Creative Statistics Hide US Contraction; Trillion in Debt?

Check out this interview (PDF) with economist John Williams. Hope you're up on your macro. John basically says that some "creative" tweaks made over the past few decades in the way the US reports statistics have caused many measurements to become way too optimistic and misleading. It started in the Kennedy years, with Clinton perhaps the worst offender of the bunch ("surprise"). Some quotes:

Quote:

Real CPI right now is running at about 8%. And the real GDP probably is in contraction. ...The difference that it makes is significant: if the same CPI were used today as was used when Jimmy Carter was President, Social Security checks would be 70% higher.

(CPI is a measure of inflation...more on CPI gaming here)

Quote:

“Well, we really need to define discouraged workers—so if anyone has been discouraged for more than a year, we’re just going to take them out of all the numbers, take them out of the workforce completely”. In doing so, they knocked about 5 million unemployed out of the broader measures of unemployment...But, as I mentioned, if you take out all the funny games that they’ve played with it, unemployment is really up around 12%.
...

They basically reduced the number of people being surveyed in the inner cities, and then claimed they had replaced them statistically. But the effect was immediate: You saw a drop in all the unemployment measures that would normally be influenced by inner-city surveying.

Quote:

We’ve had three years in a row here where the GAAP deficit has been basically $3.5 trillion. So the deficit and the total obligations of the federal government are increasing by roughly the amount of GDP every three years. In fact, the fiscal 2005 statement shows that total federal obligations at the end September were $51 trillion; over four times the level of GDP. It is unprecedented for a major country to have its actual obligations so far out of whack.

Quote:

Now, [GDP]'s still routinely overstated, as I said earlier, by about 3%, so that 1.1% growth was probably close to 2% contraction. Clearly, the consumer doesn’t have the strength to keep this economy pumping at this time.

As "men on the streets" we're apparently supposed to be able to tell what's going on. What's your take on all of this? Are other countries doing the same thing with their statistics? What is the US to do if the deficit is really in the trillions of dollars?

If the guy needs to put out a (pay) newsletter about it, I guess this isn't quite common knowledge. I can just imagine the thought of millions of dollars being invested on these faulty numbers... and, well, it's quite unfortunate.

Jam it back in, in the dark.

Originally Posted by How Unfortunate

What is the US to do if the deficit is really in the trillions of dollars?

Well, the US could kill the rest of the Earth's population, thereby no longer owing so much money to anyone as they would be dead. But that may be my optimism speaking.

There's nowhere I can't reach.

Naw, if US attempted that, I'm pritty sure that A) Duke Nukem Forever would be the innital attack and B) Cananda would blow everything to high hell.

This thing is sticky, and I don't like it. I don't appreciate it.

I thought it was a well known fact the debt was trillions of dollars. Anyway, it's not like we're going to have to pay anyone back anytime soon.

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Regardless of creative statistics, we're still in deep shit as far as our debt is conened.

I was speaking idiomatically.

What I want to know is where this guy John Williams gets his information that is so much different that what is being reported.

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I have so forgotten basic macroeconomic theory. ;_;

Originally Posted by Gumby

What I want to know is where this guy John Williams gets his information that is so much different that what is being reported.

I'll admit that I skimmed through the article, but most of the statistics that he quoted make enough sense on their own. Effective consumer prices are rising to nasty levels thanks to oil prices and the housing bubble, unemployment rates and GDP statistics are fudged to help politicians, and the national debt is very high right now, though it's actually not as large as the debt of some other first-world countries...the Japanese federal debt is something like 150% of their GDP.

I do question the backing of some of his statements (though again, I didn't read terribly thoroughly), and so long as the Chinese keep buying our federal bonds happily, the government can at least sustain spending. On the other hand, if the Chinese suddenly quit buying government bonds...well, it wouldn't be pretty. Suffice to say that I don't think you'll see the American government pressing the Chinese too hard on human rights or labour issues anytime soon, and if the dollar drops in value versus the Euro or Yen, who knows what'll happen?

FELIPE NO

It was my understanding that our national debt was a small percent of our GDP and that it is not as big a problem with our economy as people would like to make it out to be.

What, you don't want my bikini-clad body?

our ability to pay the debt is increasing... not decreasing. Many people don't realize this. I also thought it was well known what our debt was?

The US national debt isn't near the problem everyone tries to make it out to be. Anyone who doesn't believe me ask your economics professor and he'll surely tell you the same thing.

Jam it back in, in the dark.

Originally Posted by xen0phobia

our ability to pay the debt is increasing... not decreasing. Many people don't realize this. I also thought it was well known what our debt was?

Do you have a link to something that supports this? I'm genuinely interested in what it has to say.

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http://www.sfgate.com/cgi-bin/articl...&type=business

Quote:

But economists tend to look at the national debt as a percentage of the gross domestic product -- the sum total of all goods and services. This links the debt level to the nation's ability to pay and factors out inflation over time.

By this measure, the national debt has ebbed and flowed with world and political currents. According to historical tables in the 2006 federal budget, debt peaked at 121.7 percent of GDP in 1946 because of World War II spending. It fell to about 33 percent of GDP in 1980, then roughly doubled to the 60 percent range during the administrations of President Ronald Reagan and the first President George Bush.

After hitting 67.3 percent of GDP in 1996, a few rare budget surpluses during the Clinton era drove the national debt back down to about 57 percent in 2001. Honestly, i hadn't checked the statistics recently so my previous statement was slightly off.

Debt as a percentage of GDP turned up again as the Bush administration began running deficits and now stands at an estimated 65.7 percent of GDP. The 2006 budget forecast predicts that the national debt will be 70 percent of GDP in 2010.

So basically the trend has been lowering. However, i guess that's changed a bit since bush took office, but you see my point... Its better looked at this way.

Also its important to remember that nearly HALF of the national debt is goverment owing other parts of government money. It doesn't even involve the private sector.

This thing is sticky, and I don't like it. I don't appreciate it.

Originally Posted by xen0phobia

Also its important to remember that nearly HALF of the national debt is goverment owing other parts of government money. It doesn't even involve the private sector.

Well, the external debt of the US is still over 8.8 trillion dollars according the the World Factbook, and that doesn't even include money that the government owes private banks within this country.

It's true that deficit spending isn't necessarily harmful, sure, but I still worry about it. If foreign governments quit buying our bonds for whatever reason...default on payments, drop in the US dollar's worth, or just making the wrong world leader angry...it's going to break the economy and the government's ability to function. ._.

future econ major...I'd ask my current professor about this stuff, but he's really kinda unhelpful. ;_;

I am a dolphin, do you want me on your body?