Why do most of the methodologically revised U.S. economic statistics tend to create a picture of a more positive looking economy?

Do these revised statistics really give a betteror illusoryunderstanding of economic activity? And is it coincidental that the benefits flowing from these more positive looking statistics largely accrue to powerful elites who also have the muscle to influence the statistical methodologies? ow those who should be investigating and informing us of these concerns! our economists and media! fail to do so. We see this "positive bias# appearing in the most important economic statistics! including unemployment rates! payroll numbers! the consumer price inde$ %&'()! savings rates! and gross domestic product %*D'). &onsidering the unemployment rates and payroll numbers! we find that the +ureau of ,abor Statistics %+,S) has implemented many changes that have resulted in lower unemployment rates and higher payroll numbers. -ne particular change in .//0 to the unemployment rate was most significant. At that time the +,S decided to e$clude the long1term %over one1year) unemployed discouraged workers from measurement. 2he chart below! from ShadowStats! shows that revised rate! now referred to as the -fficial U3 rate! as the red line. 2he unemployment rate including these long1term unemployed discouraged persons is the ShadowStats blue line. 2he broadest government unemployment rate U4 is the gray line! which ShadowStats says! includes 5short1term discouraged and other marginally attached workers as well as those forced to work part1time because they cannot find full1time employment.6 Using 7arch 89.0 unemployment data! notice the huge difference in unemployment rates between the pre .//0 methodology! which ShadowStats estimates at 83.8:! and the much1publici;ed -fficial U3 rate of <ust 4.=: and U4 at .8.=:>

With reference to the +,S payrolls data! ?ohn Williams! ShadowStats founder! has regularly spotted 5spurious revisions used to spike payroll employment levels.6 @e said of the 7arch 89.0 payroll report! that! 5A2heB increase of ./8!999 was bloated heavily by concealed and constantly shifting seasonal ad<ustmentsC Athat theB

numbers remain of horrendous DualityC generally not comparable with earlier reporting.6 7ethodological changes to the &'( are also worrisome. Some non1government consumer price indices show e$actly how much the government &'( has understated inflation that#s relevant to most people#s everyday e$perience. -ne such inde$ is *uild (nvestment 7anagement#s %*(7)! *uild +asic eeds (nde$ %*+ (). *(7 says that because the +,S! 5periodically alters its A&'(B content! making ad<ustments to the weighting of the components! and smoothing seasonal patterns. A2hat!B such tinkering with dataC usually results in an understatement of the inflation rate and creates an unreliable! misleading cost of living inde$.6 2he *+ ( includes food! clothing! shelter and energy! covering E91F9: of most people#s e$penditures. Grom the chart below see how over the five years to ?anuary 3.! 89.0! the annual increase in the *+ ( was 0.=:! versus 8..: for the &'(.

ShadowStats has re1worked the &'( as the +,S measured it with a fi$ed basket of goods in .//9 %see below)! and in ./F9 %not shown). Using the .//9 measure annual inflation in Gebruary 89.0 was running at about E:! blue line! versus under 8:! red line! for the -fficial &'(1U.

&hanges to the personal savings rate methodology are of concern too. egative personal savings rates in the past decade became positive. Gor instance! the personal savings rate %as a percentage of disposable personal income) in 8994 and 899= was about 18: but has become H3: after revisions. 7ethodological changes in personal incomes and certain pension benefits! etc.! had the effect of enhancing personal savings rates. Iegarding *D'! we see it has benefited from arguably bureaucratically lowered inflation rates. 2o arrive at "real# U.S. *D'! the +ureau of Jconomic Analysis %+JA) reduces nominal %current prices) *D' by +JA#s own inflation measure. According to 7r. Williams! this measure shares many similarities to the &'(. -ne e$ample is that it includes 5Duality1ad<usted price inde$es to deflate goods and services.6 @ence! if a new computer has the same price as one several years ago but is many times more powerful! its price would now be deemed much! much lower! thereby lowering +JA#s price inde$ and thus increasing real *D'. 2o see e$actly how these methodologies upwardly bias *D'! consider that +JA reported real *D' for 89.3 at ../:. @owever! using the S*S1Alternate *D' that eliminates! as ShadowStats says! some of the 5distortions in government inflation usage and methodological changes that have resulted in a built1in upside bias to official reporting!6 real 89.3 *D' would be about 0: lower and negative at around 18:> 2hese Duestionable brighter1looking statistics could be creating the illusion of a better economy. &oincidentally! such a possibly falsified! better1looking economy! greatly benefits some key political and financial elites who <ust happen to have disproportionate power to influence government statistical methods. ShadowStats gives e$amples of the ?ohnson! i$on! &arter! Ieagan! +ush %first) and &linton administrations engaging in acts to alter various economic statistics so as to put their respective administrations in a brighter light. And the economic elite benefiting most from these more positive looking statistics pumping up the bond and stock markets are the ultra rich. 7oreover! it is they who

have an out si;ed influence on legislators and government policies and perhaps the most interest in adding gloss to the statistics. Iegrettably! those who should be critiDuing and providing insight for the public about the meaning and conseDuences of the methodological changes to the statistics! our beloved economists! are missing1in1action. Jconomists! believing they are Duasi1 physicists of the economics realm! should be ashamed at their apparent near total public acDuiescence to government statistical methods and methodological changes. Sadly! the financial media is <ust as irresponsible too! parroting the statistical information spoon1fed to them by government. 2his is a situation suited to a dictatorship rather than an enlightened democracy. When methodological changes to government economic statistics nearly always create a picture of a more positive economic reality! we have to doubt their integrity especially when particularly powerful political and financial elites benefit the most from them. Alas! economists and financial <ournalists studiously avoid publicly critiDuing the changing statistical methodologies. 2hey treat government statistics as if they come down from *od and written in stone. We deserve better in this enlightened age. So! are these dubious! positively biased economic statistics providing improved insight into economic reality11or are they created to proffer the impression of a healthy economy? K Ion Iobins 89.0