If a statistic is based on a faulty model, the statistic will be faulty. From Charles Hugh Smith at oftwominds.com:
Numbers like gross domestic product (GDP) and the unemployment rate no longer provide insight into how our economy works.
As the status quo narratives and metrics lose their explanatory value, defenders of the status quo frantically leap into attack mode, declaring any skeptical inquiry as a “conspiracy” or “hoax.” A recent example can be found in that high-brow defender of the privileged status quo, The New Yorker.
(We can identify a new socio-pathological syndrome called The New Yorker Syndrome: if all is right on the Upper West Side, all is right with the world. In other words: since me and my top 2% pals are doing great, everything’s going great.)
The New Yorker writer defended the way the unemployment rate is calculated by saying “we’ve got top people on this–top people:” we should accept the official metrics as meaningful because they’re the work of PhD economists– you know, “top people” who are far above peasants’ non-expert skepticism.
The only problem with this “top people” defense is it is increasingly clear that the economic models that PhD economists claim are working well are in fact failing. They are failing for a number of reasons I list in my book Why Our Status Quo Failed and Is Beyond Reform, one of which is: the current metrics are answering the wrong questions, and as a result they’ve lost their explanatory and predictive value.
Since we optimize what we measure, the “top people” are trying to optimize increasingly meaningless metrics–GDP, unemployment, etc. The only possible output of optimizing meaningless metrics is economic stagnation and failure:precisely what the real-world economy is experiencing.
Numbers like gross domestic product (GDP) and the unemployment rate no longer provide insight into how our economy is changing. The Keynesian Cargo Cult’s insistence that “aggregate demand” is the key to “growth” and widespread prosperity, and that “aggregate demand” is a function of monetary policy, no longer tracks the real-world economy.
All that might have been true in 1933, but it no longer maps to the real economy, in which increasingly extreme Keynesian monetary and fiscal policies have done nothing but widen income and wealth inequality.
The unemployment rate is nothing but guesswork hocus-pocus. The current system has the Bureau of Labor Statistics (BLS) and other agencies guessing how many people in the workforce are “discouraged” and should be deleted from the workforce count.
Then they guess how many new businesses started up and how many closed (the birth/death model) and how many people might have been hired/let go as a result of the birth/death model guesswork.
They derive data by collecting self-reported statistics–the most unreliable source of data possible, as people will adjust their answers to avoid reporting whatever looks bad and exaggerating what looks good. Even if they are scrupulous, does collecting time sheets really provide insight into the economy, employment, and labor force utilization?
Why are we defending hocus-pocus guesswork, when the IRS has hard data on employment, wages, income and the small businesses that are paying estimated taxes for their employees and owners? This data is extracted confidentially– the taxpayers’ identities remain private.
Click on the 2014 link in All Returns: Sources of Income, Adjustments Deductions and Exemptions, and Tax Items: Individual Income Tax Returns Filed and Sources of Income (this is the latest publicly available data)
The reports can be downloaded and opened in Excel. There is a treasure trove of data on wages and other income sources. These report tell us precisely how many workers are in each income bracket.
To continue reading: What’s the Real Unemployment Rate? That’s the Wrong Question