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PARIS, THE NEW NORMAL? — Diana Johnstone files an in-depth report from Paris on the political reaction to the Charlie Hebdo shootings; The Treachery of the Black Political Class: Margaret Kimberley charts the rise and fall of the Congressional Black Caucus; The New Great Game: Pepe Escobar assays the game-changing new alliance between Russia and Turkey; Will the Frackers Go Bust? Joshua Frank reports on how the collapse of global oil prices might spell the end of the fracking frenzy in the Bakken Shale; The Future of the Giraffe: Ecologist Monica Bond reports from Tanzania on the frantic efforts to save one of the world’s most iconic species. Plus: Jeffrey St. Clair on Satire in the Service of Power; Chris Floyd on the Age of Terrorism and Absurdity; Mike Whitney on the Drop Dead Fed; John Wight on the rampant racism of Clint Eastwood’s “American Sniper;” John Walsh on Hillary Clinton and Lee Ballinger on the Gift of Anger.
Kudos to Jack Welch

The Hidden Metrics of Shadow Inflation

by ALAN FARAGO

Last week’s most fleeting image –reflected, then disappeared into the 24/7 news cycle — was the sight of a steely-eyed Jack Welch, former CEO of General Electric, accusing the Obama administration of cooking the books of the Bureau of Labor Statistics. It was there. Then it was gone.

“Can’t debate so change numbers,” Welch complained. For a instant, one could recognize Bush appointees rushing to the defense of the BLS bureaucrats. Then they were gone, too.

But wait. Not so fast.

This circling of wagons around government economic statistics blocks sight from what really riles the American public: shadow inflation.

The issue is not who is doing the counting, but the metrics themselves.

There are far more voters affected by inflation than jobless. Much more interesting than the controversial sight of a lion in winter ticking the news cycle would be the question: if inflation has been so low, these recent decades, why do most Americans feel so much poorer?

Welch retired in 2001 with a personal fortune of nearly half a billion dollars. He is not a reliable guide to what ails the middle class. On the other hand, he is an expert in how corporate accountability can be chased deep into the weeds of metrics. In March, 2002 the investment community cast a wary eye toward the book cookers at GE: “Investors are hoping to get a deeper look into the increasingly mysterious workings of General Electric (GE) on Thursday as the company hosts its first-ever quarterly conference call.”We expect GE to disclose significant additional information to help shareholders better understand the areas and sources of growth within its business,” said Nicholas Heymann, an analyst at Prudential Securities. GE has faced heightened pressure and scrutiny since the collapse of Enron as investors worried that other large and complex companies could be skewing their numbers with questionable accounting.”

Never mind, Sigma Five. Corporate book cooking was a key component of the Welch tenure. But GE had plenty of company in business lines that showered vast wealth to insiders in ways that ordinary investors can scarcely fathom. Unfortunately for common stock owners, GE brings good things to life for some more than others.

One can draw a line between Enron and the book cooking that was a foundational element of the greatest asset bubble in US economic history; “The Ownership Society”. Whether or not Alan Greenspan, then Federal Reserve chairman, understood explicitly that betting the nation on the housing sector after 9/11 was a political and economic event meant to reward GOP campaign contributors organized through the Growth Machine, he heard the full throated roars of approval from the financial and insurance industries. “Help us diversify risk. Help us grow the economy!”

Loosened federal banking laws and lax supervision by regulators lubricated the way toward the worst economic crisis since the Great Depression. Legal book cooking and cover ups lead to the collapse of Lehman Brothers and the race to block accountability.Risk diversification works, according to the Federal Reserve Bank of St. Louis. It depends for whom.

Welch’s complaint can be read as coal calling the kettle black, but the speed with which his tweet vanished points to government metrics on inflation, a much more volatile area of public concern.

John Williams, on his website “Shadow Government Statistics“, explains:

“In 30 years as a private, consulting economist, I have noted a growing gap between government reporting of inflation, as measured by the consumer price index (CPI), and the perceptions of inflation held by the general public. It has been my experience that the general public believes inflation is running well above official reporting, and that the public’s perceptions tend to mirror the inflation experience that once was reflected in the government’s CPI reporting. The growing difference in perception versus reality primarily is due to changes made over decades as to how the CPI is calculated and defined by the government. Specifically, changes made to the definition of CPI methodologies in recent decades have reflected theoretical constructs offered by academia that have little relevance to the real-world use of the CPI by the general public. Importantly, these changes generally are not understood by the public.”

Government metrics designed to foil the truth, whether for public health, consumer protection, or the economy, is a significant factor in the shockingly poor regard the public holds for Congress, for the judiciary, and the executive branch. Credit Mr. Welch for pointing to a discussion neither political party wants to have, because shadow inflation tracks the decline of the American middle class.

ALAN FARAGO, conservation chair of Friends of the Everglades, lives in south Florida. He can be reached at: afarago@bellsouth.net