American political analyst Kevin Phillips states that successive US administrations have undermined the economy by constant de-regulation. These include unparalleled credit card debts, the expansion of financial industries such as hedge funds, ballooning national debts, and deliberately altering statistics like inflation and unemployment to mask the accurate picture. Phillips has written a new book entitled: Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.
Phillips directs attention to three statistical measures: the monthly Consumer Price Index (CPI), the quarterly Gross Domestic Product (GDP), and the monthly unemployment figures. Phillips convincingly demonstrates that the real unemployment rate in the United States is between 9 and 12 %, not the 5 % or less that is officially claimed. The real rate of inflation is not 2 or 3 percent, but instead, between 7 and 10 %. Real economic growth has been about 1 percent, not the 3-4 % officially claimed during the most recent Wall Street and housing crash.
Phillips argues that the US has massive debts, both public and private, up about 700% since the early 1980s, with $50 trillion worth of credit market debt, which is tradable debt. Government debts is not the problem, it is private sector debt, both financial and corporate and in the consumer sector with credit cards and then mortgage debt. US debt takes up 340 % of the gross domestic product. Debt only reached such levels —and it was less— in the late 1920s and early 1930s.
Another problem is the collapse of home prices. There are now predictions that there will be a 15 to 20 % decline in home prices in the United States, the greatest since the Great Depression.
With global commodity inflation, particularly in the Oil and food sectors, consumers are as concerned about the price of milk as they are about the price of oil. This is a global problem, but it exposes as baseless the US Government’s pronouncements that there is no inflation problem in the US.
Soon after John F. Kennedy took office in 1961, he appointed a committee to recommend possible changes in the measurement of official joblessness. What soon followed was the use of the category of “discouraged workers” to exclude all those who had stopped looking for jobs because they weren’t available.
During the administration of Lyndon Johnson, the federal government began using the concept of a “unified budget” that combined Social Security with other expenditures, thus allowing the current Social Security surplus to disguise growing budget deficits.
President Nixon tried to tackle the “problem” of statistics by proposing that the Labor Department simply publish whichever was the lower figure between seasonally adjusted and unadjusted unemployment numbers. This was deemed too brazen an attempt at manipulation and was never implemented.
Under Nixon’s Federal Reserve chairman, Arthur Burns, however, the concept of “core inflation” was devised. This became the means of excluding certain areas like food and energy, on grounds of the “volatility” of these sectors. The suggestion was that these prices jumped and then sometimes fell, so that it was best to remove them from the prices surveyed. In fact, food and energy together accounted for an enormous portion of spending for most sections of the working class and, as Phillips states, these two sectors are “now verging on another 1970s-style price surge.”
By January 2008, the price of imported goods had increased 13.7 % compared with a year earlier, the greatest leap since the statistics began in 1982. Gasoline prices, meanwhile, have soared by more than 30 % since the beginning of this year.
The Reagan administration addressed itself to the problem of housing in the inflation index. An “Owner Equivalent Rent” measurement was created to artificially lower the cost of housing — from a purely abstract statistical standpoint. Under Reagan, Phillips also points out, the armed forces began to be included in the labor force and among the employed, thus reducing the unemployment rate, even though these same members of the military would in many cases have no employment in civilian life.
George H.W. Bush and his Council of Economic Advisers proposed the recalculation of inflation statistics to give greater weight to the service and retail sectors and, again, reduce the official rate of inflation.
This change was actually implemented during the Clinton administration. Clinton also carried out other changes, including a reduction in the monthly household sampling from 60,000 to 50,000, a decrease that was concentrated in the inner cities and had the effect of reducing official jobless figures among African-Americans.
The Clinton years were an especially active time for imaginative tinkering with economic data. Three other “adjustments” in the Consumer Price Index were implemented under the Democratic administration: product substitution, geometric weighting, and hedonic adjustment.
Product substitution means that, for example, if steak gets too expensive, individuals substitute hamburger. Steak is simply removed from the typical food basket even though it was used in the past to track price changes.
Geometric weighting is defined as lower weighting in the price index for those goods and services that are rising most rapidly in cost, on the assumption that they are consumed in lower quantities. This may of course be true, but the aim is to reduce the inflation figure, covering up the fact that some items are no longer affordable for tens of millions of people.
Phillips is particularly scathing about “hedonic adjustment,” also implemented during Clinton’s presidency. In this concept, the supposedly improved quality of some products and services is translated into a reduction in their effective cost. This is another blatent attempt to reduce official inflation. “Reversing the theory, however, the declining quality of goods or services should adjust effective prices and therefore add to inflation,” Phillips writes, “but that side of the equation generally goes missing.”
Phillips explains that every single one of the statistical revisions implemented since the 1960’s have become permanent. Once initiated by a Democratic or Republican administration, they were carried over to the Bureau of Labor Statistics and other agencies no matter who was the current President in office at the time.