There's reason to be wary of key Fed stats
Since Bill Clinton's presidency, some observers have disputed the accuracy of certain key government statistics.
The public has been told that the economy emerged from recession in 2009 and has since experienced low inflation and gross domestic product growth. Stock markets have responded with a strong recovery, and are near to record highs. Even the housing market appears to have bottomed out and is on an uptick. In 2012, for the first time in 10 years, precious metals failed to outperform equities.
So the economy appears to be recovering. Yet the Federal Reserve maintains record low interest rates and a highly expansive monetary policy. Which raises the question: Why is the Fed maintaining its aggressive monetary expansion if it believes the national economic figures reported by the government are accurate?
The crucial methodologies behind key economic statistics were changed under President Clinton and former Fed Chairman Allan Greenspan, who were assisted by the present Fed Chairman Ben Bernanke. The results appear to have distorted key economic statistics to the benefit of the government.
Thirty years ago, former Edward Tuck Scholar John Williams founded a company called Shadow Government Statistics, or SGS, to analyze government statistics using decades-proven methodologies.
In a recent interview, Williams described how some key government economic statistics have been “distorted” or “cooked” by changing the pre-Clinton methodologies.
Williams emphasized the importance of correctly tracking inflation. A commonly used measure is the consumer price index, which is a monthly review of changes in the retail prices of a consistent shopping basket of goods and services. However, the CPI report by the Bureau of Labor Statistics does not reflect changes in buying patterns that result from inflation.
Williams cited three main ways in which the inflation figure is manipulated, including the arbitrary assignment of weightings within the CPI basket. For example, exploding health costs are a significant expenditure for many families. But they are assigned a weighting of just 1 percent in the CPI calculation.
The price of a new automobile might have risen by 20 percent, but that figure is reduced to allow for quality improvements to the car.
Finally, there is outright lying. The Fed maintains that newsprint prices rose by 35 percent during the past 12 years. But, in fact, they have risen by 135 percent.
The national unemployment figure is distorted because it excludes the long-term unemployed and those who have accepted part-time jobs over full-time employment or given up looking for a job. Williams puts actual unemployment at 22.9 percent versus the BLS figure of 7.8 percent.
Of more concern, Williams calculates inflation at between 5 percent and 7 percent — more than three times higher that the government's figure. That implies negative economic growth since 2007.
In short, these figures show there has been no true recovery for the economy. Thus, many investment decisions made on the current methodologies are likely flawed.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Total Trib Media. Email him at email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- In historic vote, Pa. Senate approves bill selling state liquor stores
- PSU lands 4-star defensive end
- Consol again reworks offering for coal spinoff
- Route 22 in Delmont open after tractor-trailer crash at cloverleaf
- 1 dead in Washington Township crash
- Pa. Senate passes $30.1B GOP budget; Wolf veto likely
- Halliburton closing Indiana County office
- Plum teacher’s lawyer says latest allegations don’t measure up
- Hunting changes made, but more tweaks expected
- Oakland hotel deal could aid Pittsburgh Athletic Association
- Starkey: Cervelli’s inspiration