Real simple explanation of current economy

[LEW]

I just had to share this from Urban Survival, for us without MBA's in Finance this helps to really shape what the "economic numbers" mean.

Maybe it's because I actually had to do a lot of work to pick up my MBA back when, or maybe it's because a lot of business reporters don't have business degrees, but whatever the reason the simple truth of the Fed's Great Productivity Lie goes something like this.
Let's say you have 10 workers and they make 100 widgets all told. But one of the workers is in research & development and one is in a "soft" market position. Whatever the function though, the company supports 10 workers to make 100 widgets and that's an average of 10 widgets per workers, right?
OK, let let's fire the R&D worker. This means we now have 9 workers making the same 100 widgets. That's 11.11 widgets per worker.
Now here's the trick: When you're the Fed you get to proclaim this as an economic miracle because the productivity has increase (11.11/10) or a productivity increase of 11.1%! Is this a great economic miracle or what. About the unemployment? That fellow in R&D was given a job for 6-months as a "consultant" and because he was doing that without paying into the state unemployment fund, when he was finally let loose, he was invisible.
Now our next sleight of hand. We're now going to fire that person in the "soft" marketing spot. That means we now have 8 people making 100 widgets, which means we have 12.5 widgets per person. So what if we have now fired 20% of the workforce? That's not the Fed's measurement point. THEIR measurement point shows that productivity is up 25%. Hallelujah brother, American workers are the most gung ho on the planet. Amen. That Bush feller and his buddy Al Greenspan are sure making this a great economy, huh?
Heck, with productivity jumping, the stock price is bound to go up, right? And so it was.
Low let's put the final piece of decoration on this half-baked economic cake. Let's outsource two more jobs - in fact let's make them customer service jobs - and put them in Mumbai India. Now we're down to just six employees making the same 100 widgets. That's a whopping 16.66 widgets per worker, or a 66.6% increase in productivity!

http://urbansurvival.com/week.htm

[Doctor_J]

1. Many thanks

I knew the media's Bushspin was Bushit, but I'm a mathematician so didn't really understand it.

ProfessorGAC, do you agree with the urbansurvival analysis?

[ProfessorGAC]

6. Sort Of, Yes

That's how the "Bought & Paid For" economists present their findings, for sure.

The real facts are more messy than this explanation, and anyone with the ability to think in more than 2 dimensions (and do the math into a dozen), knows that there are causative elements in the overall macroeconomy that can't be ignored.

The reduction in work force has the effect of reducing the cash flow, and the velocity of money within the economy. So, while someone can, indeed, trumpet a 66% increase in productivity, after a time lag, there are fewer people buying those widgets, because they just don't have the money.

So, while this analysis accurately depicts what the partisan analysts are saying, and does point out the fallacy in what they proclaim, it really doesn't explain why it's a problem.

So, i agree, but there are probably ways they could then go on to detail why this obfuscatory style of economic reporting is flawed.

The obvious question from the "true believer" would be "So What?" It's the "So What" that matters, and urbansurvival might be wise to provide the longer range view that goes into the "So What".
The Professor

[Virgil]

2. Cutting taxes on dividends upped the market most

Aren't dividends taxed at 15% now? It did cause companies like MicroSoft to send out some money.

[welshTerrier2]

3. Dividends or Capital Gains ??

i thought the change in the tax law reduced the tax rate on capital gains from 20% to 15% ... not sure there's a special rate for dividend income ...

[bloom]

4. That sounds like the strategy

employed by the Marketing VP MBA guy at the company I recently worked for. I'm sure he makes himself out to be a genius even as he fires the key people working there. He is clueless in my opinion.

[Viking12]

5. I found

I found this link from the urbansurvial site to be very interesting. We need to pound people over the head with these numbers:

The Bureau of Labor Statistics:
Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers = 10.9% January 2004

http://www.bls.gov/news.release/empsit.t12.htm

NOTE: Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

From Urban Survival:
"Want a simple prediction? Look for the BLS to come under heavy-handed pressure from the Bushocrats who obviusly don't want numbers like this 10.9% measurement getting out to the public. How do they fix it? A couple of ways: 1) Don't be surprised if we don't see some personnel changes at BLS and 2) don't be resurprised if between now and election day we don't see somne sudden "revisions" of the "alternatrive measures" table to spruce up the numbers so they will look a little prettier than the crap coming in now."

[Doctor_J]

7. I wondered about this

The Rovers are pathological liars. In practice, what's to prevent them from just making up some numbers? It's not as if I here in the burbs would be able to detect anything. HOw do we know they're not making up those GDP numbers too?

[ProfessorGAC]

8. They Did Make Up The GDP Numbers

I've been on SAUS database, which is collection of all governmental data.

There was no 8.2% growth rate at any time, based upon the numbers provided by Dept. of Commerce and Treasury. Yes, you read that right! There was no 8.2% growth rate at any time!

The data was based upon a 2.04% nominal growth rate in 3Q03, but it was released before the correction for negative Net Exports. When that correction came in, the number fell to >1.7%, which nets to 6.9% annually. Now, if that was real and sustainable, it would be terrific, but 6.9% is NOT 8.2%. The latter number is a lie.

Also, the bills for 2Q03, and early 3Q03 for Iraq & Afghanistan came due. Remember, that those were nearly all special appropriations funds that weren't in the budget. So, the deficit rose above projections because they had to borrow that money. If, in one quarter, the government spends an extra $110 billion in borrowed funds, that raises the nominal GDP by 1% in a single quarter. Now nominal GDP, aside from special deficit spending, is only 0.7% for 3Q03. That annualizes to <3%. With inflation (total including energy and housing) at about 0.44% per quarter, the real growth falls to 0.26% per quarter or annualizes to about 1.06%. That's worse than at any time in the 90's.

So, they are lying. It's not hard to find the facts. It's not even highly complex mathematics to get to the truth.
The Professor

[xchrom]

9. fixing the numbers

i expect to hear some of that on sunday when russert plants his lips firmly on bush's ass.
they are always revising figures upwards -- then you come to du to find out what a bunch of horse shit that was.