Econometrics that yield economic lies

“A nation of ‘short-termers’, that’s what you are. Your politicians, your business leaders, and many of your economists lack a time horizon beyond three or four years.” That was an indictment recently heralded during a chat room discussion by a scholarly Scottish friend… and specifically directed to three of us (Americans) in the group.

Not that I am in disagreement with that. But this time the pronouncement centered on the discussion’s topic, one dealing with the statistics recently announced by the Commerce Department on the growth of the US economy during the third quarter.

I am a firm believer that economic health requires a holistic approach just as human health does. And high economic growth for one quarter, or even two, is only a sign that improvement may be on its way. A hopeful indication, nothing else.

Bush supporters, as were Reagan’s, are more vocal and passionate than they are thoughtful and scientific in their approach to both economics and politics. Overnight, this 7.2% rate of growth for one single quarter validates, as they see it, all of the administration’s economic policies, particularly one of tax cuts. However, in economic holistic terms, this growth rate may be just a flare that could easily become a flash in the pan. After all, both jobs and trade balances give a continuing sorry measurement as to the health of the US economy in the longer term.

For two decades the job situation has been far worse than that implied by government statistics. High-paying jobs have been shed while low-wage positions were being created. But economic success was measured by the number of jobs created and not payroll. So that if in a given month the nation lost 100,000 manufacturing jobs at $24 per hour (including health benefits) but gained 200,000 retail-service jobs at a $10 hourly rate, the half-truth provided by the government is a 100,000 net job gain. However, the full truth becomes apparent when you do the simple math and find that the there is a net annual payroll loss of $800 million (based on a 2,000-hours annual payroll).

In fact, many of the employment gains in the past two decades have translated into pyrrhic victories for the average American household, where multiple earners are now required to meet the economic needs of the family; and where real median household income has been negative for most of the last fifteen years. Most of the 20+ million jobs created during the Clinton two-terms were “mini-jobs,” against the loss of millions of high-paying manufacturing and other jobs.

So until such a time as the government decides to index, or put a standard of value to a job, there will be gross misinformation as to the true change in employment in terms of payroll which is the all-important factor.

In addition, monthly unemployment rates do not reflect unemployment as such. People who have given up their search for a job, or those who are underemployed, are not included in the rates; otherwise the current 6+% figure would easily jump to double digits.

Since the affairs of the country are run by short-term politicians with long-term aspirations, statistics are going to be shown so as to portray results in the best light. "Half the truth is often a big lie," as stated by Benjamin Franklin, applies nowhere better than in the realm of polls and statistics…if in the hands of politicians.

By accepting the precepts of competitive world commerce and supporting the WTO, we are de facto creating a growth of income inequality in the developed nations. It is a form of wealth redistribution… with the modest and middle-income classes as the losers. And nowhere is that inequality more pronounced than in the United States.

This income disparity is created by national policies (globalization of trade), changes in the makeup of the labor market (technological changes and non-unionization, or de-unionization, of the labor force) and composition of households (multiple earners per family and increase in single-parent families). But income disparity is also created by greed in a society that renders cult to unregulated business without measuring the long-term social costs of such unregulated behavior. This new and ever-increasing income inequality could prove to be suicidal to the American economy.

I am certainly not one holding my breath waiting for an economic recovery with Bush at the helm… not an economic recovery for all Americans.