent full employment while simultaneously taking steps to curb public unhappiness by either giving them some benefits temporarily to help them get used to the idea of not working or hiding from them how bad the situation is.

In the US it is the Bureau of Labor Statistics that keeps track of unemployment numbers. In the current recession, the ‘official’ unemployment level has reached close to 10% and is staying there despite stimulus packages and the like. This is high by historic US standards and it is surprising that it has not created as much unrest as one might expect. But what people may not know is that the ‘real’ rate of unemployment is much higher, maybe twice as much, and that the lower official figure is the result of a steady process of cooking the books over the past few decades.

The unemployment rate is calculated as the number of unemployed workers divided by the total labor force, and the resulting number is multiplied by 100 to get a percentage. (The definitions of employed, unemployed, and total labor force is given here.) By finding ways to make the numerator smaller and/or the denominator larger, one can make the rate smaller. To be counted among the unemployed, one has to meet fairly strict criteria:

Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities:

• Contacting: an employer directly or having a job interview; public or private employment agency; friends or relatives; a school or university employment center
• Sending out resumes or filling out applications
• Placing or answering advertisements
• Checking union or professional registers
• Some other means of active job search

Passive methods of job search do not have the potential to result in a job offer and therefore do not qualify as active job search methods. Examples of passive methods include attending a job training program or course, or merely reading about job openings that are posted in newspapers or on the Internet.

There are categories other than employed and unemployed. ‘Marginally attached’ workers are “persons without jobs who are not currently looking for work (and therefore are not counted as unemployed), but who nevertheless have demonstrated some degree of labor force attachment. Specifically, to be counted as “marginally attached to the labor force,” individuals must indicate that they currently want a job, have looked for work in the last 12 months (or since they last worked if they worked within the last 12 months), and are available for work.”

‘Discouraged workers’ are “a subset of the marginally attached. Discouraged workers report they are not currently looking for work for one of four reasons:

1. They believe no job is available to them in their line of work or area.
2. They had previously been unable to find work.
3. They lack the necessary schooling, training, skills, or experience.
4. Employers think they are too young or too old, or they face some other type of discrimination.

Depending on which categories of workers you count as unemployed, there are six measures of unemployment:

• U-1: Persons unemployed 15 weeks or longer, as a percent of the civilian labor force
• U-2: Job losers and persons who completed temporary jobs, as a percent of the civilian labor force
• U-3: Total unemployed persons, as a percent of the civilian labor force (this is the ‘official’ unemployment rate that the government and media publicize)
• U-4: Total unemployed persons (i.e., U-3) plus discouraged workers, as a percent of the civilian labor force plus discouraged workers
• U-5: Total unemployed persons, plus discouraged workers (i.e., U-4) plus all other “marginally attached” workers, as a percent of the civilian labor force plus all “marginally attached” workers
• U-6: Total unemployed persons, plus all “marginally attached” workers (i.e., U-5) plus all persons employed part time for economic reasons, as a percent of the civilian labor force plus all “marginally attached” workers

So if a member of the ‘officially’ unemployed gets so discouraged that he/she stops even looking for work (which is a bad thing), U-4 remains unchanged but the official unemployment rate U-3 actually goes down, which looks like a good thing. Similarly, if you are forced to work part-time as a greeter at Wal-Mart because you cannot get a full time job, you drop out of the U-3 category (again reducing the official unemployment rate) but the U-6 figure remains unchanged.

Looking only at the U-3 number makes things seem rosier than they really are.

Next: Cooking the books on the unemployed.

POST SCRIPT: Film review: Up in the Air

This film is really good. It stars George Clooney as someone whom companies hire to perform the distasteful task of firing their employees and getting them to accept the severance package. The film shows the varied reactions of people upon learning that despite having put in many years of faithful service, they are now being unceremoniously dumped by a total stranger. Their emotions range over sad and angry and humiliated and despair, the last one especially common among older workers who know that their chances of ever getting another job are slim to none.

Clooney is this generation’s Cary Grant, a good-looking charmer with a roguish twinkle in his eye who can make even an unsavory character appealing. In this film he plays someone who is really good at doing what should be a truly nasty soul-killing job and even takes pride in doing it well. Like a lot of us guys, he has set his heart on achieving some quite pointless goal in life, in his case to rack up 10 million frequent flyer miles, which he pursues with great dedication. And yet he manages to make this shallow person come off as sympathetic and even likable. Writer-director Jason Reitman seems to have a knack for pulling off this trick, having done it before with Thank You For Smoking, in which the main character is a shill for the tobacco industry.

The film’s examination of the essential rootlessness of Clooney’s character and the contrast with the strong ties in which the people he fires are enmeshed, is excellent. Although it is a serious film, it is also a funny one with great writing. It is well-worth seeing. Here’s the trailer:

(My latest book God vs. Darwin: The War Between Evolution and Creationism in the Classroom has just been released and is now available through the usual outlets. You can order it from Amazon, Barnes and Noble, the publishers Rowman & Littlefield, and also through your local bookstores. For more on the book, see here. You can also listen to the podcast of the interview on WCPN 90.3 about the book.)

(Due to the holiday, this is a repost from Thanksgiving of last year, edited and updated.)

Each year, the Thanksgiving holiday is ruined by the revolting attention that the media pays to the retail industry in the days immediately following Thanksgiving. They wallow in stories of sales, of early-bird shoppers on Friday lining up in the cold at 4:00 am to get bargains, fighting with other shoppers to grab sale items, people getting trampled in the crush, the long lines at cash registers, the year’s “hot” gift items, and the breathless reports of how much was spent and what it predicts for the future of the economy.
[Read more…]

The news is full of stories about the budget problems faced by the federal and state governments. But unlike the federal government which has ways to pay its bills without raising taxes, state governments have to balance their books the old fashioned way, by either reducing expenses or raising revenue or both.

But thanks to the anti-tax sentiment unleashed in 1978 by California’s passage of Proposition 13, we are now witnessing the fruits of the relentless propaganda over the past three decades that said that taxes are intrinsically evil and that lower taxes are always better.

When times are good and tax revenues are high, people demand that taxes be cut because it is ‘their’ money. When things turn sour, as they now have, people argue that to raise taxes would be to deepen the recession and that taxes should be cut even more to ‘stimulate the economy’, a phrase I have come to detest since it usually precedes some scam to siphon off wealth even more to the rich and to destroy the common good. So we have reached the stage when it has become an act of faith that it is always good to lower taxes and it is never good to raise them.
[Read more…]

(Part 1 can be seen here.)

One of the odd things that I have found about America is how many people are willing to fight to protect the interests of the very wealthy, even though they themselves are nowhere close to attaining that level of income, and where the efforts by a few to acquires such wealth adversely affects them. Some are willing to defend the rampant greed that resulted in practices the led to the recent financial collapse. “Joe the Plumber”, “Tito the Builder” and others like them were notable figures during the last election campign that belonged to this category. During the recent tea parties protesting Obama’s tax policies, a demonstrator was asked whether he earned more than $250,000. When he said that he earned much, much less, he was asked why he was protesting since his taxes would be lowered. He said that he hoped to become wealthy some day and thus was looking out for his future interests, however unlikely that may be.
[Read more…]

In writing the series of posts on spreading the wealth and on financial frauds, I started musing on what wealth is and what it means to different people. For many people, becoming wealthy is seen as a desirable goal, an end in itself. Our media is soaked in wealth-porn, the endless regaling of how much wealthy people earn and the details of their lifestyles.

It seems to me that there are three pathways to becoming wealthy: inheriting wealth, acquiring wealth as a byproduct of trying to reach some other goal, and actively seeking it for its own sake because it is important to you.

There is not much one can say about the first category. One either has rich relatives who die leaving you their money, or one hasn’t.

The second type of person is like that of some artists, like J. K. Rowling the creator of the phenomenally successful Harry Potter books, who achieve massive and unexpected success. My guess is that what drives such people is similar to what drives academics, they want to do something for its own sake and seek above all to produce a successful work of art that is recognized as such. Commercial success is very welcome but is not the primary goal. Evidence for this lies in the fact that such people usually do not stop creating new works even when they have no financial reason to continue working. It is the very rare author or actor or painter or musician who stops producing new work simply because they have made lots of money. For such people their primary goal is to produce something they are proud of and is valued by their knowledgeable peers.

There is a subset of this second category that consists of inventors. Such people like Thomas Edison, Henry Ford, Bill Gates, and Steve Jobs are similar to artists in that they are trying to create something new. But at the same time, they necessarily must have a business orientation since their idea is to produce something useful and valuable, not a work of art, and the main yardstick by which that is measured is by selling a lot of it. So making a lot of money is an important measure of whether they have produced something of value. This is different from an academic or artist or poet who can be considered a success while still not being rich.

The third type of person is one for whom making a lot of money is the primary goal in life and it does not matter to them how they achieve it. Such people are willing to spend their entire lives doing something they dislike as long as it enables them to become rich. They tend to view life as a competition and the winner is the person who dies with the most money. They may, in the course of making money, produce something of value and merit, but their primary goal is to be rich. So for them, it does not really matter if they became so by producing a better widget or creating a chain of stores or winning the lottery. Those are just the means to the end of becoming wealthy.

This is why I will never be wealthy. I do not have rich relatives and can expect no inheritance. I do not do the kind of work that is likely to make a lot of money as a side effect. But most crucially, I simply have no desire to be wealthy. While I will of course work to make a living and to “put food on my family” (in George W. Bush’s memorable words), I simply cannot see myself doing something just for the sake of making a lot of money.

There are a very few occasions when I think it would be nice to have a lot of money. When I travel on long airline flights, I sometimes have to get to my coach seat by passing through the first and business class sections. When I see the comfortable and spacious seats they have compared to my cramped one, I think how nice it must be to be able to easily afford to pay the extra thousands of dollars for that luxury. But then I realize that in order to be able to be able to splurge for those few hours of comfort on a plane, I would have to work at a job I dislike on a daily basis all my life. That would not be a good trade-off.

In order to become rich for its own sake, you must be willing to spend a lot of time at it. If you want to become a successful investor in the stock market (say) you have to study the market and company reports and the business world and so on. The catch is that you would have to devote a lot of time towards this and that is something I have no wish to do.

What would be the point? My preferred lifestyle is one that is very simple. I don’t much like to travel to exotic places or stay at fancy hotels or resorts, eat at expensive restaurants (or eat out at all for that matter), go to shows and concerts, etc. I like to live what others might consider a really boring life: reading, writing, thinking, and spending time with friends. My idea of a great weekend or holiday is when I have no place that I must go to and nothing that I must do. If I were to sacrifice my time and other interests to make a lot of money, I would have lost more than I gained.

POST SCRIPT: Signs of the times

Kodak announces that after 74 years it is is discontinuing production of Kodachrome film due to the public shift to digital photography.

Don’t tell Paul Simon, he’s going to be really upset.