Posted on 03/03/2006 10:09:19 AM PST by SirLinksalot
How Economic News is Spun
Paul Craig Roberts
Friday, March 3, 2006
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.
COPYRIGHT 2006 CREATORS SYNDICATE INC.
"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."
Gas here is around $2.14-$2.19 per gallon. I pay about $.11 less than that with my 5% cash back. Also get 5% back on groceries.
It is paid off every month.
So you are sticking it to the man?
Do you think, perhaps, that Mr. Roberts has an ax to grind with W?
As a fellow economist, I used to respect Roberts. Now, after reading this nonsense, I find him to be a fool.
*lose.
My bad.
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.
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It's been creeping up on you all your life, and it won't "jump out of the woodwork" tomorrow, or any time soon, fellow. You are like the lobster in the pot, with the temperature slowly rising. Just go to sleep, and don't worry about it.
In 1960, you could mail a letter for 4c and buy a burger for a dime. This year, you pay 39c to mail a letter, and "bargain burgers" go for a buck.
The Federal debt load, stated on a GAAP basis (including all the off-budget programs with unfunded liabilities, like Social Security and Medicare) is around $50 trillion or 4-5 years of GNP, and growing. The national airlines are in bankruptcy court, the regionals are being dragged towards insolvency, steel industry about gone, GM and Ford tottering towards bankrupcty, their parts suppliers falling like ten pins. Nothing going on here, just move along, go on home, and go to sleep.
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.
I imagine that it's your charitable instincts that motivate you to sound the klaxon. But think of it this way: You're in a crowded concert hall and see fire licking at the curtains near a faulty pryotechnics assembly. You yell "Fire!" And people turn around and scream at you to "STFU!!!" And then you realize that you're about 20 rows away from the nearest fire exit - and with the panic a mass realization will engender - you're gonna get trampled halfway there.
You've done your duty. No use arguing. Nothing will change - the system and status quo has way too much momentum. In a certain way - the cheerleaders are doing you a major service - giving you time to get out the door and set yourself up to remain stable after the collapse.
You should thank them for giving you time to take care of those who you care about. I'm trying to use the extra time to invest in contrarian strategies - and boy - do I need some time...
So, as long as their confidence is readily apparent, misplaced as I believe it is, it helps keep the house of cards in place long enough to effect financial strategies to put in place what you actually believe. "Putting your money where your mouth is" - is a whole lot more productive than arguing with those who are philosophically at odds with you. It's not important to get their agreement. If you're wrong...hey - you gambled on what you believe reality is - and failed. If you're right - you will be in a position to survive.
I suppose the more mercenary of we so-called "gloom and doomers" would be inclined to set up figurative toll gates at the fire exits - demanding everybody's wallet to get past them - but that certainly would not be my intent - which is merely to survive what looks like an imminent global economic meltdown.
Actually, home equity is less than $1.2 trillion of the $3.7 trillion increase in household net worth.
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.
North America accounted for 11.2% of the world’s total [production], with steelmaking in the USA, the third largest steel producer in the world, decreasing by 5.8% in 2005 to 93.9 million tonnes.
Source
Nothing going on here, just move along, go on home, and go to sleep.
As soon as you wake up.
Anyone who still has eyesight can just look around to know that Williams is full of it. Williams' research is like most scientific research these days. He doesn't conduct his research to show the truth. He does so to reach the conclusion he needs to sell more books. This is a perfect example of why charlatan's like Williams will always make money selling fear.
("conservative research organizations" tend to notice this during Democrat administrations..
Are you claiming that groups like NR and The Heritage Foundation knowingly manipulate information for their own ends? We, as conservatives, know the Dem's are habitual liars and confidence men. Sounds like you're defending the lefties.
The earliest report is fairly candid about the failings of Federal accounting processes, the later claim various improvements
Williams has been touting these fallacies for many years now yet his predictions of doom and gloom never quite materialize. He does manage to sell a great number of books to people who want to believe what he says is true.
Our external debt is created by government spending more than they take in. Since Bush took office, the external debt has increased by $2 trillion. Our net worth (that's debt subtracted from assets) has increased by more than $10 trillion during the same period of time to a record $51.1 trillion. Even a week minded individual can understand the math here. When your net worth increases five times faster than your debt, things may not be as bad as the book sellers claim.
Yes, we have a lot of unfunded liabilities. Social Security may go bankrupt or the government may be forced to raise taxes. Maybe reform will pass and private accounts will save the day. No one knows for sure. Even if SS goes bankrupt, or they are forced to raise our taxes, it will have little impact on our incredible net worth.
Guys like Williams like to talk about our debt without any discussion about our assets. That should tell you all you need to know about his agenda. American households own more than $62 trillion in assets. How much do you think American corporations and the US government own?
So, reveal a weak mind if you wish, by dismissing the analyst with a mindless epithet, but Williams' analysis of the data quality is worthy of attention
Williams' tripe should earn the scorn of all people who have minds because it's really not that hard to figure out that the fear he's selling is overblown. For another, more rational opinion regarding his claim that there are five million discouraged workers in this country, I'll offer this:
"Here's what the BLS found: Only about a third of a percent of American workers are classified in the "discouraged" category. That's right: Ninety-nine and two-thirds percent are not discouraged. This is hardly the teeming mass of employment despondency that we have been led to believe is out there."
The Myth of the Discouraged Worker
I'd say, just from looking around me, that NR's take on this issue is much closer to reality than the guy looking to sell books to the black helicopter crowd.
I imagine that it's your charitable instincts that motivate you to sound the klaxon. But think of it this way: You're in a crowded concert hall and see fire licking at the curtains near a faulty pryotechnics assembly. You yell "Fire!" And people turn around and scream at you to "STFU!!!" And then you realize that you're about 20 rows away from the nearest fire exit - and with the panic a mass realization will engender - you're gonna get trampled halfway there.
= = = = = = = = = = = = = = = = = = = = = = = = = = = = =
A good analogy, guitfiddlist, and wise counsel if I were indeed stuck in the middle of the crowd. Since I'm closer to being on the other side of the exit, looking back in, I'm more interested in understanding more clearly how the crowd still in the theatre sizes up its situation. Some, like Toddsterpatriot, have a pretty good handle on some of the details, though he tends to be like many banks - - focused on what has happened between last year and now, thus missing the trends that will trip them up when their forecasting methods suddenly become non-functional. I deal with them all the time when explaining, once again, why our pricing cannot be based on the last two or three years' experience (unlike auto or medical insurance), or even on just the last decade or two, because of the catastrophic nature of the risk we undertake to absorb for them.
Others just shout "idiot", "lose your tin foil hat?" or "doom/gloomer" and cover their ears. It's fascinating watching what people rely on for their reading of the "big picture", even when careful inspection "behind the curtains" demonstrates that the processes which generate the images which they call facts are crumbling around them as they gaze at the images for direction.
Such remarkable confidence in the soundness of official statistics and their readings of those statistics! They should try to fit forecasting models to that data and see how much resolving power such models have. Maybe its the effect of the "factory" schools in which they were conditioned to trust the teachers and the textbooks (or at least some subset of them - - -the ones their favorite teachers touted most vigorously). A good dose of Nassim Talib, John Taylor Gatto, and van Creveld might help, but for most it's probably too late.
Whatever the reason, I prefer to be far from the exit, and from them, when their illusions can no longer be maintained. The responses to the new reckoning of their circumstances will not be pretty to watch.
steel industry about gone
North America accounted for 11.2% of the world’s total [production], with steelmaking in the USA, the third largest steel producer in the world, decreasing by 5.8% in 2005 to 93.9 million tonnes.
Source
Nothing going on here, just move along, go on home, and go to sleep.
As soon as you wake up.
So CPI is really 7%? I guess that's why the 10 year bond is yielding 4.682%. Because this guy is smarter than the entire market. LOL!
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
If you think the market is sound on this price, do buy up 10 year bonds at that rate with both hands! Have the courage of your convictions: buy zeros and increase your leverage. Markets are the real geniuses, after all. Until they're not. Try backtesting that strategy on bonds bought in, say, March 1973.
You're joking, right?
Have you never heard of a debit card? It looks just like a credit card, but it pays for purchases with money from checking.
Actually the key bit of info is 93.9 million tonnes as compared to your claim "steel industry about gone"
Check back in 2010.
So by then your claim will be correct?
If John Williams is correct, you should have the courage of his convictions and short zeros. Let us know how that works out.
BAHOG!
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