When people see the word ˜economics' they often stop reading right there. It is so boring. It is much more exciting to focus on popular causes, such as climate change, equal rights, biogenetic engineering, or even alien life, anything but economics. It involves too much thinking and numbers. Everyone knows that numbers can be manipulated. As the saying goes, "figures lie and liars figure.
But as this economic tsunami threatens to subsume all other issues it is high time we focus where it really matters. History is clear on this subject. When an economy falters, so does its political structure. If the political structure fails, war follows. When war overwhelms societies, popular issues are thrust far into the background and mere survival becomes the most critical day-to-day concern. As we plunge into economic chaos we must be mindful where this path leads so that we can avoid losing all the good work we have accomplished so far, not to mention our very lives.
Bloomberg is not known for its support of left wing politics. Therefore, when Bloomberg reports economic conditions one can assume it is not to promote some radical left wing agenda. If anything, the opposite is true. Therefore when they reported that unemployment is far worse than the ˜official' statistics are telling us, we should pay close attention. After all, we are told the economy is recovering even in the face of increasing unemployment. That alone should raise the red flag. How can an economy recover when jobs are being lost? Are not jobs part of the economy? Is not consumer spending the very foundation of the economy? How can we have consumption without employment? How can we have an economy without jobs?
As I have said consistently for the past three years, job estimates are just that, a guess of probable values. Estimators use tools to guess. Statisticians and statistics can be very accurate when used properly. Oh yes, we all know that the media misuses and abuses statistics, but we should not throw out the baby with the bath water. Good statisticians are extremely accurate when the base data is correct.
Bloomberg reports that the method used for estimating unemployment is failing (http://www.bloomberg.com/apps/news?pid=20601068&sid=aGBkhROUjNds ). In the face if this terrifying economic catastrophe, these methods just do not hold up.
The method the government uses to "estimate" job loss includes guessing how many new jobs have been created by small business. The Bureau of Labor Statistics has not made any accommodation for the bad economy in their numbers. They "assume" that small businesses are still adding jobs at the same rate as the year before.
Therefore, at the year end calculations, they find out the truth...oops! Gee there were many more jobs losses than we have been reporting and unemployment is much higher than we figured.
What is interesting to note is that only a few years ago this adjustment was made EACH MONTH. The actual figures came from the state's payroll records, where they can see exactly how many people are having taxes withheld from their paychecks. This measurement was removed to "save money" and is now done only once a year.
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