Sunday, August 06, 2006


As a student and occasional teacher of economics, I was intrigued by the extent that David Skibbins’ economics (ICO, August 4) differed from what I learned and later taught in college economic classes. Thinking it must be a new school of economics, I researched to catch up on the latest developments. However, I couldn’t find any support for his statistics, so for that reason I named his economic theories “Skibbinomics.”

Looking at his points, I decided to cover the last one first. “Our economy is tanking.” The latest measure of gross domestic product per person adjusted for purchasing power shows us at over $40,000 per year, a close second to Norway at the top. A look at growth in gross domenstic product shows a strong upward trend. For example, plus 3.2 percent in 2005, and very strong since 2003.

Our unemployment rate is currently 4.6 percent, so low as to be considered full employment. This statistic is determined by sampling 60,000 households, and contrary to Mr. Skibbins remarks about unemployment, there were not five million unemployed “dumped” while Bill Clinton was president. A month-by-month review of unemployment before, during, and after Clinton’s presidency shows modest incremental changes.

In terms of inflation (3.4 percent in 2005), and contradicting Mr. Skibbins, the Federal Reserve is still releasing statistics for currency in circulation each month (Federal Reserve Statistical Release H. 6, Money Stock Measures).

Perhaps this is what Mr. Skibbins was referring to when he said the "Federal Reserve just stopped releasing those figures." The Federal Reserve stopped reporting M3 on March 23, 2006 because:

M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

Mr. Skibbins is equally uninformed about measuring housing costs. The “imputed rent” method he criticizes is actually by far the best means of measuring the cost of housing, and it or a variation is used by many nations.

In terms of comparison of food costs, as in all inflation measures, the comparisons measure changes for a particular item over time, and not against different items from years gone by. Learn more here about the Consumer Price Index.

It is remarkable that, according to Mr. Skibbins, the government has been able to so ably pull the wool over our eyes. Remarkably, he has a Republican president, Ronald Reagan doing it while Democrats controlled Congress, and a Democrat, Bill Clinton, doing it while the Republicans ran the show. Through it all, the Leftist stronghold of academia sat silently by while politicians played with the statistics and economic measurement tools upon which their theories and professions are centered.

Mr. Skibbins ends with the assertion that our daily financial travails are proof the economy is tanking. The problem I have with that is that I don't see it. I see businesses booming, employment soaring to the point that finding good workers is a real problem, and a huge variety of high quality goods to buy inexpensively. As I do my unscientific survey in the crowded stores - locally, Santa Rosa Costco and Home Depot, the Commissary and Base Exchange at Travis Air Force Base, up and down Santa Rosa Avenue, in bustling downtown Walnut Creek - I marvel how so many destitute shoppers and businesses are faking "making it." They are doing the best job of pretending to be prosperous the world has ever seen.

I guess the floods of mail-order catalogues we receive each day, and the fleets of delivery trucks that now roam the coast daily, are proof positive of destitution. We're shopping while the economy is dropping. Maybe that is what is really meant by "shop 'til you drop."

The following is the letter to which the above is a response:

Recession blues

Inflation is now around nine percent, unemployment around 12 percent, and the Gross Domestic Product just went negative. We are in a full scale recession. But you won't know that from look­ing at the government fig­ures. That's because, for the past 30 years the govern­ment has been hedging those figures to lie about the economic state of the union.

Inflation: One of the best indicators of inflation is the measure of how much money is in circulation. (In Ger­many during the Thirties you would need a wheelbarrow to carry all the Deutschemarks to the market to buy a few groceries.) The Federal Reserve just stopped releasing those figures. In­dependent sources did the calculations and found the amount of currency in circu­lation went from eight to nine percent in the past four months, a signal of runaway inflation.

Cost of Living: Under Reagan, the government stopped measuring what it actually costs you to buy your house, and substituted what you might be able to rent it for in today's rental market. These days on the North Coast that's about one-third of the real cost. Cost of living was further skewed under Clinton, so that the Feds stopped measuring the ac­tual cost of the food you were buying, but instead substi­tuted the cost of the cheap­est food you could buy to survive.

Unemployment: Also under Clinton, five million-people were dropped from the unemployment figures. If you had been looking for a job and had been unsuccess­ful for over a year, you were no longer counted as unem­ployed. The number of "dis­appeared unemployed" has grown since then.

Jobs: One of the ways the government was able to report a 2.5 percent growth in the economy for second-quarter 2006 was by using the Birth/Death Model that allows the government to invent nonexistent jobs that they have no way of proving exist. They do this to bolster the Employment Report, which would be negative without those imaginary fig­ures.

What you know every time you go to the grocery store, or every time you run out of money the end of the month, is true. Our economy is tanking.

David Skibbins
The Sea Ranch

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