Statistics, The Government, Lies, And The World Of Madness

Most people are horribly ignorant of statistics.  They are often told that some descriptive static, a data point such as an average or a median is proof of some cause and effect.  If on average, a city police department pulls over more Black men driving automobiles then this is outright proof of racial profiling and institutional racism.  On the other hand, it the population of Black males is more than significantly higher (the percentage of the entire American population who identify as Black or African American is 13%) than the population of white men, then one might expect a higher percentage of Black men pulled over to be justified by the increase of the population as a whole.  Note that if we are talking about an urban area such as Denver or Detroit, where the city limits encompasses both inner city areas of high concentrations of Black and Hispanic populations where the white population in those ares is very low and has areas in which the whit population is higher in concentration and where the Black and Hispanic populations are much lower, then we have to ask several questions.  One is the average income of the various populations.  If inner city Blacks have a low income and are limited to driving older vehicles then one may expect the rate at which an older vehicle is pulled over to be higher than a new vehicle and that the likelihood that a Black man would be driving such an old vehicle very much higher in an inner city neighborhood.  Hardly a case for racial profiling in such an area.  The use of an average or median for showing cause and effect is a lie.

The Federal Government has, over the course of its history, kept statistical data of one form or another.  The 1920s and 1930s saw the increase use of statistical data collection and the rise of various metrics.  Unemployment, non farm labor employment, the number of farm animals still in use for agricultural production, the list goes and on.  The government keeps track of the number and type of miners, various aircraft workers, auto workers, retail clerks, supervisors and low level managers, CEO and EVP numbers.  It also keeps track of prices of food stuffs, commodities, precious metals, cotton and wool, unfinished goods and finished goods, washing machines and dryers, toilets, and millions of other goods and services.  One might think that the government keeps enough date on everything to be able to put out a very precise picture on almost any economic cross section you might want.  Except it lies.  It has the means to know if you are working, were recently laid off or fired or quit, or if you are looking for work, going to school or both.  It even knows who should be in the labor force and who shouldn’t.  Yet it relies on a formula that mostly understates the unemployment picture.  Why should that be?  Very simple, the politicians wouldn’t be in office long if their next election depended on good economic numbers and all they had to show for their term was bad numbers.

Did you know that the only time one is counted as out of work is when one is on unemployment benefits?  No more benefits, no more unemployment.  Yet you may still be looking for work, desiring full time work.  So perhaps you take a part time job.  Ah, now you are employed.  But you want full time employment.  Sorry, the government makes no distinction between work for one hour a week or forty.  Maybe you are a college graduate with a degree and can only find a part time job flipping hamburgers or delivering pizza.  You are underemployed but there is no government statistic to reflect that fact.  I mean, would you vote for a Congressman or Senator or even governor who paid not attention to your plight?  We are told that the unemployment rates have come down, that more Americans are employed and better off than six years ago.  Really, is that true?  The labor participation rate is at its lowest point in twenty years.  How then is the unemployment rate down?  True, more Americans are working but the problem is that more are in part time work and most of those new jobs the President claims he has created are minimum wage jobs.  Is the recession really over?  No, this depression is continuing with no relief in sight.  But GDP has risen.  Yes, only to match government spending.  And the Federal Reserve says there is no fear of inflation.

Ever since Lyndon Johnson, every president has fiddled with the inflation components and the Consumer Price Index upon which it is based.  If one doesn’t like the numbers, change the input components and find a better number.  We have no had a truthful measure of inflation since 1965.  Remember, a measure must do two things.  It must measure what it purports to measure and it must do so reliably, time after time.  The MIT economics department did its inflation project in which for about two years it tracked several million consumer goods and their prices.  That started in 2008, I believe, and after about two years that project was closed.  But during the time when they were tracking prices they showed that the American public was being lied to by its Federal Government.  Inflation was not below two percent for those two years but was far closer to six percent.  I won’t detail all the horse play that the various agencies have gone through to change the numbers until unemployment index and CPI has become almost meaningless.

Why should this problem matter?  For one, we can take a look at the old USSR and its centrally planned economy.  Since there were no consumer markets there was no feedback of how well the central planning was being done.  There was no way to see it goods and services were allocated efficiently.  That is the problem with a centrally planned economy, no feed back mechanism to effectively allocate goods and services.  Okay, so the USSR no longer exists, what does that have to do with the price of tea in China?  Plenty and how.  For years going on to a decade or more we have heard all about the Chinese miracle of economic growth.  Except that China is still a dictatorship controlled by the communist party.  Since 1990 we have seen the economic numbers and each year they bear less resemblance to reality.  Those within China as economists, businessmen, and the like have come to say much the same thing, the numbers are often made up to please the higher up authorities.  I follow a number of blogs on Chinese economic watchers and the consensus is that the economy is filled with several huge bubbles about the burst or are already bursting.  At least two major banks have gone under, many businesses have failed, commodities have been used to steal billions from banks and the government.  Unemployment is increasing greatly in China, building has come to almost a standstill, the list goes on.  Even those at the top don’t know the extent of the damage to the economy.  When your metrics lie, how can you run a country?  I’m sorry, but we are becoming China in that respect.  If you keep fudging the numbers to make yourself look good then how can you have an effective monetary policy?

But if it were only that there might be hope yet.  But Wall Street has become infected with that same virus.  First we have allowed banks to change their evaluation of assets from mark to market to make to unicorn.  An asset is no longer worth what it might reasonably expect to bring on the current market, it may be marked as a great deal higher on the basis that in makes the books balance as if there are no losses.  That is like applying for a mortgage and telling the bank that your current loans are really very much lower than they really are.  Yes, that’s the ticket, my credit card debt isn’t $100,000 it’s only $1,000.  Works for me.  Then we have the creative accounting of the various CEOs.  There is the usual GAAP (Generally Accepted Accounting Practices) reporting of profit and loss and then we have the non GAAP accounting that seems to be acceptable to the public.  Want to increase income prior to EBIDTA?  Well, add back in all those expenses that you called one time occurrences such as board of director salesladies, stock options paid out, any regulatory fines that seem to constantly occur, management fees, recruiting fees and bonuses, almost anything you think will boost that profits.  Then tell your investors that this is the best way to show the true state of the business.  And let us not forget that another method of increasing earnings per share is to borrow money at very low rates (thank you Federal Reserve), such as 1 percent, and buy back your own shares.  Except that those shares are at the height of the market.  Borrow money to buy high and sell low, what a concept for making money.  I can hardly wait for all those chickens to come home to roost.

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