The corporate media and political opponents are fulminating over Senator Obama's less than graceful attempt to discuss the malaise of America's working class. His "inartful" wording should not obscure the fundamental truth he was expressing. The working class has been losing in America's economy for thirty years, and they do not see the federal government doing anything to help them[1]. They are justifiably bitter that not only are they left to make do while elites receive billions of dollars in direct subsidies, their government lies to them about almost everything from war to the economic health of the nation. The Gallup Poll reported late last year that public faith in the federal government had sunk below the level of post-Watergate. Subject to deep feelings of political impotence and social insecurity[2], they are understandably susceptible to all sorts of demagoguery, including the right wing's distracting mantra of God, guns and gay bashing.The statistical indicators the government uses to report basic information about the condition of the American economy have been subjected to a gradual distortion process for so long, they no longer fairly represent reality. As an Obama economic advisor pointed out in the New York Times, the government "cooked the books" to make the 2001-02 recession look less serious. But the process of diluting economic indicators has been going on since the Kennedy administration according to Kevin Phillips writing in Harper's Magazine. In 1961, unemployed workers who had stopped looking for work were dropped from the official definition of the unemployed and reclassified "discouraged workers". Lyndon Johnson came up with a unified budget process that included Social Security surpluses thus making his deficit spending for the Vietnam War look smaller than it was. Nixon continued the unified budget process and added his own twist to the CPI index, the measure of inflation. His Federal Reserve Chairman, Arthur Burns, developed the "core index" of inflation that excluded the most volatile price sectors, food and energy, from the calculation of the CPI. It was precisely these two sectors that exhibited the most inflation in 1973-74. One financial columnist has described the CPI as "a testament to the art of spin". Reagan's administration added a major distortion to the CPI when it eliminated home ownership costs and substituted an equivalent rent figure. Reagan trimmed the unemployment rate by reclassifying military members as employed instead of outside the work force.
CPI measurements were further distorted by the Clinton Administration through a complicated recalculation designed to reflect the underlying changes in the American economy from an industrial one to a services and financial based economy. Critics charged that the reformulations were also intended to reduce the inflation rate, thereby reducing federal payments for index adjusted benefits and interest on the national debt. Government economists admit that the revisions reduced current inflation figures by a more than a percentage point. One economic analyst who follows the official numbers says the changes in CPI calculations since Jimmy Carter make it 3.5 to 4% lower than an accurate figure. Clinton also reduced reported unemployment by excluding more "discouraged" workers from the calculations and dropping inner city households from the sampling process. In 2006 the government stopped reporting the M-3 money supply figure which captured the large inflationary effect of private credit creation. This massive expansion in private credit fueled the real estate bubble now painfully contracting. GDP, a basic measure of economic growth, has also been fiddled. Until 1991 Gross National Product (GNP) was used in reporting until rising US international debt made Gross Domestic Product (GDP) appear more robust. That figure is further enhanced by the Bureau of Economic Analysis' "imputed income" amounts, for example the income from living in your own home or having a free checking account. In 2007 this phantom income made up 15% of GDP.
So what would the economy's scorecard look like if harder numbers were used as measures instead of the tampered indicators in use today? In a word, it would be shocking. The US unemployment rate, as measured by indicators used a quarter century ago, is about 9-12% not the official 5.0%. Inflation is as high as 7-10% instead of the official 2-3%. And growth is a paltry 1% instead of the politically acceptable 3-4%. But understating inflation is particularly unhealthy. To acknowledge real inflation rates would send interests rates climbing. That would upset the creaking edifice of public and private debt of $49 trillion underpinning the American economy. Index adjusted entitlements and interest payments could overwhelm a federal budget already straining with the cost of financial bailouts and two wars. The real economic outlook for the working class in America is enough to make anybody read their Bible daily and buy a gun to defend what they have left.
[1] A study by the Center on Budget & Policy Priorities and the Economic Policy Institute shows that during the time period from the late 1980s to the mid 2000s family incomes grew much less in the poorest fifth (9%) than the richest fifth (39%) in 37 states. Nationally the rich have average incomes seven times that of poor families. See www.epi.org/content.cfm/studies_pulling_apart_2008 for a state by state analysis.
[2] A Pew Research national opinion poll indicates fewer Americans now than in the past fifty years believe they are moving forward in life. www.pewresearch.org/pubs/793/inside-the middle class.
photo credit: Lewis Hine, National Archives