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Smoke obscures precipice

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Saturday, Nov. 17, 2012, 8:57 p.m.
 

The re-election of President Obama and most members of Congress left the nation's political balance relatively unchanged, at least on the surface.

But the bickering between Republicans and Democrats will have to be put aside to avoid driving the American economy over the so-called “fiscal cliff” of about $600 billion in tax increases and government spending cuts Congress has set to go into effect on Jan. 1. The potential of a new recession has Wall Street jittery with concern.

The problem is this cliff's end is clouded by the smoke of misleading statistics. Incorrect information points to bad decisions and severe problems for Americans.

Throughout history, reliable information has been the foundation for good decision-making for generals, business executives and politicians alike.

During the Clinton administration, steps were taken to change the nature of government statistical reporting. Under the guise of “modernization,” major changes were made to underlying assumptions and methodology. For example: if the price of beef rose, its proportional content in the inflation index was reduced as consumers were “assumed” to have switched more to the cheaper chicken, whose index quota was increased.

While consumers still paid more for the same products, official inflation rates were reduced. This saved the government billions of dollars in inflation-adjusted Social Security payments. Again, consumers suffered while politicians retained votes.

The same happened with that other political hot potato: unemployment. Excluded from the figure now reportedly publicly as the unemployment rate are the long-term unemployed, those accepting part-time jobs and those who had given up job searching for 28 days. Again, politicians gained at the expense of the jobless.

Finally, the Gross National Product (GNP) economic measure was changed to Gross Domestic Product (GDP), which included the production of foreign companies located within the United States.

Basking in this world of make-believe, politicians maintained that all was well. Stock markets boomed. Any correction was camouflaged with huge injections of cash by the Federal Reserve.

Walter J. Williams, a scholar at Dartmouth University, has continued to calculate government statistics based on the old methodology. Publications by his 30-year-old company, “Shadow Government Statistics” (SGS), are deeply concerning.

The official unemployment rate is 7.9 percent. According to SGS, the actual unemployment rate with all people in the above categories included is 22.9 percent, which accounts more reasonably for the 23 million U.S. unemployed.

The economy is not growing but really contracting. Perhaps this is why, despite the Federal Reserve's injection of trillions of dollars into the economy, unemployment remains a scourge with 47 millions American being fed, on food stamps, by the remaining 260 million citizens.

This glimpse through the smoke of government statistics suggests that pressure for reform of entitlements becomes paramount while cuts and tax hikes on small business owners threaten catastrophe for job creation and the economy.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at johnbrowne70@yahoo.com.

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