This is part one of a two-part article featuring an interview with consulting economist John Williams, who believes that many of the statistics issued by the government misrepresent the true state of the economy.
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On Feb. 1, the Bureau of Labor Statistics (BLS) released the latest national unemployment figures, saying that unemployment in January was “essentially unchanged” at 7.9 percent.
In California, the official unemployment rate was also reported as largely unchanged from December at 9.8 percent.
However, anyone who has friends or family still out of work or who knows how the numbers are calculated may believe they are off the mark.
One of those individuals is John Williams, who for 30 years has been a private consulting economist working for both private individuals and Fortune 500 companies.
The economist owns a business in San Francisco and operates a Website called Shadow Government Statistics at shadowstats.com.
Williams received his Bachelor’s degree in Economics, cum laude, from Dartmouth College and his Master’s from Dartmouth’s Amos Tuck School of Business Administration, where he was named an Edward Tuck Scholar.
Real unemployment at 23 percent nationally
Williams says the real unemployment rate depends on how it’s defined.
He says the BLS publishes six levels of unemployment. The U3 number — which is the “headline” number that gets the greatest play in the national media — is 7.9 percent and only includes those who have actively sought employment in the prior four weeks.
The U6 unemployment rate counts those seeking full-time employment, those working part-time but who want full-time jobs, and discouraged workers who have given up looking for work in the past year. That number is 14.4 percent.
However Williams said that once people are no longer looking for work after one year, they are no longer counted, thus bringing down the unemployment rate.
Williams maintains that if all those people were counted, the true unemployment number would be 23 percent nationally and 28 percent in California.
“I try to publish numbers that are close to common experience,” he said. “And over time, common experience has increasingly varied from what the government puts out in its headline numbers. The reason for that, more often than not, is because there have been methodological changes to the series that move it away from the common experience. I contend the average guy has a much better idea of what is happening in the economy than what you can get from government statistics.
“We’re not at great depression levels yet but we’re as bad as it’s been since the great depression in terms of unemployment. And my numbers are inching higher while the government’s are inching lower. And that’s because people are leaving the workforce. They just can’t find work. That’s why my numbers are so high.”
The difference between what Williams says is the true unemployment rate and the official rate may also explain the huge increase in the number of those seeking disability payments. Some may be the long-term unemployed who can’t find a job and have exhausted their unemployment benefits.
According to figures from the end of last year, 8.8 million people were receiving payments from the Social Security disability trust fund, a fund that is projected to run out of cash by 2016.
Politicizing the data
Williams says the unemployment rate is not the only government statistic that is skewed. Other measures of the economy, such as the CPI (consumer price index) and GNP (gross national product) and GDP (gross domestic product), have been manipulated over the years for political gain.
He said the manipulation began shortly after WWII when the Kennedy administration redefined unemployment to include the concept of “discouraged workers” to reduce the unemployment rate.
Williams said Lyndon Johnson was notorious for repeatedly sending GNP numbers back to the Commerce Department until he got the answer he wanted. “The Johnson administration was also responsible for gimmicking the accounting that hides most of the federal deficit,” said Williams.
Nixon battled the BLS on the unemployment data by requiring them to report the unemployment rate as the lower of the seasonally adjusted or unadjusted number without telling the public which number he was using.
The Carter administration was caught deliberately understating inflation while Reagan introduced changes in order to boost the reported GNP. Trade deficit data was also manipulated during Reagan’s term according to Williams.
During the George H.W. Bush administration, Williams said there were “efforts at the systematic reduction of the reported rate of CPI inflation, and an outside-the-system GDP manipulation aimed at helping with the failed 1992 reelection bid.”
Clinton, on the other hand, took the country to a new low when it came to statistical reporting. According to Williams, “As former Labor Secretary Bob Reich explained in his memoirs, the Clinton administration had found in its public polling that if the government inflated economic reporting, enough people believed it to swing a close election. Accordingly, whatever integrity had survived in the economic reporting system disappeared during the Clinton years. Unemployment was redefined to eliminate five million discouraged workers and to lower the unemployment rate; methodologies were changed to reduce poverty reporting, to reduce reported CPI inflation, to inflate GDP growth, among others.”
George W. Bush expanded on what Clinton did, “particularly in setting the stage for the adoption of a new and lower-inflation CPI and in further redefining the GDP…” said Williams. Bush also adopted Nixon’s approach in deciding what unemployment data was reported to the public.
Implications of misrepresentation
The misrepresentation of the unemployment rate has implications, of course, for at the same time the unemployment rate for Americans is at almost record highs, President Barack Obama and California Gov. Jerry Brown have called for “immigration reform” that would not only grant amnesty to an estimated 12 to 20 million illegal immigrants but also increase the number of legal immigrants.
According to an analysis by Edwin Rubenstein, who is President of ESR Research, about 90,000 legal immigrants arrive each month, or a little over a million each year. Four to five million of them are estimated to be here illegally after overstaying their visas according to a 2006 study by the Pew Hispanic Center.
Rubenstein’s research revealed that in January alone, there was a “record immigrant displacement of American workers” in which foreign-born employment increased by 112,000 jobs and Native-born employment fell by 95,000 jobs.
According to Rubenstein’s study, during Obama’s first term, foreign-born employment increased by 1.7 million while Native-born employment fell by 620,000.
Republican administrations have also been guilty of the practice.
It was Ronald Reagan who granted the last amnesty and George W. Bush who pursued policies of lax immigration enforcement while negotiating trade agreements that resulted in the outsourcing of even more jobs to countries such as China, Mexico, and India. One result of which is that China has now displaced the United States as the world’s leading trade partner.
The cost of amnesty is also an issue not generally discussed. A researcher at the Heritage Foundation has estimated that amnesty would result in $2.5 trillion in Medicare and Social Security costs alone over and above any taxes these new legalized citizens would pay in. This is because most of those who would be legalized are uneducated with 50 to 60 percent of them being high school dropouts and 75 to 80 percent having no more than a high school degree. They would thus be far more likely to be dependent on government assistance.
According to the Heritage study, those with a limited education receive, on average, three times as much in benefits than what they pay in taxes and consumption. This could be a big reason California can’t balance its budget and has to keep adding new taxes. The state, which has become a haven for illegal immigrants, has 12 percent of the country’s population, yet 31 percent of its welfare cases.
Contact Dawn Hodson at 530-344-5071 or [email protected] Follow @DHodsonMtDemo on Twitter.