Tuesday, November 23, 2010

Easier Fix for Unemployment

The Fed has been pretty busy recently, debating inflation targets, QE2, monetary/fiscal policy, etc. I have suggested before that the easiest way, by far, for the Fed to achieve its inflation target is to just back out the hedonic regression, basket adjustment, and other one-sided transparent manipulations by the BLS to artificially lower the CPI. If you just use the "real" numbers (ie: before/without the intentional distortions), you could have inflation at over 4% immediately (since that's where the real value is), and you wouldn't have to worry about trying to raise it by printing money. Of course, that is all sorta academic, since the economists at the Fed are not total morons, and I assume they know the real numbers, and are just using the fake numbers to justify their de-facto fiscal policy of printing money.

However, it does raise an interesting point: if the public is stupid enough to be deceived by the rather blatant BLS distortions to the CPI, wouldn't the same thing work for unemployment? I mean, there certainly is a fair amount of distortion already (for example, consider the "discouraged" workers category, who are defined out of the unemployment statistics; again, see http://shadowstats.com for the real numbers), but really, I think the public is stupid enough that you could do more. For example, consider hedonic regression, the theory that people always buy lower quality, cheaper stuff as time goes on (and thus the CPI can be arbitrarily lowered). With some slight modification, I propose that this manipulation could easily be applied to unemployment as well.

Consider, hypothetically, that you suppose that as jobs become more scarce, more women decide to stay home and raise families. BAM, exclude all women from the unemployment numbers. Maybe as jobs become scarce, people retire earlier. BAM, there go all the people over 60 (or 55, or 50, or whatever number you want to pick really). Maybe young adults decide to get more education: there goes everyone under... 25? 30? The possibilities are virtually endless. Moreover, you can tweak the numbers to achieve whatever unemployment figure you want, just like hedonic regression. It's beautiful, efficient, easy, and there's roughly 30 years of evidence to support the idea that the general population will go along with it.

Really, I don't know why people haven't come up with this already.


  1. It shouldn't matter how they calculate these figures as long as they use the same method all the time. Suppose the gov't used a more inclusive method to work out unemployment. What would people do differently with that infomration?

  2. Well, if the government used a more inclusive method (for example, one which included people who couldn't find a job for long enough that they were simple ignored), you could get a more consistent picture/metric for the actual number of people out of work. This, in turn, would enable the public to better perceive the effects of various government programs on actual unemployment, and how effective US political policies are in facilitating full employment over time.

    My point here, though, is that the employment numbers, while skewed, are not nearly as blatantly deceptive as the CPI numbers, and since the CPI is still widely quoted and used, perhaps the government is missing an opportunity. If you can effectively straight-up lie about inflation, and still be credible, why not try to do the same thing with employment statistics? It would seem to be a much easier solution than addressing the underlying actual problem through, say, real job creation. I'm not saying that's the best solution for the country, or even a positive direction, I'm just noting a missed opportunity for people who are normally very prolific and reasonably proficient in mass deception.