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States was experiencing higher inflation than reported, while checking my findings against those of John Williams. Because of the need to subtract this higher rate from the GDP, I started investing and interpreting the news as if we were in a period of solid recession, not respectable growth. Suddenly a lot of things that had previously been difficult for me to understand began to make perfect sense. Contracting businesses, rising foreclosures, job losses, rising budget deficits, falling tax revenues, declining auto sales—all of these were consistent with recession, not expansion. All of these warning signs were in plain view in 2007, long before a recession was officially recognized. Those trying to make sense of these economic events by viewing them through the government’s rose-tinted statistics were more likely to be confused than helped. Those in a position to appreciate how the game was rigged and then trust themselves to act wisely were able to navigate this period more successfully. When navigating uneven terrain, it helps tremendously if your instruments are reliable.

And All the Rest

Statistical wizardry similar to that which we’ve explored here for GDP and the CPI is also performed on income, unemployment figures, house prices, budget deficits, and virtually every other government-supplied economic statistic that you can think of. Each is saddled with a long list of lopsided imperfections that inevitably paint a rosier picture than is warranted. Taken all together, I call the economic stories that we’re handed by government statisticians “Fuzzy Numbers.” To quote Kevin Phillips again: “. . . our nation may truly regret losing sight of history, risk and common sense.”14

CHAPTER 14

Starting the Race with Our Shoes Tied Together

In the spring of 2001, while returning from a trip to Europe, I was in the back of a taxi heading home from JFK airport outside of New York City on an important phone call, trying to negotiate a contract with a new client. “What?” I asked, “I couldn’t make that out . . .” as my phone connection went fuzzy. Just then, the taxi hit an enormous pothole, its third in as many minutes, and I lost the phone connection. Physics tells me these were unrelated events, but they felt connected. Redialing, embarrassed, and apologizing for the lost connection, I was struck by the thought that I had not had a single dropped call while in Europe, not when traveling through the 26-mile long Chunnel on a train beneath hundreds of feet of rock and water, not even in elevators. While stewing over the lost phone call and the rough ride from the airport, it struck me just how shabby and decrepit much of the U.S. physical infrastructure had become. As I recall, the business deal turned out okay, but instances such as these surrounded some of my first budding doubts about the health of our country.

In a 2005 report, the American Society of Civil Engineers assessed the condition of 12 categories of infrastructure, including bridges, roadways, drinking water systems, and wastewater treatment plants. They gave the United States an overall grade of “D” and calculated that $1.6 trillion would be needed over the next five years to bring the United States back up to First World standards.1 At the time of this writing in 2010, almost none of these investments have happened. Because inflation has advanced since then and more deterioration has occurred, the bill has certainly grown. “Clean, modern, and efficient” no longer describes the United States in 2010; those days have passed. The United States can get there again, but it will take an enormous fiscal commitment to enjoy First World infrastructure once again.

Choices matter, and the United States has repetitively chosen to defer maintenance and upgrades on essential economic infrastructure until some future date. There’s a long story there, but for now, we can simply note that one of the many demands on the United States’ limited pool of future funds will be the required investment in, and repair of, its physical infrastructure.

A National