Dear Reader,
Has the United States economy wallowed in recession since 2022?
An outrageous question, you thunder. All official data wars with it.
Consider:
2022’s gross domestic product rose 11.9% over 2021’s gross domestic product.
2023’s gross domestic product rose 6.28% over 2022’s gross domestic product.
2024’s gross domestic product remains undetermined. The final numbers are not yet in.
Yet we are informed — officially — that the gross domestic product expanded 1.3% in 2024’s first quarter…
That the gross domestic product expanded 3% in 2024’s second quarter…
And 3.1% in 2024’s third quarter.
I suspect fourth-quarter readings will indicate a bonanza — the Christmas spending spree is included.
And yet we must revisit the subversive question:
Has the United States economy wallowed in recession since 2022?
Statistical Fraud
Economists E.J. Antoni and Peter St. Onge have trained their high-power binoculars upon the official data.
And they find it shot through with error. They find it represents a sort of statistical fraud.
Sunny economic reports have been — in brief — a gargantuan falsehood perpetrated upon the American people.
The fraud, at bottom, reduces to inflation and its economic distortions.
Thus we learn:
- The government metrics for inflation suffer from various problems which tend to underestimate the rise in prices over time. These shortcomings have been more pronounced over the last four years during a relatively rapid depreciation of the currency…
- We… quantify some of the more egregious biases in inflation statistics in order to get us closer to a true understanding of inflation since 2019, hence of true economic growth since 2019.
The Origins of Statistical Fraud
What are the egregious biases in inflation statistics? What is a truer understanding of inflation since 2019… hence of true economic growth since 2019?
I will not plunge into oceans of fine detail. I merely offer you the overall view.
We must first address inflation bias in housing. From Messieurs Antoni and St. Onge we learn that:
- While the (consumer price) index contains a proxy for the cost of homeownership, it does not actually account for this directly. Instead, the CPI imputes this value from rents, without observing home prices or interest rates… this category has a relative importance of over 26 percent, meaning it makes up more than a quarter of the CPI.
And so?
- The cost of owning a home has risen much faster than rents over the last four years and the CPI has grossly underestimated housing cost inflation.
There you have statistical error number one — underestimation of true housing costs.
“Hedonic Adjustments”
Here is statistical error number two: Bias concerning government regulation.
These concern, primarily, “hedonic adjustments.”
Hedonic adjustments refer to changes in product quality that alter product prices.
You are paying more for an automobile not because of inflation, the data-torturers tell you.
You are paying more for a superior product with additional whistles and additional bells.
Did your 2003 Chevrolet offer you live sternward-facing imagery… so you do not knock pedestrians over while reversing?
It did not. You therefore ladle out more for the 2024 version that does. Yet we discover that:
- The difficulty of estimating such improvements can result in artificial cost reductions due to perceived benefits to the consumer that do not actually exist.
- For example, if it is assumed that a regulation increases the quality of a product, then even a dramatic increase in price could register as no price change or even a price decline in the national accounting which is used to compute gross domestic product.
“Indirect Purchases”
We next arrive at statistical error number three. This error concerns “indirect purchases” — such as sickness insurance:
- Further challenges exist to measuring inflation and price changes when consumers are not directly charged for services, like health insurance…
- If [providers’] profits decline because of increased costs of doing business for insurers, then this will register as a reduction in health insurance costs to consumers, even if premiums and coverage remain precisely the same.
- This is problematic not only because it distorts the true level of inflation but also because it affects estimates for consumer spending, artificially… increasing the estimate for real consumer spending and therefore overall economic activity.
In summary:
- The phenomenon of undercounting inflation is particularly concerning today given how high the official inflation measurements have been for the last several years. The inflation itself has increased the nominal values of several key economic metrics without resulting in any real change.
The Sad Reality Behind Official Statistics
Subtract the statistical whim-wham from the equation. Take the data in hand… and observe it in its true aspect.
What do we find? We find a severely distorted government sketch of economic health and vibrance:
- In the context of GDP growth it represents nearly a $1 trillion difference in real output — roughly the GDP of Saudi Arabia. And in the context of annual economic growth, 3% over a 4-year period is a very large number — the difference between robust and anemic growth. Or between anemic growth and recession.
A nearly $1 trillion difference in real output! The difference between robust and anemic growth — or between anemic growth and recession!
Lies, Damned Lies and Statistics
In conclusion:
- According to our adjustments, cumulative inflation since 2019 has been understated by nearly half. This has resulted in cumulative growth being overstated by roughly 15%…
- Moreover, these adjustments indicate that the American economy has actually been in recession since 2022.
- These conclusions are in stark contrast to the establishment narrative that the US economy is enjoying robust growth that for some reason the public is incapable of perceiving.
I lack mastery of the statistical arts and sciences. Thus I cannot determine if the United States economy has been in recession since 2022.
Perhaps these gentlemen strike bullseye in certain instances. Perhaps they miss fire altogether in others.
Yet I am resolute in my belief that government statisticians have drawn a false sketch of jumping prosperity.
I simply do not believe them. That is because I have eyes that see and ears that hear.
They provide me a sensory experience at vast variance with the official description.
There are lies, damned lies and statistics — as the phrase runs.
United States government bureaucrats tell not lies. They tell not damned lies.
They tell statistics.
Regards,
Brian Maher
for Freedom Financial News
