The Potemkin Economy

🌈 Abstract

The article discusses concerns about the accuracy and reliability of government economic data, particularly employment and inflation statistics, suggesting that they may be manipulated to portray a facade of a strong and booming economy when the underlying reality is more complex.

🙋 Q&A

[01] The Potemkin Economy

1. What are the key issues raised about the government's employment numbers?

• The article suggests that the government's employment numbers have several strange anomalies:
  • Massive job numbers were quietly removed from last year's data
  • Job growth was overstated by an average of 25,500 jobs per month in the 12 months leading up to March 2023
  • Adjustments were made to lower private sector job creation by 358,000 jobs, while government payrolls saw an increase of 52,000 jobs
  • The Philadelphia Federal Reserve Bank's employment algorithms suggested the BLS had overestimated job growth by 1.1 million in Q2 2022
  • The official employment reports chronically overstated job creation, with an average monthly reduction of 55,000 jobs after revisions

2. How is the composition of job creation being misrepresented?

• The article notes that although the revised job numbers appear strong, the quality of jobs being created is poor:
  • The household employment survey showed a decrease in the overall number of employed individuals
  • The number of part-time workers increased significantly, while the number of full-time jobs dropped by 1.6 million
  • This suggests a shift towards a "gig economy" with more precarious, part-time employment replacing full-time jobs

3. What issues are raised with the unemployment rate calculation?

• The article explains that the government can manipulate the unemployment rate by:
  • Removing people from the workforce, thereby reducing the denominator and making the unemployment rate appear lower
  • Excluding certain categories of unemployed individuals from the official U-3 unemployment rate, which only counts those actively seeking work
  • The more comprehensive U-6 unemployment rate shows a much higher level of unemployment

4. What other economic data is suggested to be manipulated?

• The article discusses issues with the CPI (Consumer Price Index) calculation, including:
  • The government changing the CPI calculation method over 20 times in the last 3 decades
  • Substituting cheaper alternatives in the CPI basket to understate inflation
  • The CPI directly affecting the income of millions of Americans, creating an incentive for the government to understate inflation

[02] The Dollar Endgame

1. What is the broader implication of the government's potential manipulation of economic data?

• The article suggests that as the fiscal crisis worsens, the government's incentive to manipulate economic data will increase, as it tries to "paper over real economic wounds" and maintain the illusion of a strong economy.
• This is seen as a sign of the "Dollar Endgame", where institutional lying and a collapse in social trust in the government occurs due to desperate attempts to hide the true extent of economic problems.