27 October 2009. It feels as if the world has been on tenderhooks waiting to hear when US unemployment will cross the 10% mark. After all, consumers account for 70% of the US economy, and with all economies built around either exporting to the US, or exporting to countries that export to the US, they are the demand engine that powers the whole world economy. That is why US unemployment has become key to the future of the global economy. As a rule, unemployed people don't buy new flat screen TVs.
It may therefore come as a shock to learn that real US unemployment is way more than 10% already. In fact, it has been over 10% for years, and crossed the 20% mark earlier in 2009. It is today closer to 22%. It means that we are already at Great Depression levels of unemployment.
But how can that be? To understand the answer to that question, we need to go back in time, on a journey aided by the excellent work of John Williams' Shadow Government Statistics (shadowstats.com).
Regular reporting of key economic data began in the years following World War II. Politicians knew that they tended to get re-elected when the economy did well, but they quickly realised a more subtle truth; they tended to get re-elected when the economy appeared to be doing well - even if it wasn't doing as well as it appeared.
And so a process began in which the 'methodology' of reporting numbers become a political question. If you are a business person, then you may have personal experience of choosing how to report certain figures. Now imagine that you were both reporter and auditor, and could do it for a $13 trillion economy, and you get a sense of the size of this thing. It is like economic gerrymandering.
John says that it was the Kennedy administration (shock! horror! not Kennedy!) that first tampered with the way unemployment was measured, by introducing the concept of 'discouraged workers'. A discouraged worker is someone who has stopped looking for work in the last 12 months, because they failed to find a job or think that they can't find a job.
During Nixon's time, the President had a public war with the Bureau of Labor Statistics (BLS), because he believed you should report either the seasonally adjusted or unadjusted number - but that you should report the lower of the two, without saying which number was chosen.
The idea was vilified and shot down at the time, but you can get a sense of how far things have drifted when the same methodology is adopted by the second Bush administration - and lauded for being 'state of the art'.
During the Clinton years, around five million unemployed were removed permanently from the unemployment rate. This included Kennedy's discouraged workers and those whose unemployment benefits had run out. That's right - if after 6, 9 or 12 months (depending on how long you get unemployment benefit) you haven't found a job, and your benefits run out - you are no longer unemployed. You are now a discouraged worker. It's your fault, get it?
Underemployment is also not measured - that is people who have part-time or temporary jobs to try and make ends meet.
ShadowStats.com have compiled the graph that you can see at the top of the article to estimate what the unemployment level would look like now if it was measured in the same was as unemployment was measured during the Great Depression.
They have factored back in an estimate of the 'discouraged workers' that Clinton and his Labor Secretary Bob Reich magicked away, including those no longer getting unemployment figures. These are added to the the official BLS level U-6 unemployment level, which includes:
- The official 'discourage workers' figure (U-4)
- 'Marginally' attached workers, 'loosely' attached workers, and workers 'who would like' to work (U-5)
- Part-time workers who want to work full time (U-6)
So the next time you see some 'official' statistics treat them with a great deal of scepticism, and find out more about the methodology or motives behind those motives. And yes - be sceptical of Chinese numbers, as western media will tell you to do - but also be sceptical about the numbers that those same western media outlets blindly parrot. The truth is out there, but requires some digging to find.
p.s. Look at this excellent interactive map from NPR to see unemployment at a state and county level - official figures only though.