08.31.2010 0

Baghdad Bob Returns

  • On: 09/22/2010 21:04:45
  • In: Economy
  • By Robert Romano

    “There are no American soldiers in Baghdad,” Iraq’s Information Minister famously proclaimed on then Iraqi state-run media, even as U.S. forces were descending into the capital city after Operation Iraqi Freedom began in March 2003. It was one of the last broadcasts of a dying regime that had maintained control for decades by controlling information.

    But no amount of propaganda could wish reality away. Despite his “triple guarantee,” the Americans were coming.

    Fast forward to 2010, when the Bureau of Economic Research (BER) has now declared that the worst recession since the Great Depression has technically been over since June 2009. Interestingly, according to the Bureau, it “did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month.”

    The business cycle has picked up again, Gross Domestic Product (GDP) is rising, ergo, the recession is over, says the Bureau, and has been for some time. If only saying it made it so.

    The Bureau looks at a combination of “real GDP, real income, employment, industrial production, and wholesale-retail sales.” Sales and production are largely tied to the GDP, so that leaves the employment situation and income.

    Since June 2009, unemployment has risen and only been kept in check by the statistical deletion of workers once deemed to be a part of the civilian labor force. Since last summer, 816,000 workers have been removed from the labor force estimate. If they had been kept and instead counted as unemployed, the unemployment rate would actually be 10.1 percent instead of 9.6 percent as reported by the Bureau of Labor Statistics (BLS).

    In reality, it’s even worse than that. The “not in labor force” estimate has grown from 80.729 million to 83.989 million, an increase of 3.26 million. Are these folks newly retired? No. Of those 83.989 million not counted in the labor force, 5.972 million actually say they want a job, according to the Bureau. If they were included, too, the rate would jump to 13.01 percent.

    So, the jobs picture really has not improved at all.

    On the real income side of the equation, since June 2009, average hourly wages have only risen from $10.33 to $10.39, a miniscule six cent increase. Much of that may be accounted for by the elimination of lower paid positions formerly held by the youth, a category of unemployment that has increased from 24 percent to 26.3 percent.

    Foreclosures too are rising, with as many as 4 million foreclosure filings predicted in 2010. Since this current recession was actually caused by the housing bubble popping, a rise in foreclosures would hardly be viewed as a positive indicator.

    Consequently, the Bureau’s statement that “any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007” is hogwash. The fundamental flaws that caused the recession have not yet been corrected.

    The Bureau’s explanation is hardly believable: “The basis for this decision was the length and strength of the recovery to date.” The metrics it uses tell a different story. Growth is flat, real unemployment has risen, and real income appears to have only gone up on account of the elimination of lower paid positions (i.e. higher unemployment). This is the recovery?

    The only positive indicator for the economy has been GDP, but even that is slowing after being revised downward to 1.6 percent from 2.4 percent. Of course, even with technical growth, there were several months and even years of technical positive economic growth during the Great Depression despite all of its government-created “stimulus” projects. Yet no one now maintains that the downturn ever ended until World War II. And even then, the war amounted to another massive “stimulus,” and after the war, another recession ensued.

    Yet, despite today’s slowing growth, sideways wages, and unemployment remaining persistently high, not even a future downturn will be viewed by the Bureau as a continuation of the credit bubble popping in 2007. It should, however, because besides growth there’s no other outward indication of recovery. If GDP slips now, all of the other criteria viewed by the Bureau will take sharp hits.

    Therefore, the statement that the recession is over must be taken with a gigantic grain of salt. It is at least greater than or equal to Baghdad Bob’s statement that invasion forces had not breached the Iraqi capital despite their obvious presence.

    Saying it does not make it so.

    Robert Romano is the Senior Editor of Americans for Limited Government (ALG) News Bureau.


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