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Why Does The Media Ignore The Real Unemployment Rate?
In story after story about the current economic meltdown over the past 5 months (or 12 depending on your point of view), the media and the country as a whole are taking great solace in the belief that the current unemployment rate of 8.1% (as of the end of February) means we’re not even close to being in a depression. This delusional relief stems from comparing today’s unemployment rate to that during the 30’s which reached a peak of 25%. Unfortunately, the unemployment rate that everyone cites in every article I’ve seen, the primary figure released every month by the Department of Labor, grossly understates the real unemployment rate of the country. As was excellently detailed by Kevin Phillips in an article entitled ‘Numbers Racket’ in the May ’08 issue of Harper’s (and summarized here), every administration since Kennedy’s has manipulated key formulas for calculating the economic health of the country to paint a more positive picture of our economy than was actually the case. I will quote Phillips again at length because his warning back in May of 2008 has proven to be extremely prescient:
Since the 1960s, Washington has been forced to gull its citizens and creditors by debasing the official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past 25 years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed.
If all the manipulation of the unemployment rate is removed, by calculating the actual number of people that are seeking but not finding work, today’s unemployment rate would be far closer to 20%. There’s a great graphic of the manipulation and the true number in a blog post on Mint.com (which was written in January so the 17.5% cited there is even higher today). Even more alarming, as the blog post points out, is the fact that the peak unemployment rate of 25% during the Great Depression did not occur until 4 years after the market crashed. Just one year after the market crash of 1929, unemployment in the U.S. was only 8.9% or less than half of what our actual unemployment is today.
What sparked this post was an article in the Wall Street Journal yesterday entitled ‘How A Modern Depression Might Look – If The U.S. Gets There.’ The article looks at GDP, inflation, and unemployment, the exact same three manipulated economic indicators detailed in Phillips’ article in Harpers. Purportedly a bastion of economic savviness, the WSJ article cites the grossly understated unemployment rate of 8.1% and makes no mention whatsoever of the real unemployment rate in the U.S. today. While there is no firm, widely agreed-upon definition of what constitutes a depression as opposed to a severe recession, the WSJ article states that many economists define a depression as an economy where unemployment has risen above 10% and stayed there for several years. Placing aside the fogginess surrounding the chronic discrepancies between the household survey and the employer survey in determining unemployment, not to mention whether or not that classic economist definition of a depression refers to the manipulated or real unemployment rate, the fact is that a real unemployment rate today of somewhere around 20% (not to mention applying similar treatment to GDP and inflation) puts us far closer to (or even in the midst of) a depression than anyone in the mainstream media is willing to admit. I’m certainly not an economist, and I have no better definition of what constitutes a depression than anyone else, but it’s disingenuous (and lazy) at best and egregious at worst to compare the current economic indicators to those of the Great Depression given the manipulation of those figures that has occurred over the past 40 years.