There was a shadow over the national conventions of both political parties. The people know that the economy is much worse than anyone in the power structure will admit. As usual, the people are right. The real rate of unemployment is 23%, not the official figures we hear on a regular basis. The 23% figure represents all of those unemployed no matter how long, the involuntarily under employed (part time), and those who have given up looking, the discouraged, due to an chronically arid job market. If either wing of The Money Party, Democratic or Republican, admits to the the real unemployment situation, they would be forced to admit a complete system failure and compelled to act now. There would be no choice but to drop the nonsense about austerity and balanced budgets.
Here is how the fantasy of the official unemployment figure works.
Official unemployment includes those who are both unemployed during the week of the Bureau of Labor Statistics (BLS) survey and without a job for the prior four weeks.
The official unemployment number we see excludes those marginally attached to the labor force, discouraged workers, and those working part time due to the absence of full time work. The Alternative unemployment statistic is always higher than the official version. It includes most of the unemployed but excludes discouraged workers after twelve months without a job (See Appendix). In the chart above, you will see the official government unemployment number (U-3), the alternative number (U-6), and the shadowstats.com figure, which includes U-3 and U-6 plus all those unemployed who have given up. That represents 23% of the work force. (Graph Courtesy of Shadowstats.Com Shadow Government Statistics – John Williams)
How can citizens make responsible decisions when the official unemployment rate, 8.1%, is just 35% of the real unemployment rate, 23%?
Who benefits?
Another Useful Fiction – the Consumer Price Index
The Consumer Price Index (CPI) is used to measure the annual rate of inflation. The measure is vital to effective understanding of the real state of the economy at any point and over time. It is also the measure used for a variety of important programs like Social Security and other retirement programs.
There were major changes in the methodology for determining CPI prior to 1980 and again in 1990. The net result is a much lower CPI and a much lower reported rate of inflation. Combining the real CPI, based on the more robust and realistic 1980 CPI with flat wages over the years explains why so may feel like they’re treading water and struggling against increased prices. It explains why so many wonder what’s going on given the reports that we’ve conquered inflation. (Graph Courtesy of Shadowstats.Com Shadow Government Statistics – John Williams)
It’s easy to conquer inflation, unemployment, etc. when you control of the rules that define the outcome. Just change a few assumptions, and, as if by magic, inflation is no longer a problem.
The recent scandal in setting the Libor interest rate exposed bankers colluding to take more from customers by lying about basic data that created this rate central to loan rates. How is that any different than what the government has done with with the CPI? It is the same process, distorting reality to benefit those distorting the data. There is one difference, however. The international bankers carried out their deception in secret, ashamed to show the public their very profitable conspiracy. The government, under both parties, is open enough for just about anyone concerned to see that they’re rigging the game. Since it is so beneficial to both parties, just about nobody complains.
People know when they’re unemployed. They know when their communities are suffering in a very real way. They know that it’s harder and harder to keep up financially, that their incomes are inadequate to buy the necessities and get a break now and then. The deliberate manipulation of unemployment, inflation, and other data to put a smiling face the economic collapse isn’t working very well lately.
It’s time to clean house of those who deliberately manipulate information vital to public awareness and debate and to dismiss those who enabled this ongoing deception through affirmative efforts or silence in the face of obvious distortions.
END
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Appendix: Unemployment Definitions
U-3 (BLS) Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-6 (BLS) Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force
SGS Alternative (SGS): ‘The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994 [workers are dropped from the discouraged worker status after 12 months and no longer appear in unemployment statistics]. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.”
Employment vs Non-Employment:
Something That Isn’t Being Said…,
is that a lot of those folks who have “given up looking for a job” is a misnomer. It is folks who can no longer draw benefits. Since they aren’t applying for benefits…, because they are no long eligible…, have exhausted their 99 weeks of benefits…, the term being used is that they “have given up and are no longer looking for work”. I doubt that is true…, they are probably scrambling even harder to find a job now…, but it isn’t being reported as ‘looking for work” because it doesn’t filter through the employment office. And those numbers are scary…, as those benefits are no longer circulating through the economy. It’s going to hurt in a lot of ways.
Here’s a link to The Daily Kos from back in early May:
This from ThinkProgress in late May:
That’s the problem with fuzzy numbers. They turn into a denial of benefit. Williams points out that the “discouraged” category is replenished as people are moved out at 12 months. How can the number have any meaning when it’s artificially truncated?
shadowstats.com/Williams work is consistent over time. I took his data for unemployment since 1994 and figured out the multiplication factor for U3-U6 etc. He presents quarterly unemployment data. It works out to be very consistent. All you need is the “official number” and the factor and bingo, you get more of the real picture.
The Money Party RSS
…but that says very little about how valid the underlying methodology is. I’ve determined how everything from U-3 to U-6 is computed and the only way that I can get to the Shadowstats figure is some combination of asserting that those who are on the books as not currently wanting a job actually do want a job and that those who are working part-time for non-economic reasons actually want full-time employment. When one works the numbers to determine how many people have to shift around their statuses to make the jump from U-6 to Shadowstats, it becomes very difficult to accept.
“Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.” ~ Steve Jobs
Shadowstats.com takes those moving off of the BLS U-6 discouraged category and ads them back to U-6. – at 12 months – and ads the to U-6 creating the shadowstats alternative.
Edt = here’s an interview where he outlines it.
Interview – John Williams, July 2012
The Money Party RSS
…and the “fine typeface” near as I can tell. I spent a fair bit of time working through the numbers and this is easy to say but hard to do with the actual respondent numbers. I would encourage you to do due diligence and work through the actual numbers of individuals in each of the categories and then figure out how many need to change statuses to get from a U-6 of 17% to 23% – it’s a very large number, so large that it drives me to the conclusion that there may very well be something wrong with the methodology here. When one digs down under the surface, what one finds is:
1) if one says that the figure is driven by individuals who are assessed as not wanting a job actually wanting one, the labour force participation rate quickly eclipses historical highs; and
2) if one says that the figure is driven by individuals who are part-time for non-economic reasons (this is the most efficient means, in terms of the number of individual respondents involved, of changing the rate) one quickly gets into changing a pretty high percentage of respondents who are in categories that really don’t seem too applicable [i.e., in school, with family obligations, etc.].
I haven’t gone through and worked out the optimal combination of these two factors, but the boundary conditions and the dynamics indicate to me that we should not simply accept this measure at face value without rigourous deconstruction – at a minimum the author should explain exactly how it is constructed.
To be methodologically sound, one can’t simply add percentages willy-nilly – what one has to do is to figure out how the individual respondents need to be swapped around categories to produce the percentages.
“Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.” ~ Steve Jobs
BLS uses something called a ‘birth-death’ model for estimating jobs. It assumes as some businesses falter, new ones emerge and workers move into those. That doesn’t apply in a recession/depression. It’s more a death-more death model People lose their jobs, move into 1 year plus unemployment, and stop being counted for U-6. Williams recognizes this in his model in the context of the death-more death model. They’re discouraged and they don’t find new work. The longer the recession/depression lasts, the more accumulation there is in the 1 year plus discouraged worker category.
Here’s how the depression impacts long term unemployed. I don’t know Williams exact model but this has to be part of the estimate. Look at the decline in the labor force since 2002:
Bureau of Labor Statistics: Series Id: LNS11300000
Seasonally Adjusted
Series title: (Seas) Labor Force Participation Rate
Labor force status: Civilian labor force participation rate
Type of data: Percent or rate
Age: 16 years and over
He’s not casually creating percentages any more than you’re casually analyzing them.
The Money Party RSS
…things. The simple fact of the matter is that in order for this measure to be valid, it has to clearly and specifically explain how it differs from the conventional BLS measures in terms of how it assigns respondents. That should be pretty straightforward and that it does not appear to have occurred makes me very, very uncomfortable about this measure. Contra this, when I go to the BLS website, it takes a little digging, but I can clearly see how they computed their measures.
As near as I can see, there’s two main ways that one can boost the unemployment rate beyond the U-6 measure – assert that there are more discouraged workers out there than the U-6 measure incorporates and/or assert that some of those who are employed on a part-time basis are underemployed. When one looks at the numbers of those individuals that would then have to be involved, it becomes a real challenge to accept without some considerable backup. Take a look at the August numbers and compute the measures.
“Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.” ~ Steve Jobs