The Crash Course - Chris Martenson [56]
CHAPTER 13
Fuzzy Numbers
What if it’s true, as author Kevin Phillips states, that “[e]ver since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the vigor and muscle of the American economy are measured.”1 What if it turns out that our individual, corporate, and government decision making was based on deeply misleading, if not provably false, data?
That’s what we’re going to examine here, uncovering the ways that inflation and Gross Domestic Product, or GDP, are measured, or as we might say, mismeasured.
Inflation is an active policy goal of the Federal Reserve,2 and for good reason: Too little inflation, and our current banking system risks failure; too much and the majority of people noticeably lose their savings, which makes them angry and politically restive. So keeping inflation at a “Goldilocks” temperature—not too hot and not too cold—is the name of the game.
Inflation results from a mixture of two components. The first is simple pressure on prices due to too much money floating around. If goods and services remain constant but circulating money rises, inflation will result. The second component lies with people’s expectations of future inflation. If people expect prices to rise, they tend to spend their money now, while the getting is still good, and this serves to fuel further inflation in a self-reinforcing manner. The faster people spend, the more they expect inflation to rise, and the more inflation does rise. Zimbabwe was a textbook-perfect example of this dynamic in play during the years 2001 to 2008, when inflation nudged over 100 percent on its way to a peak of more than 230 million percent.3 On the other hand, if expectations are that inflation will be tame, they’re said to be “well-anchored.”
Accordingly, official inflation policy has two components. The first is goosing the money supply to just the right level to achieve the desired amount of inflation, and the second is anchoring your expectations to help keep inflation in check. Assuming both components can be controlled, how exactly is “anchoring” accomplished? You might be surprised at the answer. Over time, the management of your inflation expectations has evolved into little more than reporting inflation to be lower than it actually is.
The details of how this is done are somewhat complicated, but they’re worthy of your attention because trusting bad data can be hazardous to your wealth. Before we begin, I’d like to be clear on one point: The tricks and subversions that we’ll examine did not arise with any particular administration or political party. Rather, they arose incrementally during each administration from the 1960s onward. If I point fingers, I’ll be pointing at actions, not ideologies. There are plenty of examples that were implemented by both of the major U.S. political parties, and there’s absolutely no partisan slant to this game.
Administrative Bias
Under President Kennedy, who disliked high unemployment numbers, a new classification was developed that scrubbed so-called discouraged workers from the statistics, which had the effect of causing headline-data unemployment figures to drop. Discouraged workers, defined as people who desire to work but aren’t currently looking due to poor employment prospects, weren’t counted; the unemployment numbers that we reported to ourselves went down, and Kennedy was reported to be pleased with the outcome. Of course, the exact same number of people were unemployed both before and after this statistical revision, but the number went down, so things looked better. No president since has seen fit to discontinue this practice, so “discouraged workers” are still dropped from the counted rolls.
President Johnson created the “unified budget” accounting fiction that we currently enjoy, which rolls Social Security surpluses into the general budget, where they are spent just like ordinary revenue. Even though the