Very interesting article. Definitely a must-read. Thanks for calling attention to it.

It's a reminder that economics operates on the basis of models and models are rough approximations rather than precisely to scale in all respects. They use these things as gauges to them rather than accurate descriptions of the state of affairs.

I suspect that for economists at the Fed, it doesn't make too much difference where the increased productivity numbers in the US economy come from, whether here or abroad. Increased productivity leads to increased volume of transactions without demand-driven price increases, i.e., real growth, and if this growth doesn't also lead to wage increases because it isn't due to US labor, well, so much the better as far as managing inflation goes. I think that their major problem is saving the financial system without tanking the dollar and increasing productivity in the economy, wherever it is coming from, is a plus as far as they are concerned. The US worker? That's another story.

My perception is that many people, especially conservatives, equate politics with economics, in the sense that the purpose of politics (governing) is a prosperous economy judged in terms of the gauges. There is a real disconnect in their thinking between government and social concerns like the common good and the general welfare. As long as US business is more productive, whether workers are ( and therefore deserve more) is irrelevant. I would suspect that they would like the current regime in which labor arbitrage undercuts the bargaining power of labor.

See The Big Picture's take on the B/D thing.

Here's my favorite:

In October 2007, the BLS data on job creation has ballooned up to 80% imagined [inference-based], and a mere 20% measured. That is not a formula for accuracy or precision.

This suggests several important things to us about the BLS NFP data:

• It has moved from a model highly reliant on measurement to a model highly reliant on more modeling;

• The amount of job overstatement has gone from moderate to very strong;

• If our analysis is correct, then economic growth is much weaker than reported;

This is consistent with what we have seen from various sentiment surveys. More robust job creation would moderate the general malaise that seems show up in the University of Michigan's Consumer Survey Center and the Conference Board survey of consumer attitudes on present economic conditions.

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