Stop Government Statistical Fraud

The US Federal Government continues to release reports to the American people that either mislead or falsify the underlying data. This sorry state of affairs has been going on for generations, although it appears to have gotten worse – and blatantly so – during the reign of the current Administration.

A case in point is the Unemployment Report. The so-called Headline number, the U3 figure, leaves off a lot of people. Even the official U6 total does not count people who have dropped off the Unemployment Benefits rolls or who are working part time because they can’t find a full time position. And, if someone is working two – or three – part-time jobs, he is counted as two (or three) separate employed people.

And then, there is the “Birth/Death Model.” New companies hire people, but it may be a while before the government finds out about them. Similarly, if a company goes out of business, there usually is some delay before the layoff reports reach the number crunchers’ desks. So the government uses a model to estimate them.

Many times the Birth/Death Model estimates are so ridiculous that it becomes a joke within the financial industry. If the Unemployment numbers about to be released look too awful, the statisticians are directed to adjust the model to make the report release look more favorable.

In the private, productive sector of the Economy, such misleading reports would land the purveyor in jail. The government, at all levels, has imposed regulations and various audit procedures to make sure American individuals and businesses do things right. But, who regulates the regulators?

Unofficially, there are several private sector people and companies which issue alternative viewpoints. One such is John Williams, the economist creator of www.ShadowStats.com.

The ShadowStats alternate for the number of Americans out of work compares the official numbers to what they would be if all those defined out of the workforce were included back in.

While the U3 says that Unemployment in the US is down to around 5½%, and the official U6 reports an 11% number, ShadowStats calculates that, with all unemployment and underemployment counted in, the real Unemployment Rate in the US continues to hover around 23%, where it’s been for the last two years.

Similarly, the government reports Inflation numbers that are a fairy tale. This is a big deal not only because of the price increases, but also because the real GDP – how well the Economy in general is doing – is calculated by subtracting out price increases. If the CPI is a low-ball figure, then the GDP number is much too high.

Beginning after the double digit inflation of the late 70s, during the Carter years, adjustments started to be made so that inflation could be tamed. Started under the Reagan Administration, the adjustments got progressively more unrealistic with each new President.

Once again, John Williams over at www.ShadowStats.com has been keeping track of what the Inflation Rates would have been if the numbers had been calculated the way they used to be calculated.

The official CPI is dead flat compared to a year earlier. However, notice that, based on the methodology that the Bureau of Labor Statistics used to use in 1990, the year-over-year CPI increase is around 3½%.

Also, please notice on the graph above, that the wonks at the BLS once again are busy creating yet another adjustment package. Their experimental CPI actually showed a decrease in prices over the last 12 months of about ½%.

The ShadowStats comparison with the 1980s version of the CPI is even more dramatic. Remember that the 1980s was a time of quickly rising prices, so there was greater urgency to artificially pretty up the numbers. And then too, through the power of compound interest, the changes during the 1980s, added on to what followed, compounds the dastardly deeds.

Based on the 1980s methodology, the CPI would have shown a year-over-year gain around 7½%!

We need to stop the corruption of the official reports. I propose to impose harsh penalties for misleading or outright lying in official statistical releases.

Action Item: Clean up the corruption in government Statistics.

•Make reporting false or misleading statistics by any government agency a crime

•Impose penalties up to and including being fired for cause, fines, and imprisonment

•Set up, or allow, private auditing agencies which would have authority to challenge the official methodologies. These agencies could require the Attorney General or other authority to prosecute for such fraud.