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.
