No sooner did I finish my previous post, suggesting that our next president needs to begin listening to economists who, until now, have been dismissed as “kooks” and “weirdos” by the now-discredited high rollers like Paulson, Greenspan and Bernanke, when along comes this Fortune article with a perfect example – economist John Williams of http://www.shadowstats.com/, who coined the term “Pollyanna Creep” to describe the phenomenom of revising economic data to make things appear rosier than they are. Williams contends that today’s economic melt-down has roots that go back much further than the mortgage crisis, that we’ve been deluding ourselves for many years that the economy is in much better shape than it really is.
No shortage of villains stand accused of igniting the brushfire raging across Wall Street: greedy lenders, gullible home buyers, negligent regulators, numbskull credit ratings agencies, and vicious short-sellers, for starters. Maybe they share the blame. But what if the underlying problem goes deeper? What if the reality is that the US economy has been a lot worse than was thought for a long time, and now the chickens are finally coming home to roost?
That’s the dark thinking beyond what is known as “Pollyanna creep,” a phrase coined by an economist named John Williams and supported by a cadre of other macroeconomic dissidents.
Williams, who lives in California, runs a Web site called Shadowstats.com that trades in the idea that key government statistics have become so optimistically misleading as to become essentially useless. Yes, this sounds a bit like the thinking of the black helicopter crowd, or the plotline of a Matrix movie. But given what’s gone on in the financial sector of late, it doesn’t sound quite so fringe.
The article singles out GDP (Gross Domestic Product) and CPI (the Consumer Price Index) as a couple of macroeconomic statistics that are especially worthy of scorn – overly optimistic to the point that they have been rendered useless, the very point I made in the first chapter of Five Short Blasts. If you’ve followed this blog for any length of time, you know that another favorite of mine is unemployment. To suggest that our unemployment rate is only 6.1% (the current “official” rate) is ludicrous when the annualized rate of weekly jobless claims is closer to 16%. In the past, while still chairman of the Federal Reserve, Alan Greenspan claimed that unemployment rates of 5% or less represented “full employment” and worried about the inflationary potential, all while weekly jobless claims still hovered above 300,000 and while thousands of people in manufacturing were losing their jobs ever week.
Another fringe economist cited in the article is Kevin Phillips, former Nixon advisor and author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.
In his recently-published and rather depressing book “Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism,” onetime Nixon White House adviser Kevin Phillips discusses Pollyanna creep as part of an era of “Bullnomics: the pied-piping of America toward a misleading financial ideology (the efficiency and reliability of markets), buttressed by a spectrum of dubious thinkers, doctrines and enablers.”Phillips contends that some of the biggest changes to CPI calculation took place between 1997 and 1999, “while the public and the politicians were preoccupied by bull market euphoria and the actions in Congress to impeach Bill Clinton.”In their effort to reduce Social Security outlays – and buttressed by a belief that CPI overstated inflation – government economists with backing by Federal Reserve Chairman Alan Greenspan implemented controversial modifications to CPI that, among other things, tried to measure increased satisfaction from goods.
This Fortune article may be a good sign that, already, the Paulsons and Bernankes of the world are being pushed aside while we begin to look to the “fringe” economists, the “macroeconomic dissidents,” for real answers.
The Pollyanna creep crowd …. may have some currency. Amid the talk of hundreds of billions in financial market clean-ups, a debate over the accuracy of economic bellwethers may be a can of worms worth opening.