Constant readers will recall the ball got rolling with a Kevin Phillips piece in the May Harper’s, and has since been addressed in the New York Times, CNNMoney, and the Christian Science Monitor, with varying degrees of honesty and accuracy.

Now comes the San Francisco Chronicle with an extensive profile of Shadow Government Statistics impresario John Williams. With his move from New Jersey to Oakland last year, the ShadowStats phenomenon is a local story for the Chronicle. For the most part, the piece does him justice. It’s also the most serious attempt yet to get the government side of the story without completely dissing Williams as a conspiracy theorist (as NYT columnist David Leonhardt did, albeit not directly). And since it’s the power elite’s push-back against those who don’t buy the official numbers that interests us the most, it’s what we’ll address here.

The article points out that Williams has two somewhat interrelated concerns: That the changes made in the statistical measurements over the last several decades have made the numbers rosier than they really are, and that some of this has been politically motivated.

Most experts scoff at his contention that economic data are grossly inaccurate. And they say his
claim that data are tampered with for political reasons is preposterous.

“The culture of the Bureau of Labor Statistics is so strong that it’s not going to happen,” said University of Maryland Professor Katherine Abraham, who headed the agency that produces employment and inflation data during the Clinton administration.

Steve Landefeld, director of the Bureau of Economic Analysis, the Commerce Department agency that prepares quarterly GDP reports, said in an e-mail that “the bureau rigorously follows guidelines designed to ensure its work remains totally transparent and absolutely unbiased.”

Um, no one accused the people who work up the numbers of being opaque and biased. The changes in the statistical criteria that have been made over the years are there for all to see. All Williams is charging is that those criteria are invalid and over time have distorted the true picture of the economy’s health. But give credit where it’s due; some of his critics are capable of moving beyond straw-man arguments.

“All of those methodological changes were made after academic economists did decades of research and said they should be done,” said UC San Diego economist Valerie Ramey, a member of the Federal Economic Statistics Advisory Committee.

Still, even those who dismiss Williams concede he makes a few points worth considering.

Abraham rejects most of Williams’ arguments. But, she said, “There may be grains of truth in some of what he’s saying.”

Alas, the grains must be so fine that the reporter didn’t think it was worth getting into, so it’s hard to pass judgment here.

He accused the current Bush administration of taking advantage of a switch to monthly instead of
semiannual seasonal adjustment of job creation data to “bring the number in where they want it,” though he admitted he had no evidence.

Bureau officials said they were mystified by accusations that the agency falsifies data. The 2003 shift to monthly seasonal adjustment of jobs data “was recognized statistically as a better way,” said Assistant Commissioner Patricia Getz.

In any case, she noted, payroll figures are matched once a year with tax records to produce an accurate tabulation of the number of jobs in the economy.

Yes, but those once-a-year numbers aren’t what get plastered across the front pages of newspapers and screamed out on CNBC. And that’s the whole idea. Ditto for the various unemployment measurements. The government still publishes many of the gloomy ones every month, but the headline number is what gets continually tweaked and twisted. This is what sleazy government lawyers like to call “plausible deniability.”

Anyway, give the Chronicle credit for a very thorough job of calling attention to Williams’s work. We’ll put it in the plus column along with the CNNMoney piece and Kevin Phillips’s original article in Harper’s.

This battle is just getting started. The more people who become aware, the fewer people who stand to be caught by surprise from the economic super-shocks around the corner.

Source: Cooking the Books: An Update

As Bill Bonner noted in Friday’s DR, USA Today was prompted to run a headline, “Inflation may be worse than the consumer price index shows.” Alas, I can’t find the article online, but I’m going to chalk this one up in the “Perceptions are changing” column, along with the CNN Money piece I cited last week, and the Kevin Phillips article in Harper’s that started this ball rolling.

On the other hand, in the “Power elite push-back” column we have a story from the Christian Science Monitor trying to explain away the gap between statistics and reality: “The short answer: [The situation is] bad enough, but don’t judge the problem only by what it costs to fill a fuel tank.” And, “Critics say the index has important flaws. But in general, economists across the political spectrum say the system works pretty well.” The story cheerily quotes Merrill chief economist David Rosenberg about how prices “for everything from clothing and furniture to toys and TVs” have fallen in the last year. Um, yeah, because demand for those items has fallen, because people are spending more on food and energy? I expect better of the sober, sensible Monitor, but this piece of journalistic bilge is right up there with the David Leonhardt column in the NYT I picked apart last week.

The Monitor story does note a CNN/Opinion Research poll in which 47% of adults surveyed cite inflation as the biggest economic concern. Nothing else — housing, unemployment, you name it — scored even half that high. Bad news for the Fed, which cares not a whit about money supply (hence its decision to cease publishing M3 figures in 2006) but cares very, very much about inflation expectations.

Source: Keeping Tabs on Inflation, and Perceptions

According to CNN “part of the disconnect may be due to the fact that nondurable goods, such as food and gasoline, makes up only 12% of the Consumer Price Index (CPI), the main measure of inflation.

In addition, food and energy prices are eliminated from the so-called core CPI, which many economists tend to focus more closely on because they claim food and gas prices are volatile.

But food and energy costs are a very important part of household budgets. And those prices have been skyrocketing: Gas prices were up about 21% over the 12 months ending in April.

So-called “seasonal adjustments” also come into play. Because of these adjustments, the government reported that gas prices were 2% in April, despite the fact that on a non-adjusted basis, gas prices rose 5.6% from March.

For more on how how seasonal adjusting skews inflation, read on at Mish Shedlock’s blog.

Junior Mogambo Ranger (JMR) Phil S. sent me an article titled “Numbers Racket”, with the subtitle “Why the economy is worse than we know”, by Kevin Phillips, which first appeared in (I assume) Harper’s Magazine, and which I had talked about in a previous MoGu newsletter – although I forget which one, and I am not going to go find out because I can hardly stand to read that Stupid Mogambo Crap (SMC), as it is embarrassing enough to write it. I can only imagine your embarrassment in being caught reading it! Hahaha!

But this article is not about solving that old riddle, “Who is the most stupid: The Mogambo for writing his stupid crap, or the people who voluntarily read it?”, but about how I am glad JMR Phil sent it to me, because there was something in it that I had missed before, where the discussion turned to unemployment.

Mr. Phillips writes, “The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the ‘marginally attached,’ a new catchall meaning those not looking for a job but who say they want one”, and which is running at a frightening 9% unemployment.

Well, admittedly, this is not new, but the interesting part that IS new is when he writes, “Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been ‘bought off the unemployment rolls’ by government programs such as Social Security disability, whose recipients are classified as outside the labor force.”

That’s right! There are lots and lots of people who no longer have to work because the government supports them! Too bad he doesn’t give an estimate of how many these are!

But the new unemployment numbers came out, and right off the bat I see that the Civil Labor Force went up by 173,000 and the number of Employed went up by 360,000, but Non-Farm Payrolls went down by 20,000 and Goods Producing Payrolls went down by 110,000! Huh?

Of course, nobody is surprised that government employment went up by 9,000 employees to 22,385,000, which is up 224,000 over the last year.

In fact, there are now more people on Government Payrolls (22,385,000) than Goods Producing payrolls (21,618,000)! Hahaha! We are so freaking doomed! What makes it So Damned Funny (SDF) is that a conceited, self-absorbed nation like America, that boasts how smart we are, cannot possibly realize the utter, utter stupidity of this! Hahaha! And yet, here it is! Dare I repeat myself that we are freaking doomed? Sure! We’re freaking doomed! Hahaha!

Agora Financial’s 5- Minute Forecast ignores my jocular outbreak and somberly reports that “The U.S. economy shed jobs for the fourth-straight month in April” which they say is important because “in post-Great Depression history, a four-month losing streak has always preceded a recession.” Yikes!

I am always interested in things that use “always” to describe them, which I have learned the hard way, such as “People always get upset when I tell them that they are stupid because they are not buying gold, even in response to Alan Greenspan of the Federal Reserve destroying the dollar by creating so much of them, so that the damned government can spend us into bankruptcy, and then they REALLY always get upset when I say that their stupidity has doubtlessly been passed along to their ugly, mutant children, who are, on average, the most ignorant, most stupid, most self-absorbed, most violent, most criminal bunch of worthless trash ever created in America, as indicated by standardized testing and personal experience, mostly from having a few of the rug-rats myself.”

And the fact that I “always” have to defend myself against these stupid people, including my own wife and kids to show you the kind of treachery I have to put up with around here every freaking day of my life, makes me perhaps a little more sensitive to the word “always” being featured so prominently in the snippet “a four-month losing streak has always preceded a recession.”

Maybe this “recession” thing is why the Labor Department reported that the U.S. lost another 20,000 jobs in April. In fact, the economy has shed 260,000 jobs since New Year’s Day!

I admire the way that John Williams restrains himself from busting out laughing as he says in his review of the government’s Payroll Survey that the “Bureau of Labor Statistics (BLS) reported a seasonally-adjusted jobs loss of 20,000 (loss of 28,000 net of revisions) +/- 129,000 for April 2008.” Hahahaha! Plus or minus more than 600% of the estimate? Hahahaha!

I instantly see how I can use this to my advantage the next time my stupid boss calls me into her stupid little office to get “on my case” about something. Like yesterday, for example, I could have used this fascinating and powerful technique when she called me in to ask me about losing the stupid Lindsey contract, which was because old man Lindsey had a “Hillary Clinton for President” campaign bumper sticker on his car, and so I politely told him that he was “stupid, commie-rat Marxist pinko collectivist low-IQ trash”, which he apparently took some exception to, and now it’s suddenly important to know how many OTHER contracts we lost because of me merely giving people what they deserve.

My first thought, of course, was to politely say, “None of your business, you stupid old cow, so shut up!”, but I realized it WAS her business, and, even worse, six other instances of this same thing instantly ran through my mind.

Today, now that it is too late to do me any good, I realize that I could have said, “How many others? None! Give or take six, which should be good enough for you because your own Leftist trash government says it is good enough when calculating employment!”

Saving this for another day, I now turn to the Birth/Death Model, which plays such a prominent role in the government’s calculation of employment, and which showed a surprising gain of 267,000 jobs, which is the biggest increase in the last 12 months! Wow!

Before you go off shouting “The recession is over! They’re hiring again!”, the Model showed that 45,000 jobs were added in Construction, which makes me laugh my Big Fat Mogambo Butt (BFMB) off, but not laughing in merriment and joy, but a dark and scornful laugh of contempt, because this would be the most jobs created in the Construction category in the entire last freaking year, which makes me laugh even harder and with more scorn! And LOTS more contempt!

Oddly enough, 83,000 jobs were created in the April’s Birth/Death Model in the category of “Leisure and Hospitality”, which I figure is a pretty good estimate of the number of women who have recently become prostitutes because they are so desperate for money! Welcome to the hell of inflation!

Until next time,

The Mogambo Guru
for The Daily Reckoning

The Mogambo Sez: I feel sorry for those who have not converted their wealth into gold, silver and oil. Not sorry enough to give them some of mine, however. Just sorry.

And I will feel sorry for them when gold, silver and oil make me rich and them poor. Not sorry enough to give them some of mine, however. Just sorry.