Kevin Phillips denotes 40 years of government economic lies

The real unemployment rate in America today? Oh, about 9 percent?

Gross domestic product didn’t grow 0.6 percent this quarter; it slipped.

Inflation? About 6-7 percent, in reality.

A newspaper excerpt of Phillips’ new book, “Bad Money: Reckless Finance, Failed
Politics and the Global Crisis of American Capitalism,” details how, since JFK, every American president except Carter (at least, Phillips did not mention him in the excerpted piece) has jacked with how we calculate unemployment, the Gross National/Domestic Product (remember, one of those changes was to move from GNP to GDP), the inflation rate, or two or more of the above.

Phillips points out it was Jack Kennedy who had his administration invent the idea of “discouraged” workers to lower unemployment numbers.

Under John Kennedy, out-of-work Americans who had stopped looking for jobs — even if this was because none could be found — were labeled “discouraged workers” and then excluded from the ranks of the unemployed.

Lyndon Johnson orchestrated a “unified budget” that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in Social Security to mask the emerging federal deficit.

Richard Nixon created a division between “core” inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of “volatility,” categories that happened to be troublesome (and thus in the “headlines”). At that time, it was food and energy (as it is now).

Under Ronald Reagan, the Bureau of Labor Statistics decided that housing was overstating the Consumer Price Index and substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his house. This methodology, controversial at the time but still used, sidestepped what was happening in the real world of homeowner costs. Some say that led to the mortgage crisis today.

Under the first President Bush, officials moved to reorient U.S. economic statistical measure away from old industrial-era methodologies toward the emerging services economy and the expanding retail and financial sectors. Skeptics said the underlying goal was to reduce the inflation rate in order to reduce federal payments — from interest on the national debt to cost-of-living outlays for government employees, retirees and Social Security recipients.

Under President Clinton, the convoluted CPI changes proposed under Bush were implemented. And the Clintonites tinkered with the unemployment number, in part, by changing its housing economic sampling, disproportionately eliminating inner city households. That is believed to have reduced black unemployment estimates and eased worsening poverty figures.

Don’t expect any of this to change. Hillary Clinton’s husband was one of the bigger numbers-fudgers, in a way that “the first black president” didn’t help blacks.

McCain? It doesn’t involve a tax cut, so he doesn’t give a damn, and he’s already admitted his economic cluelessness.

Obama? Maybe, but I won’t hold out too much hope.The real unemployment rate in America today? Oh, about 9 percent?

But, the bottom line is this has been bipartisan. Republican and Democratic Congresses have acquiesced in Republican and Democratic Presidents doing this.

And, no, in our current two-party system, I really don't expect this to change.

There's more: "Kevin Phillips denotes 40 years of government economic lies" >>

Economics roundup – lies about unemployment, from Paulson and on housing

First, it’s clear the federal unemployment rate doesn’t really measure unemployment:

This month's jobs report is a great example of how misleading the unemployment rate can be. In February, the economy shed 63,000 jobs, which is a strong indication a recession may be at hand. But the unemployment rate actually fell, to 4.8 percent from 4.9 percent.

As most people know, it only counts people actually looking for work. But, that’s not the worst of its pitfalls.

Here, if you work for a temp agency, even if you want a “regular job” instead, you're considered “employed.” In Germany (or it used to be that way, at least), you’re considered “unemployed.” (I don’t know about other European Union members.)

The Nation had an in-depth article on this in the late 1990s. At that time, Manpower was the largest employer in both the U.S. and Germany.

Other “apples and oranges” comparisons problems on U.S. versus E.U. employment stats?

Most European countries have some sort of universal service; whether you’re in the military or in alternative service, you're not counted in employment stats. In America, with the all-volunteer armed forces, you are.

And, the U.S. “War on Drugs” incarcerates many people who likely would be unemployed, plus creates (often low-paying) jobs that don't exist to that degree in most E.U. countries.

Meanwhile, Treasury Secretary Henry Paulson just can’t stop lying. This time, it’s about the definition of “regulation”:

The SEC should also consider streamlining the approval for any securities products common to the marketplace as the agency did in a 1998 rulemaking vis-a-vis certain derivatives securities products. An updated, streamlined, and expedited approval process will allow U.S. securities firms to remain competitive with the over-the-counter markets and international institutions and increase product innovation and investor choice.

Last I checked, “streamlining” wasn’t listed under “tighter regulations” in a financial dictionary. (Except for one paid for by Wall Street.)

And, that’s the problem. Other “regulating” in Paulson’s playbook include loosening Securities and Exchange Commission regulations per the 2000 Commodity Futures Modernization Act.

But, for Democrats who want to be smarmy about being “reform minded”? This was a bill that passed the House under suspension of the rules, requiring a two-thirds vote in exchange for killing off debate. It only had four no votes. (And, don’t forget, this contained the infamous “Enron loophole.”)

And, although nobody wants to break ranks, it appears a fair amount of what Congress is pegging as “housing relief” is also a lie. Sen. Johnny Isakson’s plan to give people who buy foreclosed houses a temporary tax credit sounds like the biggest part of the lie so far:

“Basically, you're giving money to builders that overbuilt and banks that issued bad loans,” said Dean Baker, co-director of the Center for Economic and Policy Research. “It’s giving money to the villains in this story.”

That’s really not the only part of the lie, though:

Economists also questioned how effective it would be to have local governments buy and refurbish foreclosed homes. Advocates of the idea say it would stabilize neighborhoods and protect home values, but the White House said it would benefit lenders most.

“The funding to purchase homes does nothing to help homeowners struggling to make their mortgage payments,” White House spokesman Tony Fratto said.

Well, even a stopped calendar is right once a year.

There's more: "Economics roundup – lies about unemployment, from Paulson and on housing" >>

Our Collapsing Economy - How We Got Here

Day before last I was talking about the economy with a friend, discussing why the problems seemed so much worse this time than in the past. One word became the central focus of discussion. Derivitilve. Here is a definition:

"An asset that derives its value from another asset. For example, a call option on the stock of Coca-Cola is a derivative security that obtains value from the shares of Coca-Cola that can be purchased with the call option. Call options, put options, convertible bonds, futures contracts, and convertible preferred stock are examples of derivatives. A derivative can be either a risky or low-risk investment, depending upon the type of derivative and how it is used."

Now, what is described in this definition are the traditional options and futures markets, which have always been a minority part of financial markets, but the underlying stocks and raw materials were always the vast majority and backbone. The deregulation and expansion of ability to form and trade in these derivitive instruments occurred early in the early 1980s with the repeal of the Glass-Steagall Acts and imposition of the Monetary Control Act of 1980, and has continued progressively ever since. It was an undercurrent goal of a core group of Republican business and financial interests (to be fair, Clinton did nothing to abate it and he was smart enough to see and understand it at the time). We all saw the effects in relation to the savings and loan scandal, but few realized that the same acts that allowed the savings and loan mess were also being carried out and applied to the whole financial market. Thus Enron was enabled and, to some extent the dot com rush and crash as well.

Instead of clamping down on the root problem on the grand scale and re-regulating, to prevent this nonsense, we have done nothing but idiotically wait for the next iteration of the same horse manure and then react to only that small piece of the problem when it rears it's ugly head. Each time, we bail ourselves out of one deregulation nightmare by ginning up a new one. Every time it is because we have allowed our economy to be driven by an ever more derivitive market structure instead of bricks, mortar, family farming and substance. However, with the relentless export of manufacturing and middle and lower middle class jobs overseas, and the death of family farming, each time the root problem becomes more serious and pervasive.

There should have been a serious reckoning after the savings and loan scandal, and after that the dot com collapse, but instead the Bush folks exacerbated the problem by further enabling and pushing the derivitive manipulation of mortgage and other credit markets. They created securities, stocks, based upon nothing but groupings of mortgages; and then securities that bought, sold and traded the securities. And thus were engendered multiple layers of derivitives, each layer masking the risk of the other layers that was increasing at an exponential rate. Now the economy is based on this false house of cards and it is falling. Unlike in the past, however, when we still had the bricks, mortar, factories, manufacturing etc., there is, relatively speaking, nothing underneath the house of cards. The foundation is nowhere near as strong as it used to be. That is what is different now.

We drove our derivitive based economic existence over a bridge too far and are now stuck on the wrong side of the river of reality. With a collapsed bridge behind us. Are we now addressing the root problem? Of course not; our pea brain President and glad handing, say and do anything to placate the public and keep themselves in office Congress are going to deficit spend hundreds of billions of dollars to idiotically give everybody $600 dollars so they can buy a meal at Appelbees after buying a new TV at WalMart. Brilliant; that ought to work.

There's more: "Our Collapsing Economy - How We Got Here" >>

Bear Stearns sticks toe in Chinese investment waters: what’s it mean?

U.S. investment bank Bear Stearns has joined forces with China’s Citic Securities in an investment alliance that involves each bank investing $1 billion in the other.

Here’s the details, courtesy of MSN and the New York Times.

Citic will acquire about $1 billion of 40-year convertible trust preferred securities that will convert, on a fully diluted basis, to approximately 6% of Bear Stearns' shares; Bear will seek regulatory approval with China to acquire a similar stake in Citic for about $1 billion through a six-year convertible debt security and five-year options to acquire additional shares.

"This groundbreaking alliance will give Bear Stearns a unique footprint in one of the world's fastest-growing economies through a strategic partnership with a premier market leader," Bear Chief Jimmy Cayne said in a press release this morning. "We are confident that combining our operations in Asia with Citic Securities will greatly benefit Bear Stearns' global client base and generate substantial new revenues and growth opportunities for the firm over the long term."

Rumors had been swirling that Bear Stearns was looking to sell a stake in itself after the demise of two of its subprime-based hedge funds hammered the Wall Street bank this past summer. Bear reported a 61% drop in profit in the third quarter because of the mortgage-market meltdown.

So, in other words, Bear is probably still worried about not having enough liquidity, and that’s half of why it’s been pressing for this deal. If that’s the case, expect clamor for further Fed rate cuts, as well as a backstop “pool” of money from the Fed, Bank of England and the European Central Bank. Also consider the possibility that the likelihood of other, taxpayer-funded, liquidity steps has increased.

In exchange, Bear gets increased access to the theoretically valuable Chinese investment world.

But, just as much of the “tranches” from collateralized debt obligations here were never “marked to market,” that is, never had an open-market price calculated before being sold, it’s my considered non-professional opinion that much of the entire Shanghai stock market, and collateral investment centers, isn’t adequately marked to market.

In other words, China could have a bubble, too, perhaps in part caused by a U.S. backfire, since China has so many eggs in just a few American baskets.

My off-the-top-of-my-head guess is that the Shanghai stock exchange is overvalued by 20 percent. Maybe more.

What if other American investment banks make deals similar to Bear, and then this Chinese bubble bursts?

Definite recession. Perhaps a biggie.

Part of the problem here is the world hasn’t had a serious recession since China became a global economic player. So, I think professional economists far smarter in the “dismal science” than I probably have little more than guesstimates to offer on how well China could weather a 20 percent burp in its stock market.

There's more: "Bear Stearns sticks toe in Chinese investment waters: what’s it mean?" >>

Amen to this: The Nobel-lite economics prize should be canned

Even former prize winners critique the economics prize as as too abstract and mathematical, too ideological, or too business-leaning:

The notion that economics is scientific, said Jeff Madrick, the director of policy research at the Schwartz Center for Economic Policy Analysis at the New School in New York, is “highly exaggerated.”

Madrick not only doubts that significant contributions in the field can be limited to those based on econometrics but also questions whether that type of work is as unbiased as is often claimed. “The Nobel prize has become quite a political animal,” he said, “in the disguise of being scientifically pure.”

This was the heart of the complaint from the Nobel winner Gunnar Myrdal. In a 1977 letter to a Swedish newspaper, he rejected the idea that the field of economics could claim a Nobel on the basis of its scientific rigor. Economics should concern itself with political and social needs, he argued, and he called for an end to the prize in economics.

Add to that the fact that the work cited is often too theoretical and too-Wall Street oriented, it’s time to abolish the damn thing.

The ideological and Wall Street vs. real world complaints should be of most concern to progressives trying to analyze the insights of economists.

There's more: "Amen to this: The Nobel-lite economics prize should be canned" >>

Extreme Poverty at 35 Year High

McClatchy newspapers today reported that extreme poverty in the United States has reached a 32-year high. In every area measured, the poor have lost ground rapidly since 2000.



In fact, the McClatchy analysis found that the number of extremely poor grew by 26% between 2000 and 2005, outpacing the growth of the overall population of people living in poverty by a whopping 56%.

The plight of the severely poor is a distressing sidebar to an unusual economic expansion. Worker productivity has increased significantly since the brief recession of 2001, but wages and job growth have lagged. At the same time, the share of national income going to corporate profits has dwarfed the amount going to wages and salaries. That helps explain why the median household income for working-age families, adjusted for inflation, has fallen for five straight years.

These and other factors have helped push 43 percent of the nation’s 37 million poor people into deep poverty — the highest rate since at least 1975.

The share of Americans in deep poverty has climbed slowly but steadily in the last three decades. But since 2000, the number of severely poor has grown “more than any other segment of the population,” according to a recent study in the American Journal of Preventive Medicine.

“That was the exact opposite of what we anticipated when we began,” said Steven Woolf of Virginia Commonwealth University, who co-wrote the study. “We’re not seeing as much moderate poverty as a proportion of the population. What we’re seeing is a dramatic growth of severe poverty.”

Remind me again - weren't the Bush tax cuts supposed to ameliorate these problems, because a rising tide lifts all boats? Instead, the poor have gotten poorer and the rich have gotten richer, and indeed the twain shant meet.

There's more: "Extreme Poverty at 35 Year High" >>