Wednesday, December 21, 2011


Have you seen the movie “Moneyball” or read the Michael Lewis book by the same name?  To make a long story short, it is a true story about winning baseball games without superstars by taking a deeper look at the statistics and analyzing them in a better way.  Baseball and economics share a fondness for statistics so the question arises, could economic statistics reveal a similarly undiscovered strategy for the economy like what Oakland General Manager Billy Beane did in “Moneyball”?  Moreover, could the President's economic plan ,“Obamaball”, be that strategy?  

Baseball stats and economic stats are not all that comparable.  In baseball there have always been nine members on a team, ninety feet has always been the distance between bases, sixty feet six inches has always been the distance from the mound to the plate, the bat is always wood, there are three outs, three strikes, four balls, nine innings, and so forth.  Therefore, an ERA has always been an ERA, an AVG has always been an AVG, and R, H, and E have always been R, H, and E.   

If only things were as simple in economic statistics, especially since the big ones all come from the government.  Unlike baseball, the government is always changing how they measure and what they measure.  Sometimes the statistics change because of an unintended consequence from a change in a law.   Sometimes it is for practical reasons.  And sometimes it just seems political.   After all, government economic stats come from the very government they sit in judgment of!

Here are four key statistics which form the basis for much of the economic rhetoric heard today.  In all four cases these statistics fail the baseball test.   

       Inflation (CPI)– Not only has the Bureau of Labor Statistics changed the way it measures inflation over the years, notably in 1980 and 1990, but they cannot avoid relying on prices for manufactured imported goods which tell us more about foreign labor markets and regulations than they do about our own currency.  When these changes are backed-out, the actual inflation rate is about 2.5% higher than what is reported.  What makes inflation so problematic is that all other measures of economic performance are “inflation adjusted” and thus dependent on an accurate inflation number to start with.  Even corporate earnings must be weighed against an accurate inflation measure.

       Economic Growth and Recession  (GDP) – GDP numbers are all adjusted for inflation too and thus suffer the effect of any inflation inaccuracies.  That is why a 2.0% annual growth rate based on a “GDP Deflator” which is under-measured by 2.5% feels exactly like, well, a -.5% growth rate.  That is how GDP can be reportedly rising by 2% yet polls can show most people believe we are still in recession.  The people are probably right.

       Unemployment (U3) – You’d think that “unemployment” would be a cut-and-dried statistic:  “The number of people not employed as a percent of the labor force”.  But that’s not how the government does it.  In fact, if every single person in the US was collecting unemployment, disability, welfare, food stamps, or some other form of assistance but not actively seeking a job, the official unemployment rate in the US would be…0%!  The way we measure, we could have no one working and still have zero unemployment.  If we corrected for just this issue and undid the error back to Barack Obama’s inauguration, the real unemployment rate would be 11%.  If all the nonsense is removed, the actual number is close to 23%.    

       Income Inequality (1% vs. 99%) – Much of the recent rhetoric about the 1% vs. the 99% is based on a CBO report from October of this year, which has numerous issues.  In order to measure income inequality, the CBO used a government measure based on income tax returns from 1979 to 2007.  Not 2010, which should have been available, but 2007, right before the financial meltdown in the midst of a bubble!  Second, many returns in the top brackets include corporate pass-through income, which is a recent phenomenon and makes income tax returns meaningless for measuring changes in personal wealth.  Moreover, tax rates changed constantly from 1979 to 2007 making any trends difficult to discern.  These are just a few of the problems making this CBO report useless for analyzing trends.

And then there’s the economic analysis.  Here are four big economic issues and the current administrations analysis along with some questions.    

       Arguably the biggest economic issue of our time is the financial crisis of 2008 and its aftermath.  According to President Obama’s analysis, greedy fat-cat bankers largely caused the whole thing.   Isn’t that like blaming a plane crash on gravity?  Aren’t gravity and greed constants?  Are bankers today greedier than they were, say, in the 1950s?  Were there any sub-prime loans back then?  Where did sub-prime loans come from?  Wasn’t the President part of the chorus demanding sub-prime mortgages in the 90’s and didn’t he then protect and subsidize the dangerous practice through his support of Fannie Mae and Freddie Mac as a US Senator?

       Once the analysis points to greedy bankers, it’s a short leap to blaming the continued malaise on the same class, which the President has made the theme of his re-election campaign.  So what has prevented Obama from stopping the greedy and the rich from continuing the malaise?  Didn’t he have two solid years of filibuster-proof control of the entire federal government?  Didn’t they pass Dodd-Frank?  How then can he explain MF Global and Jon Corzine (D-NJ), the newest example of greedy fat-cat banking failure?  Why did Obama and the Democrats keep the Bush tax cuts “for the rich” back in 2010 when they were set to expire?  How does this all add-up?  

       If greedy bankers caused a financial crisis, what better way to fix it than to go on a 5 Trillion dollar spending and borrowing binge, right?   Who will pay for the extra 5 trillion in borrowing? Does that even matter as long as the inevitable collapse is timed to occur after the Obama reign?  Can “the rich” possibly make-up the difference if the top 10% of the country earn 40% of the income and pay 70% of the income taxes already?

       If the financial crisis was due to greedy rich bankers, then the healthcare crisis must also be caused by greedy rich insurance companies and greedy rich doctors, right?   What better way to fix it all then to put the federal government in-charge of the whole thing?  Aren’t Medicare and Medicaid both disasters from a sustainability standpoint?  How can putting the same government in-charge of the entire industry be a good thing?  How can Obama claim the “free market” has failed in healthcare when it hasn’t been involved in healthcare since WWII when employers got to deduct premiums but individuals did not?      

So this is it in a nutshell:  President Obama, the General Manager of our team, has looked at the statistics, done his analysis, and believes he has saved us from a Great Depression, free markets don’t work, greedy rich people caused all the problems in the first place, the government’s job is to re-distribute wealth, and borrowing 5 trillion is OK as long as it blows-up on someone else’s watch.  

Welcome to “Obamaball” where all the stats are rigged and all the analysis is wrong.

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