Is the government lying when it tells us the economy grew at a 2% annual rate in the previous quarter? Or when it says 120,000 jobs were created in November?
Many people in the paranoid wing of the investing and political worlds certainly believe so. If you ask around at Shadow Government Statistics or on investor blogs, they'll say you can't trust anything Washington does or says.
Conservative talk show host Rush Limbaugh, for instance, ranted earlier in December that the report of a decline in the unemployment rate to 8.6% was "nothing more than the government manipulating the real work situation that exists in the country. It's all calculated to create a false impression of economic recovery and a healthier job market."
Limbaugh's arithmetic is all wrong, by the way, but this isn't a story about him.
Now, if you live in a country, as I do, where the government has lied its way into war after war, where the government deliberately broke every promise it made to the Native Americans, where sharecroppers were left to die of syphilis and where the government routinely spies on its citizens, you'd be wise to be skeptical about any claim made by the government.
The economic statistics are certainly ripe for manipulation. The data released have a huge impact on the financial markets and on the views of the public. They can have direct influence on government policies and private investment decisions.
There was a time when the president of the United States tried to bully the Bureau of Labor Statistics. In 1971, Richard Nixon, the patron saint of paranoids, thought the BLS should massage the data on inflation and employment to help his re-election, but he feared that the agency was a secret "Jewish cabal" that was disloyal to him. Nixon purged the Jews from the agency and leaned on it to emphasize the good news in its reports.
Nixon's move to control the BLS failed. New rules to keep the political pressure off were issued under President Gerald Ford, and government statisticians at the Labor Department, the Census Bureau, the Bureau of Economic Analysis and the Federal Reserve have prided themselves ever since on their independence.
Could there be political manipulation of the data? Sure. But if there is a conspiracy, they're doing a lousy job. Through Republican and Democratic administrations alike, the government agencies keep releasing statistics that are very unpleasant for the politicians.
The conspiracy theorists make a fuss over changes in the way the payrolls report and the Consumer Price Index have been constructed over time, but the changes -- which were made for scientific reasons -- have much less impact on the published numbers than is commonly believed.
If the BLS is merely a puppet of the White House, how, then, can we explain the failure of the BLS to recognize just how bad things were in late 2008 and early 2009? The Obama administration was coming into office in January 2009 and had promised to deliver a massive stimulus to boost the economy. The administration had every political incentive to make the economy look as bad as possible, because the worse the problem was, the bigger the stimulus could be. And the worse the problem was, the more Obama and the Democrats could take credit when things turned around.
But the BLS estimates of job losses in late 2008 and early 2009 were way too low, leading the incoming administration to underestimate how bad the recession was. From September 2008 to July 2009, the BLS underestimated job losses by 1.6 million. Not only did the White House prepare a stimulus package that was undersized, but Obama's efforts to claim some credit for the subsequent turnaround are still being hampered by the infamous prediction (based on those same faulty data) that the unemployment rate wouldn't go above 8% if the stimulus was approved.
Why did the BLS get it so wrong? Because statistics are, by their very nature, limited. They aren't exact; they are attempts to turn a complicated reality into numbers. We should make those estimates as accurate as we can, but we can never get the data to completely match the reality.
Stock mentioned in this article: Goldman Sachs Group (GS, news).
We have interest rates at 2-3%, 90% have jobs and housing has declined to 2003 prices. The markets aren't falling to rock bottom but we're going to have real slow growth for 2-3 more years. Get use to it that's they way it was from 1973-1992 and that's the way it'll be from 2008-2027. It could be a real lot worse, you could live in Greece. So it'll take 15-20 years to dig out of our debt and get back to reality. Nobody is going to change it.
