When politics, personal philosophy, and economics mix, you can end up with some pretty wild theories.
We witnessed that yesterday with Jack Welch's claim that the Obama campaign manipulated the unemployment rate to draw attention away form a poor debate performance.
That's just one of many theories that people adhere to with near religious zeal, regardless of the facts.
These are the claim, theories, and flat out falsehoods that just won't die.
The government is gaming unemployment stats
Origin: Jack Welch recently resurrected the theory that government is gaming unemployment statistics for political advantage.
Rebuttal: The BLS numbers are put together by career civil servants with no political input. The BLS' assumptions and surveys don't change based on who's in office, let alone after a poor debate performance by the incumbent.
The BLS deliberately and carefully set up to prevent any manipulation by the White House, and there's no evidence that this particular survey is in any way unusual.
As for the adjustments Welch finds so objectionable, here's what seasonal adjustment actually is, according to the BLS:
Over the course of a year, the size of the Nation’s labor force, the levels of employment and unemployment, and other measures of labor market activity undergo sharp fluctuations due to such seasonal events as changes in weather, reduced or expanded production, harvests, major holidays, and the opening and closing of schools. Because these seasonal events follow a more or less regular pattern each year, their influence on statistical trends can be eliminated by adjusting the statistics from month to month. These adjustments make it easier to observe the cyclical and other nonseasonal movements in
the series. (see the BLS for their methodology)
It's a statistical technique, and it's reasonable to quibble with the accuracy of the BLS' seasonal adjustment formula. For example, Matt Yglesias raises the idea that movement to the Sun Belt means winter disemployment is less than it used to be. However, criticism of the practice for pushing numbers one way or another is partisan and inaccurate.
The Federal Reserve is a private corporation run for the profit of its shareholder banks
Origin: This one's been kicking around almost since the creation of the Federal Reserve in 1913. It's the subject of a three hour documentary called "The Money Masters".
Rebuttal: Nationally chartered banks do hold stock in their regional Federal Reserve Banks, and receive a small portion (6 percent of their stock) of the profits of their regional banks, which is presumably the origin of this theory.
- That stock confers no control over the Regional bank's activities.
- Last year $1.6 billion in profit went to member banks. The remaining $46 billion was remanded to the Treasury department.
Further, monetary policy is conducted by two entirely different branches of the Federal Reserve System. The Board Of Governors oversees the Regional banks and monetary policy, and is made up of 7 members nominated by the President and confirmed by the Senate. They conduct monetary policy in the interest of the public by their Congressional mandate.
The closest influence the private shareholders have on the conduct of monetary policy is through their nomination of 6 of the 9 members of regional bank boards. Those boards nominate bank presidents, who must be confirmed by the Board of Governors. 5 regional presidents serve on the Federal Reserve Open Market Committee, which oversees the principal tool of monetary policy, in service of the Federal Reserve's Congressional mandate, not regional shareholders.
Official inflation statistics dramatically understate the true rate
Origin: As long as currency has existed there have been theories about it. The more recent iterations have been borne out of claims from experts like Shadowstats' John Williams who claim that the government has reconfigured the CPI to understate inflation, and claims that the Federal Reserve's use of core rather than headline inflation leads to underestimation of the real rate and policy error.
Rebuttal: First, the CPI. Williams asserts that the incorporation of a substitution effect by the BLS in their calculation has lowered estimates by an average of 2.7 percent year over year in an effort to reduce Social Security payments.
But according to the Bureau of Labor Statistics, his assumptions and numbers are both entirely wrong. The full explainer by the BLS on the subject is worth reading, but here are the main points. Rather than assuming that consumers will substitute between, for example, steak and hamburger, the BLS formula assumes that consumers will respond to price variations within close substitutes in a particular regional category, like "apples in Chicago.
The effect of the incorporation of the geometric mean for substitution has been an approximate .28 reduction in the CPI year over year.
Secondly, the Fed uses a measure of core inflation (similar to the CPI less food and energy) because its decisions are anchored on future expectations of inflation. Energy and food prices can be volatile. Basically, this criticism arises from a difference in what consumers think of as inflation, and what economists think of as inflation in the context of monetary policy.
*Williams responded to the BLS article on CPI misconceptions in a post. He wrote, "I stand by and am extremely comfortable with my previously expressed positions and published numbers."
See the rest of the story at Business Insider
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