Statistics Don’t Lie But they Can Deceive
By all of the traditional measures the American economy is in very good shape. Unemployment is down, GDP is growing at a rate above the long term average growth rate, and the number of jobs created is growing. Many economists believe that the poor showing for consumer confidence is merely reflecting that confidence may be a lagging indicator. However, anecdotal, and some statistical, data imply that the economic picture is less rosy than the traditional measures indicate.
Firstly, we need to look at job growth. The job growth numbers count the payrolls in one month and compare them to the payrolls in the following month. This might be good, but it ignores the question of whether the jobs are full-time or part-time. In fact there can be serious double counting in the system. For instance, I am an adjunct faculty member at several colleges. During the month of October I was added to the payrolls of four new colleges. I, therefore, accounted for five jobs in the system and four “NEW” jobs. How many people like me are out there carrying multiple jobs? In addition, how many of these new jobs were part-time?
Secondly, the reduction in unemployment can be distorted by aspects of the measurement system itself. Most people do not know that a person is considered to be employed if he received one hour’s pay in a two week period. That means if your aunt Mildred paid you $20 to move furniture to her attic, you are employed. The other problem with the measurement system is that it excludes discouraged workers. A discouraged worker is a person who wants to work but has gotten so discouraged by not finding any that they have not “actively” sought work in the last four weeks. These workers are not even counted as a part of the work force. Let alone the unemployed.
Thirdly, GDP measures the output of final goods and services in the economy and a growing GDP leads to growing disposable income. Looking at the numbers things look good. On the other hand disposable income says nothing about the distribution of that income. Median family income, however, gives us a better picture regarding distribution. Median family income is the income level where half of the families in the country earn more than this number and half earn less. Unfortunately, median family income has been decreasing over the last two years. A growing disposable income and a lowering median family income indicates that the people at the top are getting better off and those in the middle and lower income levels are become worse off.
It is no wonder that consumer confidence is poor. The average person is losing out in this supposed growth economy. The goal of an economy is to deliver prosperity to the members of that economy. I believe that the new age of integrated world economies requires that we develop new economic statistics which measure national prosperity.
Former Secretary of the Treasury Robert Rubin has, along these lines, proposed a new economic measure which I believe he called The Median Prosperity Index.
By all of the traditional measures the American economy is in very good shape. Unemployment is down, GDP is growing at a rate above the long term average growth rate, and the number of jobs created is growing. Many economists believe that the poor showing for consumer confidence is merely reflecting that confidence may be a lagging indicator. However, anecdotal, and some statistical, data imply that the economic picture is less rosy than the traditional measures indicate.
Firstly, we need to look at job growth. The job growth numbers count the payrolls in one month and compare them to the payrolls in the following month. This might be good, but it ignores the question of whether the jobs are full-time or part-time. In fact there can be serious double counting in the system. For instance, I am an adjunct faculty member at several colleges. During the month of October I was added to the payrolls of four new colleges. I, therefore, accounted for five jobs in the system and four “NEW” jobs. How many people like me are out there carrying multiple jobs? In addition, how many of these new jobs were part-time?
Secondly, the reduction in unemployment can be distorted by aspects of the measurement system itself. Most people do not know that a person is considered to be employed if he received one hour’s pay in a two week period. That means if your aunt Mildred paid you $20 to move furniture to her attic, you are employed. The other problem with the measurement system is that it excludes discouraged workers. A discouraged worker is a person who wants to work but has gotten so discouraged by not finding any that they have not “actively” sought work in the last four weeks. These workers are not even counted as a part of the work force. Let alone the unemployed.
Thirdly, GDP measures the output of final goods and services in the economy and a growing GDP leads to growing disposable income. Looking at the numbers things look good. On the other hand disposable income says nothing about the distribution of that income. Median family income, however, gives us a better picture regarding distribution. Median family income is the income level where half of the families in the country earn more than this number and half earn less. Unfortunately, median family income has been decreasing over the last two years. A growing disposable income and a lowering median family income indicates that the people at the top are getting better off and those in the middle and lower income levels are become worse off.
It is no wonder that consumer confidence is poor. The average person is losing out in this supposed growth economy. The goal of an economy is to deliver prosperity to the members of that economy. I believe that the new age of integrated world economies requires that we develop new economic statistics which measure national prosperity.
Former Secretary of the Treasury Robert Rubin has, along these lines, proposed a new economic measure which I believe he called The Median Prosperity Index.