Monday, April 14, 2008

Is the government screwing up our statistics?

In the May '08 Harper's Magazine, Kevin Phillips says that the US government uses deceptive statistics to convince Americans that "the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is."

Phillips' conspiratorial tone invites distrust, and much of his discussion revolves around irrelevant facts or rumor. For example, Phillips states,
Lyndon Johnson, for his part, was widely rumored to have personally scrutinized [irrelevant] and sometimes tweaked [only a rumor] Gross National Product numbers before their release.
Nevertheless, Phillips occasionally says something relevant in his report. Here is a compilation of his most interesting claims:
  • "A few years" after 1961, unemployment calculations began to exclude "discouraged workers," people who say they want a job but are not actively looking for one. The effect was to lower the reported unemployment rate.
  • In 1983, the Bureau of Labor Statistics stopped including housing prices in its calculations of the consumer price index, and instead started using an Owner's Equivalent Rent measure, which is an estimation of how much a house could be rented out for. (Freakwenter: The effect would be to lower the inflation rate during housing booms, but it is unclear if this would change the long-term inflation numbers.)
  • The Reagan administration reclassified members of the military as "employed" instead of outside the labor force, thus lowering the reported unemployment rate.
  • According to Phillips, "... the Clinton administration thinned [the unemployment survey sample] ... from 60,000 to 50,000, and a disproportionate number of the dropped households were in the inner cities." (Freakwenter: If true, the effect was to lower the reported unemployment rate.)
  • The GDP numbers published by the Bureau of Economic Analysis include "imputed income," which Phillips claims accounted for 15% of the 2007 GDP. Imputed income includes things such as the value of employer-paid insurance premiums and the value you derive from living in a house you own (see page 5). (Freakwenter: The implications for the reliability of GDP growth figures is unclear, but imputed income highlights the complexity of the computation, and the potential for distortions as the economy changes.)

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