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Bernanke needs to get with the program
Howard Richman, 2/29/2012

Today, Federal Reserve chairman Ben Bernanke told the House Financial Services Committee that the rapidly falling unemployment rate reported this past year by the Bureau of Labor Statistics does not fit with the other data he has been seeing. He said:

The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend.

Bernanke is showing a lot of common sense here. Although he has not looked carefully at the BLS data, he realizes that something is fishy. Former Reagan budget director David Stockman calls the manipulations of the data by the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA) "The Economists' Truman Show."

For example, the unemployment rate fell in January partly because the Bureau of Labor Statistics (BLS) reclassified 1.177 million people who might otherwise have been considered as unemployed as having dropped out of the labor force. (To find this December-to-January adjustment in the BLS press release, check out Table C.)

Bernanke probably looked carefully at the GDP numbers just released this morning. The headlines trumpeted the increase in real GDP in the fourth quarter at an annual rate of 3.0%, but a closer examination reveals that real GDP would only have grown by a minute annual rate of 1.3% if not for inventories growing at a 1.7% of GDP clip. The following table shows the contributors to GDP growth during each quarter of the past year.

Contributors to Real GDP Growth
Year 2010-1 2010-2 2010-3 2010-4
Household Consumption 1.5% 0.5% 1.2% 1.5%
Business Fixed Investment 0.2% 1.1% 1.6% 0.6%
Government Consumption -1.2% -0.2% 0.0% -0.8%
Net Exports -0.3% 0.2% 0.4% 0.0%
Inventory Change 0.3% -0.3% -1.2% 1.7%
Total Change in Real GDP 0.4% 1.3% 1.8% 3.0%

Bernanke doesn't seem to be aware that the goal is to trumpet positive numbers as loudly as possible, in hopes that positive expectations will produce a recovery. The Blaze reports that the stock market fell steadily while Bernanke was speaking:

The Dow, which had been up by as many as 51 points, reversed course as Bernanke started speaking. It turned negative within the hour. The current market losses are broad, with nine of the 10 industry groups in the S&P 500 losing ground. Materials and energy stocks had the sharpest declines, while consumer products and financial companies were nearly flat.

The Obama administration is hoping that the U.S. economy will grow rapidly, even while it permits mercantilism, restricts fossil fuel production, and grows entitlements. Its hope is that improved business expectations will increase business fixed investment and thus produce a recovery. The BLS and the BEA have been doing their part to improve expectations. Bernanke needs to get with the program.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]