Shadow Government Statistics - Is the government manipulating numbers to make the economy look better than it really is?
About a year ago I wrote an article about the Consumer Price Index that made some friends say that I am a conspiracy theorist, but apparently I am not alone in believing that the government reports statistics that are far from reality. John Williams is an Oakland based economist who has been running the website Shadow Government Statistics for more than five years, and he reports an alternate set of economic indicators based on his research. He believes that the government has been painting a rosy picture of the economy for many years, and his set of numbers are quite alarming if you believe it.
On this summary page of John Williams' alternate data , he reports that the actual consumer inflation is more than 13% in the past year, which is more than double of the official CPI released by the government. The way he calculates this number is using the methodology of calculating the Consumer Price Index (CPI) in 1980. One key change in the calculation of the CPI since then was that former Federal Reserve Chairman Alan Greenspan started calculating inflation based on substitute goods. Greenspan basically stated that if one good went up in price, then consumers would buy a substitute that is cheaper. So since then the CPI no longer measures the price change of constant individual goods, instead, we have measurements of prices of substitutes. This artificially brings the inflation rate down since instead of measuring the price of increase on steak, the government could say that consumers could buy ground beef instead. Additionally, the "core" CPI rate reported now does not include the increases on food and energy, but those things are probably the items most consumed by normal people and I do not understand why they would not be considered "core". Personally, I find that the 13% figure is more believable because the cost for goods necessary for living have increased quite a bit in the past couple years.
Another number of concern is that according to John Williams, the actual unemployment rate in the United States is about 15%, and that's 2.5 times of the official number of 6.1% in August. The reason Williams' number is so high is that he includes a large group of people labeled as "discouraged workers" in his count. Discouraged workers are defined as people who have given up in looking for work. Since they are not considered to be part of the labor force so they do not count towards the unemployment rate. Even so, this group of able bodied adults have been tracked by the Bureau of Labor Statistics until 1994 when the Clinton administration decided to track only the group of workers who have been looking for work for less than a year. Those who gave up more than a year ago are no longer counted and that is why Williams' count of these "hidden unemployed" is much higher than what is officially reported. Granted, some of these "discouraged workers" choose not to find employment, but technically they should be included in the official unemployment rate.
Williams also publishes what he believes the money supply, gross domestic product, and the value of the dollar actually is. According to him America has been in a recession for more than two years and the actualy money supply is more than twice of the official reported numbers. He has termed the manipulation of these statistics as "Pollyanna Creep" after the attitude of the fictional character Pollyanna Whittler who plays a "Glad Game" to be optimistic about every single situation.
Of course, anyone could manipulate statistics to achieve an agenda so we should take all of these reports with a grain of salt. I think ultimately it is up to us to recognize the reality around us. I know that my living expenses went up by more than 10% in the past year and I know that the unemployment rate amongst my friends and family is about 10%. Also I do not believe that the economy has grown at all this year. All of these things are anecdotal, but they are more real to me than the government's sunny numbers. It is easy and reassuring to read optimistic statistics, but in order to protect yourself you must be aware of what is really happening around you. As Fox Mulder would say, "the truth is out there".