Last week on NPR, a professor in the Sloan School of
Management at MIT explained that what is really at stake in the health care
bill is the US government�s ability to borrow. In other words, the bill is
about cutting health care costs, not about providing hard-pressed Americans
with health care.
The professor said that if we didn�t get health care costs
under control, in 30 years the US government would not be able to sell Treasury
It is not at all clear that the Treasury will be able to
sell its debt instruments in 30 months, and it has nothing to do with health
care costs. The Treasury debt marketing problem has to do with two back-to-back
US fiscal year budgets, each with a $2 trillion deficit. The size of the US
deficit exceeds in these troubled times the supply of world savings available
to fund the US government�s wars, bailouts and stimulus plans. If the Federal
Reserve has to monetize the Treasury�s new borrowings by creating demand
deposits for the Treasury (printing money), America�s foreign creditors might
flee the dollar.
The professor didn�t seem to know anything about this and
gave Washington 30 more years before the proverbial excrement hits the fan.
One looks in vain to the US financial media for accurate
economic information. Currently, Wall Street, the White House, and the media
are hyping a new sign of economic recovery -- �surging� June home sales. John Williams at shadowstats.com predicted this latest
Here is the way Williams explains how statistics can produce
false signs of recovery.
The economy has been contracting for so long that a
plateauing of the falloff in home sales compared to the previous time period�s
more rapid contraction can appear like a gain.
The Census Bureau itself notes that the reported 11 percent
increase in June home sales might
be illusory. The reporting agency says that the gain is not statistically
meaningful at a 90 percent confidence interval and that �the Census Bureau does not have sufficient statistical evidence to
conclude that the actual change is different from zero.�[PDF]
Williams explains other data distortions likely to create
false hopes and lead to investment losses. Financial stresses from the current
state of the economy have changed behavior. This means that normal seasonal
adjustments to statistical data can result in misleading information.
For example, the recent decline that was reported in
seasonally-adjusted new unemployment claims was a result of the normal
adjustments for the retooling of auto lines that did not, in fact, take place
to the normal extent due to the bankruptcies and uncertainties. Adding in
seasonal adjustments that did not in fact take place artificially reduced the
Williams warns that after a period of contraction, new
monthly or quarterly figures are being compared to prior periods of collapsing
activity. �Improvements� are
thus artifacts of the prior collapse and not signs of economic rebound.
Model� is used by the Bureau of Labor Statistics to estimate the net of
the non-reported jobs lost by failed businesses (deaths) and new jobs created
by start-up companies (births). Williams explains why the model understates job
loss during periods of contraction. The modeling on which the birth-death
adjustment is based consists primarily of periods of economic growth when there
are more non-reported start-up jobs than non-reported job losses from business
failures. The BLS model came up with a monthly adjustment of 75,000 new jobs
added to the reported number. That means an adjustment factor of 900,000 new
jobs added to the reported payroll jobs number each year.
However, during economic contraction, such as the current
one, it is wrong to assume that new start-ups are creating 75,000 jobs each
month more than are being lost to business failures. Thus, the job losses are
understated by the 900,000 upside birth-death adjustment and by the absence of
a downside adjustment to estimate the jobs lost as a result of failed companies
that cease to report.
The reported unemployment rate is itself deceptive, as it no
longer includes discouraged workers who have been unemployed for more than a
year. These long-term discouraged workers are simply erased from the rolls of
The Consumer Price Index no longer measures a
constant standard of living and is not comparable to pre-Clinton periods. During
the 1990s, the CPI ceased to be based on a weighted fixed assortment. The
principle of substitution was introduced. For example, under the old measure,
if the price of steak rose, the CPI rose. Under the new measure, if the price
of steak rises, the index switches to hamburger on the assumption that
consumers substitute hamburger for steak.
Consumer confidence typically is swayed by �good news� hype. The drops in the
Conference Board�s and the University of Michigan�s measures of consumer
confidence in July suggest that Americans are becoming inured to recovery hype
and are realizing that the government and the media lie about the economy just
as they lie about everything else.
Craig Roberts [email
him] was Assistant Secretary of the Treasury during President
Reagan�s first term. He was Associate Editor of the Wall Street Journal. He has
held numerous academic appointments, including the William E. Simon Chair,
Center for Strategic and International Studies, Georgetown University,
and Senior Research Fellow, Hoover Institution, Stanford University. He was
awarded the Legion of Honor by French President Francois Mitterrand. He is the
author of Supply-Side
Revolution : An Insider�s Account of Policymaking in Washington; Alienation
and the Soviet Economy and Meltdown:
Inside the Soviet Economy, and is the co-author with Lawrence M.
Stratton of The
Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the
Constitution in the Name of Justice. Click here for
Peter Brimelow�s Forbes Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.