For the second time in four days, another powerful piece of journalistic analysis from Binyamin Appelbaum provides us with the lead story in the latest edition of the New York Times: “On Economy, Raw Data Gets a Grain of Salt.” More about this in a moment. But, first, a few questions.
What if ”they” told you that many, if not most, of the “official” economic numbers that have been hyped by our government and our private sector over the past few years—the very core statistics that form the faux “basis” of our society’s so-called, “professional” and pundit class’ economic analyses and the same numbers which are at the heart of our nation’s MSM reports on our economy, which then create the public’s perception about it, and our government’s response to it—have recently been proven to be so incredibly and grossly distorted in favor of Wall Street, that it’s now basic FACT that they were little more than corporatist hyperbole?
What if ”they” told you that most of our nation’s largest banks were, indeed, insolvent, and that they are in no way, shape or form legitimate, profitable enterprises--at least at this point in our society’s (d)evolution—and that they’re, in fact, doing little more than sucking what little remains of the available lifeblood within our economy?
What if “they” told you these truths?
Would you believe “them?”
Well, little by little, lately, and as it conveniently suits “them,” “they” are.
The lead story in Wednesday’s NY Times…
On Economy, Raw Data Gets a Grain of Salt
Binyamin Appelbaum
New York Times
August 17, 2011
WASHINGTON — When the government announced in April that the economy had grown at a moderate annual pace of 1.8 percent in the first quarter, politicians and investors saw evidence that the nation was continuing its recovery from the depths of the financial crisis. The White House called the news “encouraging” and the stock market extended its bull run.
When calculating economic growth, the government makes an educated guess about spending on construction and cellphone bills. An estimate of growth in the first quarter was changed after a revision of the value of vehicles at dealerships and spending on imported oil.
Three months later, the government announced a small change. The economy, it said, actually had expanded at a pace of only 0.4 percent in the first quarter.
As Appelbaum describes this institutionalized fail: “Instead of chugging along in reasonable health, the United States had been hovering on the brink of a double-dip recession.“
He continues…
How can such an important number change so drastically? The answer in this case is surprisingly simple: the Bureau of Economic Analysis, charged with crunching the numbers, concluded that it had underestimated the value of vehicles sitting at dealerships and the nation’s spending on imported oil.
More broadly, politicians and investors are placing a great deal of weight on a crude and rough estimate that has never been particularly reliable.
In a very perverse sort of way, I find this comment hilarious: “…the Bureau of Economic Analysis, charged with crunching the numbers, concluded that it had underestimated the value of vehicles sitting at dealerships and the nation’s spending on imported oil.”
In 2008 (most recent stats I could readily access), taxpayers spent $81.4 million supporting the Commerce Department’s Bureau of Economic Analysis (“BEA”) and the salaries of the 430 people then on its payroll.
So, we’re now supposed to believe that the reason the BEA, in Q1 ’11, screwed the pooch on what is, arguably, the single most important statistical indicator (and, certainly the most inherently flawed) of our economy, the Gross Domestic Product (GDP), was because not one of those 430+/- people (I’m sure many of them have PhD’s, too) noticed they were paying $4.50 for a gallon of gasoline, nor did they read a single business article about the widely-reported, record breaking “channel stuffing” that was occurring (and is still occurring) in car dealerships throughout America?
And, all along, we thought it was the confidence fairy! Go figure?
Appelbaum then quotes George Washington University assistant professor of economics and international affairs Tara M. Sinclair, who comes up with the Nobel-worthy comment, “It’s just the best information that we have.”
(Appelbaum has a way of highlighting incredulousness, IMHO.)
The article then informs us that “estimated” quarterly GDP, the first of three official declarations of it coming 30 days after the end of each quarter (with the first and second “revisions,” and/or the second and third “estimates” of it being announced 30 and 60 days after that), has been “off the mark” by an average of 1.3% for the 27-year period covering 1983 through 2009. However, we’re told that the the second and third estimates are just as inaccurate.
Using the first quarter of 2011 as an example, Appelbaum continues on to note that the BEA estimated GDP, on an annualized basis, at 1.8% in its first revision of the number, and at 1.9% in its third and final revision in June…”before issuing its most recent estimate of 0.4 percent.”
I hope this piques your interest enough to read this entire article. It’s an amazing piece! I’m barely scratching the surface of it, since the balance of the story provides us with a play-by-play as to how the BEA provides us with even greater levels of ongoing fail due to even greater flaws in its econometrics than those I discuss in this post!
You see, we’re informed that one of the reasons these GDP numbers are so off the mark is due to the fact that they’re based upon … drumroll please … “PROJECTIONS!” Or, as Appelbaum states it, the BEA…
… simply makes an educated guess based on past spending. Even in the third estimate, 22 percent of the data still comes from projections.
If basic assumptions start changing rapidly — business failures during a recession, start-ups during a recovery — the estimates can quickly lose touch with economic reality…
Bold type is diarist’s emphasis.
# # #
Unfortunately, this latest “chapter” in the story of the curtain being pulled back on the truth about our distorted economic “news” won’t be the last we hear of this propaganda travesty.
But, as it’s noted below, the truth is always a good thing!
Earlier in 2011, and as it relates to another critical metric concerning our struggling economy, we learned how the National Association of Realtors distorted real estate sales data (accentuating a totally bogus upside by somewhere between 10% and 15%) through 2010.
Over the past few years, our nation’s monthly employment/unemployment numbers have been candy-coated for public consumption via the MSM due to the Bureau of Labor Statistics’ convenient habit of baking in overstated, month-to-month gains in employment due to the sheer “coincidence” and “fact” that “seasonally-adjusted” metrics (mostly based upon “normal” periods of economic growth) are still utilized during economic downturns; even when it’s a known fact that these seasonal adjustments are notoriously far less accurate during recessions/depressions. But, fear not fellow citizens, the BLS provides us with an annual “benchmark revision” each February, to correct this ongoing “oversight.”
Like the old saying goes, however, “It takes two to tango.” And this economic kabuki is not just a one-sided, captured government affair. As many are aware, Wall Street is the dance partner of choice in Washington’s now-institutionalized waltz.
Stories of economic mis- and disinformation account for most of the “statistics” that we read and hear in the MSM concering our nation’s financial services sector, on a daily—if not hourly—basis, too.
As those who follow my posts (and great articles from others covering our economy) have already read about it, not just in the past few weeks but over the last few years, our government is still providing covert welfare-for-the-rich to the tune of roughly $200 billion per year. Subtract that amount from the “net profits” of our nation’s largest banks, and you’ll end up with a substantial negative number for each of the past few years, too!
That’s the thing about the truth. Sooner or later it catches up with you. So, it’s good to see a lead story such as the one we’re reading in today’s New York Times. But, the following question remains valid, however, and it’s this: Will it matter?
And, with that, I’ll leave you with the words of former Delaware Senator Ted Kaufman, from a post of his over at HuffPo, on Monday afternoon…
Will the Mortgage Mess Meet Too Big To Fail?
Ted Kaufman
Fmr. U.S. Senator from Delaware
Posted: 8/15/11 03:00 PM ET
Ever since the Dodd-Frank Wall Street Reform Act passed last year, there has been a running debate about the Resolution Authority in the bill. Would it actually prevent another taxpayer bailout of a bank or banks to avoid a financial meltdown? I believe there is a real possibility that the present mortgage mess could trigger such a test.
The Congressional Oversight Panel of the TARP, which I chaired until it ceased operations earlier this year, held a number of hearings and issued numerous reports on problems within the federal government's Home Affordable Modification Program. I came to suspect that the entire system in place to bundle and sell mortgages through securitization might be fatally flawed…
…
…If all these investigations disclose that the whole mortgage system is as rife with mistakes, abuses, and fraudulent activity as many observers now suspect, hundreds of billions may be at stake. This could put several banks in a very precarious situation and severely test the Resolution Authority of Dodd-Frank. Could the financial system survive the failure of one or more megabanks or would the government once again have to use taxpayer finds to bail them out?
When I was in the Senate, Ohio Senator Sherrod Brown and I fought to include in Dodd-Frank an amendment that would have placed capital requirements and liability limitations on the megabanks. That amendment, which failed to pass, would have ensured that no U.S. financial institution was too big to fail.
It is time for all the regulators to commit to increasing capital requirements on the megabanks, and reducing their size. A good first step would be to unwind the mergers made by the megabanks during the financial crisis.
Hopefully, the mortgage mess will not cause a test of Too Big To Fail, but after all that Americans have endured these past three years they deserve a lot more than hope from their government.
Bold type is diarist’s emphasis.
Yes, Americans do, indeed, “deserve a lot more than hope from their government.”
Getting the truth about what’s really (happened and) happening with our economy would be a good place to start.
And, having an extra couple hundred billion dollars to ameliorate the suffering on Main Street on a yearly basis wouldn’t be a bad idea, either!