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Economics Lesson 1

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Last Friday (January 27) the US Bureau of Economic Analysis announced its advance estimate that in the last quarter of 2011 the economy grew at an annual rate of 2.8% in real inflation-adjusted terms, an increase from the annual rate of growth in the third quarter.

Good news, right?

Wrong. If you want to know what is really happening, you must turn to John Williams at shadowstats.com.

What the presstitute media did not tell us is that almost the entire gain In GDP growth was due to "involuntary inventory build-up," that is, more goods were produced than were sold.

Net of the unsold goods, the annualized real growth rate was eight-tenths of one percent.

And even that tiny growth rate is an exaggeration, because it is deflated with a measure of inflation that understates inflation. The US government's measure of inflation no longer measures a constant standard of living. Instead, the government's inflation measure relies on substitution of cheaper goods for those that rise in price. In other words, the government holds the measure of inflation down by measuring a declining standard of living. This permits our rulers to divert cost-of-living-adjustments that should be paid to Social Security recipients to wars of aggression, police state, and banker bailouts.

When the methodology that measures a constant standard of living is used to deflate nominal GDP, the result is a shrinking US economy. It becomes clear that the US economy has had no recovery and has now been in deep recession for four years despite the proclamation by the National Bureau of Economic Research of a recovery based on the rigged official numbers.

A government can always produce the illusion of economic growth by underestimating the rate of inflation. There is no question that a substitution-based measure of inflation understates the inflation that people experience. More proof that there has been no economic recovery is available from those data series that are unaffected by inflation. If the economy were in fact recovering, these date series would be picking up. Instead, they are flat or declining, as John Williams demonstrates.

For example, according to the government's own data, payroll employment in December 2011 is less than in 2001. Meanwhile, there has been a decade of population growth. The presstitute media calls the alleged economic recovery a "jobless recovery," which is a contradiction in terms. There can be no recovery without a growth in employment and consumer income.

Real average weekly earnings (deflated by the government's CPI-W) have never recovered their 1973 peak. Real median household income (deflated by the government's CPI-U) has not recovered its 2001 peak and is below the 1969 level. If earnings were deflated by the original methodology instead of by the new substitution-based methodology, the picture would be bleaker.

Consumer confidence shows no recovery and is far below the level of a decade ago.
How does an economy recover without a recovery in consumer confidence?

Housing starts have remained flat since 2009 and are below their previous peak.

Retail sales are below the index level of January 2000.

Industrial production remains below the index level of January 2000.

To repeat, the only indicator of economic recovery is the GDP deflated with an understated measure of inflation.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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The amazing thing is while all this is going on th... by mrk * on Tuesday, Jan 31, 2012 at 1:28:46 PM
Amen! It boggles the mind to contemplate an entire... by Mort Persky on Tuesday, Jan 31, 2012 at 3:15:13 PM
Thanks for the economics lesson, Paul. A governmen... by Ernie Messerschmidt on Tuesday, Jan 31, 2012 at 2:07:17 PM
I don't need government spin and fuzzy math to t... by Janet Loughrey on Tuesday, Jan 31, 2012 at 2:59:40 PM
The only way to fix this problem is to elect Ron P... by Alice Lillie on Tuesday, Jan 31, 2012 at 5:16:27 PM
The consequences of a dead economy when the gover... by Michael Dewey on Wednesday, Feb 1, 2012 at 1:57:34 AM
Will be writing in Ron Paul 2012.  We tell ev... by Michael Dewey on Wednesday, Feb 1, 2012 at 2:17:38 AM
If it takes Congress to declare war, what makes yo... by Vaikunthanath Kaviraj on Wednesday, Feb 1, 2012 at 3:37:23 AM
The people who get him in would kill him.  3 ... by Michael Dewey on Wednesday, Feb 1, 2012 at 5:12:51 AM
You are correct that Paul will need the support of... by June Genis on Saturday, Feb 4, 2012 at 11:58:33 AM
Just realized I hit the wrong reply button.  ... by June Genis on Saturday, Feb 4, 2012 at 12:04:02 PM
It is supposed to be their social security and not... by Mike Preston on Wednesday, Feb 1, 2012 at 5:26:33 PM
Some people call for a return to the Gold Standard... by William Huie on Wednesday, Feb 1, 2012 at 10:33:24 AM
Thanks for this informative, fact filled article.&... by June Genis on Saturday, Feb 4, 2012 at 11:49:31 AM
Mr. Roberts, Your observati... by Robert Bostick on Sunday, Feb 5, 2012 at 11:51:32 AM