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[ThatHawaiiGuy]

HOW THE GOVERNMENT IS USING A SHELL GAME TO FOOL YOU

By JOHN CRUDELE

September 9, 2003 -- WAS the nation's productivity miracle a hoax?

The supposed rise in productivity was the silver lining in the economic cloud of the last three years. Fed chief Alan Greenspan has spoken proudly of it, saying the United States was becoming a more efficient producer of goods.

But the slip of a tongue may call the whole productivity miracle into question.

Here's part of what Sen. Robert Bennett, chairman of the Joint Economics Committee, had to say on CNBC on Friday.

Bennett, a Republican, was discussing how he didn't believe the U.S. was bleeding jobs and that it was simply a calculation mistake, then he got off the topic.

"If you go back into the '90s and Alan Greenspan's examination of where the economy was, the productivity numbers that he was getting through traditional means all indicated productivity was down. And Greenspan gathered the economists . . . and the Fed together and said this cannot be right."

"They said, 'We are doing it the way we've always done it, so the numbers have to be right.' And [Greenspan] challenged them and said if you look at the other data they make it very clear that productivity has got to be going up.

"They went back and recalculated and discovered that their productivity numbers had been wrong for months if not years," Bennett concluded.

So, let me get this straight.

The Fed chairman doesn't like an economic statistic, so he tells some lowly economists to take a mulligan and do the calculations over. Amazingly, they discover exactly what the Fed wants them to discover - the politically important productivity miracle.

The Soviets had a habit of calculating their wheat crops in such a sloppy manner until the starving citizens wouldn't take it anymore.

As Wall Street continues to re-inflate the bubble, this one troubling question lingers for the those who are blowing air into stocks: Why aren't any jobs being created if the economy is improving as much as it is?

You already know what I think about the government's employment figures - they aren't trustworthy. Let me put it more bluntly: They stink.

But when you have a seventh straight month of job losses - including the 93,000 positions eliminated in August - you have to figure that, at the very least, the trend is accurate.

Washington says the economy is growing at better than 3 percent a quarter, as measured by the gross domestic product. Expectations are that the figure will improve during the period that ends Sept. 30.

Growth like that should be producing 200,000 to 300,000 new jobs each and every month. So, not only are we not adding to payrolls but we are still declining.

Perplexed big thinkers like the folks down at the New York Federal Reserve are publicly wondering if there is something new (and wrong) happening to the economy. I suggested in a column a few weeks back that the economy is "broken," because of a lot of historical actions and reactions that I don't want to repeat here.

But here's an even better answer to the missing jobs question: Maybe the economy really isn't growing as fast as Washington would have you believe. (I know you don't want to hear this, but it's better than believing a lie.)

I've written about this before. The subterfuge is quite simple.

The government comes up with the GDP number by taking the amount it thinks the economy is expanding and then subtracting the rate of inflation. In the first quarter of 2003, for instance, the growth rate was 1.4 percent after an annualized inflation of 2.4 percent was subtracted.

If the inflation rate had been zero, then growth would have been 3.8 percent.

You got that?

The 3.1 percent growth that was reported in the quarter ended in June assumes annualized inflation of only 0.8 percent.

Has inflation actually dropped that much - from 2.4 percent in the first quarter to just 0.8 percent? Where? Home prices? Gasoline? Heating oil? Insurance? College costs?

You get the point: Most big-ticket items are still rising steadily in cost.

Yet Washington thinks inflation fell from an already unbelievably low annualized rate of 2.4 percent earlier this year to an incomprehensibly low 0.8 percent.

If the government had used the same inflation rate that it did in the first quarter, the last three month's annual economic growth would have been just 1.5 percent (compared with 1.4 percent in the first quarter).

Maybe there are no jobs being created because economic growth is still dismal.

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