How Economic News is Spun (Worst-Economy-Since-Great-Depression Alert)

Readers ask me to reconcile the jobs and debt data that I report to them with the positive economic outlook and good news that comes to them from regular news sources. Some readers are being snide, but most are sincere.

I am pleased to provide the explanation. First, let me give my reassurances that the numbers I report to you come straight from official U.S. government statistics. I do not massage the numbers or rework them in any way. I cannot assure you that the numbers are perfectly reported to, and collected by, the government, but they are the only numbers we have.

Here is how to reconcile my reports with the good news you get from the mainstream media:

First, when the U.S. Department of Labor, for example, releases the monthly payroll jobs data, the press release will put the best spin on the data. The focus is on the aggregate number of new jobs created the previous month - for example, 150,000 new jobs. That sounds good. News reporters report the press release. They do not look into the data to see what kinds of jobs have been created and what kinds are being lost. They do not look back in time and provide a net job creation number over a longer period of time.

This is why the American public is unaware that higher-paid jobs in export and import-competitive industries are being phased out, along with engineering and other professional "knowledge jobs," and replaced with lower-paid jobs in domestic services. The replacement of higher-paid jobs with lower-paid jobs is one reason for the decline in median household income over the past five years. It is not a large decline, but it is a decline. How can it be possible for the economy to be doing well when median household income is not growing and when economic growth is based on increased consumer indebtedness?

Many economists mistake offshore outsourcing with free trade based on comparative advantage. As a result of this mistake, ideology speaks instead of economic analysis. For example, Matthew J. Slaughter, an economics professor at Dartmouth, commits a huge error when he writes: "For every one job that U.S. multinationals created abroad in their foreign affiliates, they created nearly two U.S. jobs in their parent operations."

If Slaughter had consulted the Bureau of Labor Statistics payroll jobs data, he would have realized that his claim could not possibly be true. Slaughter did not come to his conclusion by examining aggregate job creation. Instead, he measured the growth of U.S. multinational employment and failed to take into account the two reasons for an increase in multinational employment: Multinationals acquired many existing smaller firms, thus raising multinational employment but not overall employment, and many firms established foreign operations for the first time and thereby became multinationals, thus adding their existing employment to Slaughter's number for multinational employment.

ABC News' John Stossel, a libertarian hero, recently made a similar error. In debunking Lou Dobbs' concern with U.S. jobs lost to offshore outsourcing, Stossel invokes the California-based company, Collabnet. He quotes the CEO's claim that outsourcing saves his company money and lets him hire more Americans. Turning to Collabnet's Webpage, it is very interesting to see the employment opportunities that the company posts for the United States and for India.

In India, Collabnet has openings for eight engineers, a sales engineer, a technical writer and a telemarketing representative. In the United States, Collabnet has openings for one engineer, a receptionist/office assistant, and positions in marketing, sales, services and operations. Collabnet is a perfect example of what Lou Dobbs and I report: The engineering and design jobs move abroad, and Americans are employed to sell and market the foreign-made products.

Second, Wall Street economists are salesmen. The companies that employ them want to sell stocks and bonds. They don't want bad news. A bear market is not good for business. Similarly, business associations have the agenda of their members. Offshore outsourcing reduces their labor costs and boosts their profits and performance-based bonuses. Therefore, it is natural that their association reports put a positive spin on outsourcing. The same organizations benefit from work visas that allow them to bring foreign workers in as indentured servants to replace their more fractious and higher-paid American employees. Thus, the myth of a U.S. shortage of engineers and scientists. This myth is used to wheedle more subsidies in the form of more H-1B visas out of Congress.

Third, official U.S. government reports are written to obfuscate serious problems for which the government has no solution. For example, "The Economic Report of the President," written by the Council of Economic Advisers, blames the huge U.S. trade deficit on the low rate of domestic savings. The report claims that if only Americans would save more of their incomes, they would not spend so much on imports, and the $726 billion trade gap would close.

This analysis is nonsensical on its face. Offshore outsourcing has turned U.S. production into imports. Americans are now dependent on offshore production for their clothes, manufactured goods and advanced technology products. There are simply no longer domestic suppliers of many of the products on which Americans depend.

Moreover, many Americans are struggling to make ends meet, having lost their jobs to offshore outsourcing. They are living on credit cards and struggling to make minimum payments. Median household real incomes are falling, as higher-paid jobs are outsourced while Americans are relegated to lower-paying jobs in domestic services. They haven't a dollar to save.

As Charles McMillion points out, the Feb. 28 report from the Bureau of Economic Analysis shows that all GDP growth in the fourth quarter of 2005 was due to the accumulation of unsold inventory and that consumers continued to outspend their incomes.

Matthew Spiegleman, a Conference Board economist, claims that manufacturing jobs are only slightly higher paid than domestic service jobs. He reaches this conclusion by comparing only hourly pay and leaving out the longer manufacturing workweek and the associated benefits, such as health care and pensions.

Stossel simply does not know enough economics to be aware that he is being used. The bought-and-paid-for-economists are simply earning their living and their grants by serving the interests of corporate outsourcers.

Fourth, policy reports from think tanks reflect what the donors want to hear. Truth can be "negative" and taken as a reflection on the favored administration in power. Consider, for example, the conservative Bruce Bartlett, who was recently fired by the National Center for Policy Analysis for writing a truthful book about George Bush's economic policies. Donors to NCPA saw Bartlett's book as an attack on George Bush, their hero, and withheld $165,000 in donations. There were not enough Bartlett supporters to step in and fill the gap, so he was fired in order to save donations.

When I held the William E. Simon chair in political economy at the Center for Strategic and International Studies, I saw internal memos describing the grants CSIS could receive from the George H.W. Bush administration in exchange for removing me from the Simon chair.

In America, "truth" has long been for sale. We see it in expert witness testimony, in the corrupt reports from forensic labs that send innocent people to prison and even in policy disputes among scientists themselves. In scholarship, ideas that are too challenging to prevailing opinion have a rough row to hoe and often cannot get a hearing.

Even the president of Harvard University, Larry Summers, an academic economist of some note and a former secretary of the treasury, was forced to resign because he offered a politically incorrect hypothesis about the relative scarcity of women in science.

The few reporters and columnists who are brave or naive enough to speak out are constrained by editors, who are constrained by owners and advertisers. For example, it is impermissible to examine the gaping holes in the 9-11 Commission Report. Publications and editors are intimidated by the charge of "conspiracy theory," just as criticism of Israel is muted for fear of being labeled "anti-Semitic."

All of these reasons and others make truth a scarce commodity. Censorship exists everywhere and is especially heavy in the U.S. mainstream media.

For more details on this and other analysis of the increasingly hollowed-out and debt-encumbered domestic economy, see:

http://www.gillespieresearch.com/cgi-bin/bgn/
John Williams'
Shadow Government Statistics
Analysis Behind and Beyond Government Economic Reporting

No, it's certainly NOT "all Bush's fault"... its been going on for many decades. It's just the incumbent's unfortunate fate to be in place as the cumulative effects become increasingly difficult to hide.

I totally believe this.

I work at a gas station part time(wouldn't have had to do this a couple of years ago) and I see people "charging" their gas all day long. Its scary!

My husband is blue collar but has a trade. This "should" have provided a steady increase in income as we grew older but alas..its gone down because of the economy. Because of higher gas prices though his bids have to go up. This doesn't work well.

With three kids and a house and cars etc...just to pay taxes, insurance, utilities and food bills its all we can do. There is no extra for saving.

And what? are we supposed to tell our kids, "sorry, sucks to be you, if you were only born a few years earlier you could have experienced family vacations, game boy's and extra curricular activities."

Are we really expected to forgo family fun of any sort because the government can't get their shit together? This is where it hurts a middle income family and this is why I resent it.

Of course the economy will pick up again...in a few years at aleast...just in time for my kids to be all grown up and moved out. Lovely.

A few more items along similar lines.

http://www.us-banker.com/article.html?id=20060201D6D22GZO
February 2006
Changing Attitudes on Debt Makes Planning a Must

Financial literacy skills are more important than ever these days, as Americans negotiate debt at every turn. Consumers may be more comfortable with debt, says a new study, but can that be healthy?

Those who believe that the only certainties in life are death and taxes can now add a third to the list: personal debt.

http://capuchinomics.com/news/index.php?option=content&task=view&id=225&Itemid=
Big Bang Theory: Housing Bubble meets pin

Saturday, 11 February 2006
You didn't hear it? You weren't the only one. Wall Street missed it too. And who can blame them. After all, they are engrossed in important issues like if they should be buying Google shares after its recent decline or perhaps adding to their gold collection. After two years of being on bubble watch, the media save for the Wall Street Journal has lost interest in the housing bubble. They too are distracted with Iran, Iraq and Washington shenanigans occupying their thoughts.

http://investorsinsight.com/otb_va.aspx?EditionID=276

Yield Curve Conundrum

By Chris P. Dialynas
PIMCO Spotlight, February 2006

Even assuming the whole article is true, what do you or anyone else have as a solution? Do you side with the Democrats who claim that Clinton's tax hikes led to the economic growth and fantastic jobs of the 90's? Do you think our government should spend more to stimulate the economy? Should the government put up trade restrictions or restricitons on moving jobs offshore? All of these government solutions are proven to be wrongheaded, but Democrats still cling to them in their quest for a big government welfare state with Marxist redistribution.

I see a lot of bitching but no solutions. I personally think we are on the right economic track, but I think we need more tax cuts, less government spending, and a more efficient tax code.

I also don't think the economy is in bad shape or that most people are making less money.

I work at a gas station part time(wouldn't have had to do this a couple of years ago) and I see people "charging" their gas all day long. Its scary!

I have zero rolling credit card debt, and I charge my gas all day long. Why do into the store when I can stick my card into the gas pump? In fact, I charge everything. I haven't had cash in my wallet at all in the last few weeks. I have simply gone mostly cashless. Not only do I not have to worry about how much cash I have, by simply going on line I can easily see what all my expenditures are. It makes budgeting a lot easier.

"I work at a gas station part time(wouldn't have had to do this a couple of years ago) and I see people "charging" their gas all day long. Its scary!"

I know people who charge everything and pay their credit card off each month to get free air miles. Just because people are charging things does not mean they are going in debt.

I just give up. You give them the facts, show them the graphs, post the articles and they just say "oh that is not real, that is just spin". How can you teach anyone when they simply refuse to listen to anything that does NOT conform to their own emotional whimsy and political bigotry?. The facts do NOT change just because the Perpetually Pissed Caucus wished the reality was different then it is. Employment at FULL Employment rate. Average Hourly Wages UP. Home Ownership at HISTORIC levels. Family Income UP. Inflation low level. Interest Rates WAY down. What MORE do these idiots want?????

My husband is blue collar but has a trade. This "should" have provided a steady increase in income as we grew older but alas..its gone down because of the economy. Because of higher gas prices though his bids have to go up. This doesn't work wel

Change jobs. Sorry but your "anecdotal evidence" means YOU are on the low end, NOT that the whole economy sucks. The facts are vastly different then the supposed "Facts" people tell you. The DATA tells a vastly different story then this "owe poor me" mythology.

John Williams'
Shadow Government Statistics
Analysis Behind and Beyond Government Economic Reporting

This is the same idiot who believes that there are more than 5 million discouraged workers out there....somewhere, even though the BLS and conservative research organizations can't manage to find them. John Williams does manage to sell a lot of books though.

Those who believe that the only certainties in life are death and taxes can now add a third to the list: personal debt.

Sounds scary!! From your source:
Indeed, at the end of 2005, U.S. consumers had $2.2 trillion in debt, including revolving credit-card accounts and student loans, up 22 percent from 2004, when it hit $1.8 trillion.

Wow!! Debt went up $400 billion? While interest rates were at record low levels? Why would people borrow more while rates are low?

Maybe to increase their net worth? Assets only rose $3.7 trillion over the same period.

"What MORE do these idiots want?????"

These idiots want us to believe that we are in a bad economy and that everyone is making a lot less money than they used to make. They want us to believe that Democrat ideas of tax and spend will help us all out and make our economy better. They want us to believe that certain jobs that are being phased out is something new and that is not normal for a healthy economy. If they knew anything about economics, they would know it is very healthy and normal for our economy to continue to phase out some jobs (like low-skilled jobs) and utilize that capital (including workers) in new products and services that have a better return and that will raiser our GNP and our standard of living. I don't believe that there are a lot of engineers who lost their jobs and that are now working at the local gas station as this article implies.

Funny how all these Tin Foil Hat Conspiracy theorists always have the Debt Armageddon coming tomorrow. Funny thing, they keep moving tomorrow to the day after tomorrow, then it is the day after the day after. Funny thing, it never gets here. Could it be they really DO NOT know what they are talking about.

I don't believe that there are a lot of engineers who lost their jobs and that are now working at the local gas station as this article implies.

But...but....Paul Craig Roberts gets emails all the time from engineers who can't find work. He wouldn't be lying, now would he? Of course they could be imaginary emails. He has gone off the deep end since Bush got elected.

I work at a gas station part time(wouldn't have had to do this a couple of years ago) and I see people "charging" their gas all day long. Its scary!

Some people might just find it more convenient to charge it than having to carry cash. Many of these same people will pay off their cards every month and use the loyalty program points to fund their next vacation. Not scary, just smart.

And what? are we supposed to tell our kids, "sorry, sucks to be you.

I'd tell them to take their education seriously, finish college and work hard to always improve themselves. I'd also tell them they live in a country offering more opportunity than any other place in the history of the world. You could instill in them a positive attitude about their future, an understanding of personal accountability, the importance of persistence and, especially, not to blame others if they should fail at something.

I work at a gas station part time(wouldn't have had to do this a couple of years ago) and I see people "charging" their gas all day long. Its scary!

[spews beer over monitor]

Think that it might have to do with the fact that most folks don't want to come inside and pay you with cash, and opt for the convenience of swiping a card at the pump? And how do you know if they're swiping credit or debit cards? LOL

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