Etaoin
10-14-2005, 07:44 AM
This was excerpted from an Email from the newsletter "WHISKEY & GUNPOWDER." We know the government lies, but most don't understand where, how much or how the manipulation occurs.
This is a pretty good summation of the process.
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STATISTICAL DECEPTION #1: THE ANNUAL AMPLIFICATION
Instead of reporting profits, GDP, productivity and other rates of growth quarter by quarter and quarter over quarter like corporations do, the government "annualizes" these numbers. That means that instead of announcing growth (or lack of growth) as a ratio of one fiscal quarter relative to the previous quarter - or relative to the same quarter from the previous year - the Fed reports an extrapolation of every quarter's growth as though it were to inevitably continue at that same rate for a whole calendar year.
For instance: If in Q2 2005, total profits increase 2% over Q1, this figure gets multiplied by a factor of four (to represent the four quarters in a fiscal year), and reported as an 8% rate of growth. This would only be accurate if that same rate of growth remained constant over the next calendar year. But these rates never remain constant, so this kind of reporting is terribly misleading - it projects a far rosier picture than what actually exists, especially when compared with other nations.
The United States is the ONLY country that reports its growth in this deceptive manner.
STATISTICAL DECEPTION #2: THE PRODUCTIVITY PREVARICATION
A recent Federal Reserve press release began by trumpeting our economy's "robust underlying growth in productivity." But there are many ways in which numbers can paint a picture of healthy growth - or obscure evidence of a lack of growth. And the popular misunderstanding of the nebulous concept of "productivity" is vital to the Fed's ability to misrepresent our economy to us.
Here's one example: By using a trick of accounting called hedonic pricing, the U.S. government has for years been able to report stellar growth in the hard-to-quantify "productivity" realm. It's a complex concept, but it goes a little like this: The value of any given thing is more a measure of its theoretical capabilities than its actual cost.
Computers are a great example of this. Say a company bought a computer in 1995 for $1,000. Then in 1998, it replaced it with a new computer with twice the memory for only $800. Based on the hedonic method, that computer with twice the capabilities as the one the company paid $1,000 for is twice as valuable - so they calculate its value to the nation's bottom line at $2,000, instead of the $800 actually paid for it.
Neat trick, huh? With one button push on a calculator, the Fed has added $1,200 to the GDP - even though no one paid it and no one received it.
The net result: The GDP is skewed higher, but without any new creation of employment. That MUST mean the same number of people is producing more, right? Voila! An instant increase in productivity on the books.
Supposedly, hedonic pricing of computers was abandoned by the government last year. But the Fed still use this ridiculously exaggerated method to calculate fictional productivity based on all sorts of business purchases. They say the effects of these changes are marginal...
But since productivity growth numbers still seem artificially high in comparison to actual growth in American industry, I have to wonder - especially since businesses' capital investment in newer, faster machines and more modern factories (the things that should increase productivity) has stalled to a virtual halt.
All told, the United States has invested in the mechanisms of real productivity growth at a dismal rate of just over 0.3% per year over the last eight years. Yet according to the latest Fed estimates (April 28), the U.S. GDP is rising nearly 3.8% per year!
In other words, the true numbers say productivity shouldn't be rising, but the government says it is. Something's rotten in Greenspanland...
STATISTICAL DECEPTION #3: THE PROFIT PERJURY
Profit is a simple thing to understand - it's the revenue that's left over for companies after all business-related expenses are paid. Theoretically, anyway. But the calculating of these profits by our federal government is by no means as simple a task as it would seem. The reason is that one of the most important sources of profit in the U.S. economy is net capital investment: investments made by businesses out of their own profits, without incurring any meaningful expenses.
This is measured as pure profit and trumpeted by the Fed as growth - without regard to the eventual depreciation on those investments, which begins to accrue much later. In other words, the Fed knows that the "profit" of net capital investment by businesses does not come without eventual expense (depreciation), yet it record its as pure profit to help keep GDP estimates as high as possible.
What happens when all the depreciation comes into the mix? We'll see - it'll be happening on a massive scale soon...
STATISTICAL DECEPTION #4: THE LABOR LIE
The Fed (along with most of the bit-in-mouth mainstream media) has been trumpeting the relatively low unemployment numbers for some time now. However, the picture isn't as rosy as the numbers make it seem. Here's what I mean: Not too long ago, there were only two classifications of workers - employed and unemployed. A simple ratio of these two numbers yielded the "unemployment rate." But that's not the case today...
Nowadays, there's a third classification called "discouraged worker" (it should be called "disinterested worker"). What this refers to is any unemployed worker who isn't seeking a job. And with today's aggressive welfare and entitlement programs footing the bills and creating millions of career recipients, that's a huge and ever-increasing number of people. That's right: Even though they aren't working, millions of "discouraged workers" aren't counted as unemployed.
Beyond this, the Fed also uses a statistical model based on jobs it assumes aren't being counted. The theory is that hundreds of new businesses are started each day - businesses whose employees are too new to have been added to the official employment figures. To "fix" this, the Fed calculates a number of theoretical jobs it figures MUST have been created. What drives this figure? In large part, it's the estimated GDP, which, as I've just explained, is hugely skewed toward nonexistent growth.
Consider: Of 274,000 jobs the government claimed were created in April 2005, a full 257,000 came from this formula for estimating theoretical jobs. In other words,94% of reported new jobs may not even exist.
Further still is the quality of those jobs being created. There's been a dramatic switch in employment. Since 1997, nearly 3 million high-paying - not to mention highly productive - manufacturing jobs have disappeared. Meanwhile, they've been replaced with around 2 million low-paying (and low-productive) health service jobs.
This is a pretty good summation of the process.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XX
STATISTICAL DECEPTION #1: THE ANNUAL AMPLIFICATION
Instead of reporting profits, GDP, productivity and other rates of growth quarter by quarter and quarter over quarter like corporations do, the government "annualizes" these numbers. That means that instead of announcing growth (or lack of growth) as a ratio of one fiscal quarter relative to the previous quarter - or relative to the same quarter from the previous year - the Fed reports an extrapolation of every quarter's growth as though it were to inevitably continue at that same rate for a whole calendar year.
For instance: If in Q2 2005, total profits increase 2% over Q1, this figure gets multiplied by a factor of four (to represent the four quarters in a fiscal year), and reported as an 8% rate of growth. This would only be accurate if that same rate of growth remained constant over the next calendar year. But these rates never remain constant, so this kind of reporting is terribly misleading - it projects a far rosier picture than what actually exists, especially when compared with other nations.
The United States is the ONLY country that reports its growth in this deceptive manner.
STATISTICAL DECEPTION #2: THE PRODUCTIVITY PREVARICATION
A recent Federal Reserve press release began by trumpeting our economy's "robust underlying growth in productivity." But there are many ways in which numbers can paint a picture of healthy growth - or obscure evidence of a lack of growth. And the popular misunderstanding of the nebulous concept of "productivity" is vital to the Fed's ability to misrepresent our economy to us.
Here's one example: By using a trick of accounting called hedonic pricing, the U.S. government has for years been able to report stellar growth in the hard-to-quantify "productivity" realm. It's a complex concept, but it goes a little like this: The value of any given thing is more a measure of its theoretical capabilities than its actual cost.
Computers are a great example of this. Say a company bought a computer in 1995 for $1,000. Then in 1998, it replaced it with a new computer with twice the memory for only $800. Based on the hedonic method, that computer with twice the capabilities as the one the company paid $1,000 for is twice as valuable - so they calculate its value to the nation's bottom line at $2,000, instead of the $800 actually paid for it.
Neat trick, huh? With one button push on a calculator, the Fed has added $1,200 to the GDP - even though no one paid it and no one received it.
The net result: The GDP is skewed higher, but without any new creation of employment. That MUST mean the same number of people is producing more, right? Voila! An instant increase in productivity on the books.
Supposedly, hedonic pricing of computers was abandoned by the government last year. But the Fed still use this ridiculously exaggerated method to calculate fictional productivity based on all sorts of business purchases. They say the effects of these changes are marginal...
But since productivity growth numbers still seem artificially high in comparison to actual growth in American industry, I have to wonder - especially since businesses' capital investment in newer, faster machines and more modern factories (the things that should increase productivity) has stalled to a virtual halt.
All told, the United States has invested in the mechanisms of real productivity growth at a dismal rate of just over 0.3% per year over the last eight years. Yet according to the latest Fed estimates (April 28), the U.S. GDP is rising nearly 3.8% per year!
In other words, the true numbers say productivity shouldn't be rising, but the government says it is. Something's rotten in Greenspanland...
STATISTICAL DECEPTION #3: THE PROFIT PERJURY
Profit is a simple thing to understand - it's the revenue that's left over for companies after all business-related expenses are paid. Theoretically, anyway. But the calculating of these profits by our federal government is by no means as simple a task as it would seem. The reason is that one of the most important sources of profit in the U.S. economy is net capital investment: investments made by businesses out of their own profits, without incurring any meaningful expenses.
This is measured as pure profit and trumpeted by the Fed as growth - without regard to the eventual depreciation on those investments, which begins to accrue much later. In other words, the Fed knows that the "profit" of net capital investment by businesses does not come without eventual expense (depreciation), yet it record its as pure profit to help keep GDP estimates as high as possible.
What happens when all the depreciation comes into the mix? We'll see - it'll be happening on a massive scale soon...
STATISTICAL DECEPTION #4: THE LABOR LIE
The Fed (along with most of the bit-in-mouth mainstream media) has been trumpeting the relatively low unemployment numbers for some time now. However, the picture isn't as rosy as the numbers make it seem. Here's what I mean: Not too long ago, there were only two classifications of workers - employed and unemployed. A simple ratio of these two numbers yielded the "unemployment rate." But that's not the case today...
Nowadays, there's a third classification called "discouraged worker" (it should be called "disinterested worker"). What this refers to is any unemployed worker who isn't seeking a job. And with today's aggressive welfare and entitlement programs footing the bills and creating millions of career recipients, that's a huge and ever-increasing number of people. That's right: Even though they aren't working, millions of "discouraged workers" aren't counted as unemployed.
Beyond this, the Fed also uses a statistical model based on jobs it assumes aren't being counted. The theory is that hundreds of new businesses are started each day - businesses whose employees are too new to have been added to the official employment figures. To "fix" this, the Fed calculates a number of theoretical jobs it figures MUST have been created. What drives this figure? In large part, it's the estimated GDP, which, as I've just explained, is hugely skewed toward nonexistent growth.
Consider: Of 274,000 jobs the government claimed were created in April 2005, a full 257,000 came from this formula for estimating theoretical jobs. In other words,94% of reported new jobs may not even exist.
Further still is the quality of those jobs being created. There's been a dramatic switch in employment. Since 1997, nearly 3 million high-paying - not to mention highly productive - manufacturing jobs have disappeared. Meanwhile, they've been replaced with around 2 million low-paying (and low-productive) health service jobs.