Summer Rerun: America: Banana Republic Watch

This post first appeared on May 6, 2007

I’m certain you’re familiar with the expression “death wish.” I am beginning to wonder whether America has a banana republic wish. The country has been taking steps towards being a small-minded, elite-dominated, sham democracy.

Mind you, I am pointing to a tendency, not an established fact. The US isn’t Haiti, or even Argentina. But we are moving in that direction on a variety of fronts, and the devolution seems so concerted that I wonder if there is some unconscious mass desire to give up on the messiness and ambiguity of an open society and surrender to the certainty of one with institutionalized inequality, more authoritarianism, but greater certainty, and perhaps an illusion of greater security.

What triggered this line of thought? Something surprisingly minor: the April employment report, which by any standards was weak. The Bureau of Labor Statistics said that 88,000 nonfarm jobs were created in April, when it takes 150,000 new jobs to absorb labor force growth, and consensus forecasts were for 100,000 new positions.

But even this disappointing figure may have been the product of manipulation, as we will discuss in due course. And we’ve now had so many instances of what charitably may be called artful reporting that it’s beginning to undermine my faith in government statistics. Unreliable government statistics are a Banana Republic Indicator.

Let me go back to 1984, when I went to Mexico City to value a privately held air conditioning company (I was working for a top US consulting firm at the time; we normally didn’t do assignments of this nature, but the client was important).

At the firm’s office, I tried rounding up the usual data: GDP growth, inflation, bond rates, PE multiple, microeconomic stats. I came up with nothing. Everyone acknowledged the governments stats were wrong. The logical suspects, like investment banks, that might develop their own estimates didn’t (or at least didn’t publish them) since the only entity in the economy that was a prospective client was the government, so no one wanted to offend them. Inflation was so high that there was no long term bond market, and there were only 24 public companies that traded at PEs of either 2 or 4. I was soon stomping around the office, complaining that there was no data in the entire economy. Everyone was very pleasant, agreed, and one consultant offered some advice: “We do a lot based on feelings.”

Now I am sure some of you are thinking I am daft. The US isn’t Mexico, and we have lots of economic and company data. Technically, yes, but the integrity of that data is becoming compromised on enough fronts so as to render them suspect. And inaccurate data leads to bad business and bad policy decisions. Bad policy decisions are particularly likely since the information is massaged so as to minimize unpleasant news.

Let’s look at GDP. That’s a fundamental figure, surely beyond question or compromise. Really? Our GDP stats include something called a “hedonic price index” basically to allow for the fact that computers are becoming more powerful at lower costs. In essence, the US grosses up the price of computers in its GDP reports to adjust for the fact that computer prices are dropping.

These adjustments are significant. The US is the only country that uses hedonic indexing. The Bundesbank complained that if they calculated GDP the way we did, their GDP growth would be 0.5% higher. And the cumulative distortion is massive. In 2005, Michael Shedlock contacted the Bureau of Economic Advisers and they supplied some dated information on hedonics (including a spreadsheet). Even so, he found that hedonic adjustment to GDP was 2.257 TRILLION dollars, or 22% of then-current GDP.

Another fundamental statistic, inflation, is also manipulated. The hedonic adjustments of GDP means we can’t rely upon a simple, economy measure other countries use to look at inflation, namely a GDP deflator. No, we have to rely on indices, which means we have to rely on the selection of baskets of goods and services that get tracked over time. But things get thrown out of those baskets if they become inconvenient. For example, now when the powers that be report the Consumer and Producer Price Indexes they focus on “core inflation” which excludes food and energy prices ostensibly because they are volatile. But what good is an index if it omits a very big portion of household budgets? Yet most reporters and analysts happily follow the government’s lead. Barry Ritholtz calls this “inflation ex inflation.”

And this pattern of excluding ugly data is becoming more popular. Last week, Caroline Baum of Bloomberg was widely quoted for writing:

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush’s Middle-East policy is a rousing success.

Now let’s go back to the April jobs figures. James Hamilton at Econbrowser highlights that a “birth/death adjustment” (a figure the BLS adds to allow for the fact that its survey doesn’t capture the creation or failure of businesses) was unusually large and increased the level of reported gains:

The Bureau of Labor Statistics reported today that the number of workers on U.S. nonfarm payrolls, as measured by their survey of establishments, increased by a seasonally adjusted 88,000 workers in April, of which 25,000 were government jobs. On Wednesday, Automatic Data Processing gave its estimate as 64,000 private sector jobs. The ADP estimate is based on actual payroll data, not a survey, and covers twice as many individual businesses as the BLS. When you add in the public employees (64 + 25 = 89), ADP called the nonfarm payroll number essentially spot on this month two days before we heard from BLS.

Unlike many analysts, I also pay attention to a separate employment estimate that comes from the BLS, which is based not on asking businesses how many people are working for them, but instead comes from sending interviewers to pre-selected residential addresses to ask how many individuals at that address are working. This BLS household survey claimed that the number of people working in America fell by 468,000 in April compared to March, on a seasonally adjusted basis.

I favor looking at all these numbers together because one survey can pick up things the other two might miss. One of the blind spots of the BLS and ADP establishment data is that, by definition, they cannot directly measure somebody who’s employed with a company that didn’t exist at the time the survey was set up. One of the ways that BLS tries to correct for this is with their CES Net Birth/Death Model, which tries to estimate what might be going on with new firms that aren’t in the sample on the basis of regular seasonal patterns and what is currently observed for those firms that are sampled. This imputation led BLS to suspect that there were 317,000 new jobs this April that they did not actually observe, which is three times the average absolute monthly adjustment for 2006.

Now the fact that the BLS result was very close to the ADP figure may mean the report wasn’t so sus after all, but other data watchers took a dim view of the adjustment.

This focus on data has prevented me from discussing other Banana Republic Indicators. Let me give you a starter list:

Compounds with private security for the very rich
Limited economic/class mobility
Debasing of the currency
Very high concentration of income and asset ownership in the very top echelon
Government policies heavily skewed towards the very rich; looting of the treasury
Limited/no press freedom
Election fraud; in extreme versions, coups, one party rule
Attacks on judicial independence/kangaroo courts

This list is admittedly incomplete; I’ll add to it as news items prompt me. On the one hand, America doesn’t hew closely to that profile. On the other, just like the dubious statistics, we have started down the slippery slope on some of them.

In the interest of time, I’ll deal very briefly with two: press freedom and election fraud. The degree of self-censorship in the American press is high and troubling. It seems to have started with the Bush Administration freezing out critics from any contact with their officials, and concerns about appearing unpatriotic in the wake of 9/11. But even now that the Bushies are on the ropes, the level of candor and criticism is oddly muted.

As for election fraud, it was well reported by Greg Palast on the BBC, and virtually untouched here. In Florida, the state scrubbed nearly 90,000 voters from the rolls. An estimated 97,000 ballots were discarded in Florida (virtually all ballots were counted in white counties, while in largely black precincts, it appears any excuse was used to throw out ballots). Another 91,000 voters were excluded incorrectly, and again that population was heavily black. Do the math. Blacks voted nearly 90% for Gore. Including even a small portion of the votes that were denied would have overwhelmed the 500 vote margin of Bush’s victory. Palast also uncovered large scale exclusion of black voters in Ohio in 2004. But again, no one wants to consider that our election process might have been hijacked.

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  1. Progressive Ed

    A fascinating look back. Basically a piece of political propaganda that addressed none of the economic/financial rot at the base of the millennial meltdown, nor the coming Progressive takeover (In Europe in the 20th Century, Progressives were called Fascists). Did any of you ever think it would come to: “You’ll know what’s in the bill (legislation) when we pass it. And if you don’t like it, you’re a racist!”

      1. Progressive Ed

        Who? My sources for this particular comment are:
        1. The Coming of the Third Reich by Richard Evans
        2. The German Dictatorship by Karl Bracher

        1. Bates

          Try ‘The Rise and Fall of the Third Reich’ by Shirer…It was written by Shirer in Berlin as events unfolded…in real time, but it does not lack retrospect.

          Also Mein Kamph by A Hitler. (my alternate title… How a Lazy Drug Addicted Paranoid Megalomanic Can Succeed Without Trying Too Hard If You Have A Brilliant Lying Economist and Greedy Capitalists On Your Side) Fascinating look at the mind of a brilliant orator and politician before he went bonkers (overcome by belief in his own bs due to small early successes). Written while he was in jail (just what every martyr needs) and taken seriously by no one outside Germany and few inside Germany. Hey, we can’t take every tin pot on a soap box seriously or we would have time for nothing else.

          History and economics seldom make sense when viewed seperately, imo.

          1. Progressive Ed

            Thanks very much for your comment to my post. My primary interest over the last few years has been the economic/financial organization and dynamics of the Progressive/Fascist nations. Yes, political and economic matters should be seen together. But it’s also true benefits can be gained from separating them on occasion to help see some of the trees in the forest. Rather than go into any of the many details describing the parallels between the present Progressive administration and those of Central Europe early in the last century, check out this straightforward essay on American Corporatism:
            Locke’s essay might be more relevant to the NC essay we are all responding to.
            PS: I’ve read Shirer’s books many times. Very good, but not of much use when it comes to the details of the early 20th century German economic/financial arrangements and relationships.

          2. mannfm11

            I find it strange that the United States in about 100 years went from a wilderness to the most powerful industrial nation in the world and then the do good progressives took over and in the next 100 we went down the toilet. Every socialist country moves to central planning by self proclaimed geniuses who generally know less than the shoeshine boy on the corner. These outfits are good for one thing seizing power from the people and waging war. The Road to serfdom by Hyack is about to come true. We have thieves like Larry Summers who drag around phony degrees bestowed on them through nepotism. His uncle, Paul Samuelson wrote the phony economics book we all read in college and was bestowed more illegitimate legitimacy by the Nobel Prize in Economics. All of this is to cover up the fact that we have been set up to be screwed by a group of money changers. Jesus Christ showed us 2000 years ago who the enemy was and we put them in charge. The common man and by common, I don’t necessarily mean undeducated or poor, is figuring that these people don’t have our best interest at heart. The corporate state was established in the US by Wilson and Roosevelt. The Federal Reserve took 15 years to bankrupt the United States once and then did it again. Why are we bailing out bankrupts? Why are some of the biggest crooks in America the economic advisors of our Presidents. Paulson was bad enough, but we must at least give Bush credit for bringing in a guy who had insight into something I believe they knew was coming. Summers and Franklin Raines literally sank to major entities through financial hodgepodge, Harvard University and FNMA. This link is an article I heard about on the radio and I believe covers the counter political elite movement in the US. Can anyone tell me these people running this show know how to do anything other than steal?

    1. Francois T

      Thanks for the link generalissimo. This is beyond nauseating.

      Two questions that must be asked:

      Why did the media never reported the court ruling about the unlawful suppression Nora Dannehy was guilty of, even if the decision was rendered just four days before her appointment by Mukasey?

      And, while we’re at it, why didn’t the Obama DOJ repudiate her in light of these facts?

      Because the fix is in; Gonzalo Lira was 100% right!

  2. Sufferin' Succotash

    This country was always at least half-a-banana republic from the get-go, at least from the Mason-
    Dixon Line downwards. We started with a state-of-the-art political system grafted onto a hierarchical and authoritarian social structure and we’ve been wrestling with the consequences ever since.

    1. mannfm11

      I guess that is why the only part of the north that has any prosperity in the region that does all the stealing? The only economy left in the US is in the south.

  3. Joseph Hale

    The above summary of the purposeful political information manipulation, and the obvious nature of it all, sounds like a terrific opportunity!
    It seems like a superb opportunity for the numerous highly qualified (trusted) blogs with substantial readership(Naked Capitalism, The Big Picture, Mish’s Global Economic Trend Analysis, Calculated Risk, Zero Hedge, etc), to combine efforts to compile an objective single-source site to go to for objectively derived, “clean” statistics. It seems, a economic stat summary site like this could easily establish itself as a pre-eminent source for real-time, objective, factual, non-politically biased economic statistics -regardless of how the mainstream media portrays the site.

    1. Bates

      “It seems, a economic stat summary site like this could easily establish itself as a pre-eminent source for real-time, objective, factual, non-politically biased economic statistics -regardless of how the mainstream media portrays the site.”

      Great theory but unfortunately everything is for sale…at some price. After all, this is a capitalist country…sort of. Never forget what Lenin said about buying the rope from the capitalists that his comrades would use to hang the capitalists. We need some benevolent Martians as impartial observers and judges. Or, a full time god, with lots of angelic assistants, that will hear all criminal and civil cases…and pass out sentences regardless of the wealth and social standing of the defendent.

  4. Hal

    If only the US would become a banana republic. That might do in the American Imperial War Machine and its evil activities. It is the one bright spot I can see in the GOP winning the next election: that might push the US into banana republic condition sooner than otherwise.

  5. flow5

    Very old news, but it has become progressively worse. Nowadays, inconsistent and non-conforming data is the norm. But keep what you can get. Be assured that it will be revised (completely wiped out), away.

  6. NOTaREALmerican

    When amoral scumbag behavior is rewarded for generations the smartest amoral scumbags will eventually run the society. This would be on the assumption that sociopathic behavior can be learned. If it can be learned, this would mean that a sociopathic society should become increasingly sociopathic.

    There’s no way back, all you can do is try to limit the damage the sociopaths can do to you personally while you live is the US, or move to a society with fewer sociopaths.

  7. scall


    This site has the most uneven quality/inconsistent opinions among all the major blogs that I follow. A lot of the time, I can’t even tell if you/your retinue/your numerous “guest bloggers” are actually the authors of a given piece – or a piece of a piece.

    The latest head smacker/brow rubber is this:

    “Debasing of the currency”/inflation metric manipulation as indicators of encroaching banana republic-dom.


    You/your minions/your invited bloggers have been long and loud proponents of the quantitative easing/inflation – what inflation?/MCT-Neo Chartalist-National-Bankruptcy-Is-Impossible-Because-We-Define-It-To-Be-Impossible

    point of view.

    Now you are bitching about inflation? Staged inflation metrics?

    Well, to quote Bruce Willis in “Die Hard”…

    “Welcome to the party, pal!”

    What have I missed? Has there been a come-to-Hayek moment buried somewhere in the blog entries?

    Every time you zig and zag (without citation or explanation), I’m sure your book loses buyers (on all sides of the debate).

    I can personally testify that I’ve gone from being excited about buying your book, to being rather dubious about doing so.

    As a result of reading this patchwork blog.

    1. borkman

      If you are still thinking about buying a book that has been out for months, and now trying to use that as some sort of leverage to get the site to change content, you appear to have a deluded sense of self importance. A very successful marketing consultant recommends that businesses “fire” 15-20% of their customers because they make way too many demands. Not only are they unprofitable, but they are a lot of brain damage and distract the company from its mission and doing a good job for its loyal customers.

      You fit the profile to a T. If you haven’t bought Yves’ book by now, you don’t intend to, and holding it out as bait or a threat is, well, pathetic.

      And ironically, you complain re inconsistency when your logic is spurious. The flaws in US statistical reporting have nothing to do with the validity of any particular strain of economic thought. And you don’t offer a refutation of Chartalism, you merely say you don’t like it. Any data to support your claim that it causes inflation? Do you even understand what it is about? The MMT crowd says loud and clear that inflation is a constrain on government monetary operations, so your beef is off base.

      In other words, you just disqualified yourself as a critic anyone should listen to.

  8. Jane

    What about discounting “discouraged” workers — those who stopped looking for jobs — from the unemployment statistics? I don’t believe other countries do this.

  9. Francois T

    You wanna some bananas?

    Here’s some bananas for ya!

    A clean “let’s kill’em” only war supplemental bill where billions in education and domestic programs like firefighters were stripped by the fucktards in the Senate.

    “Once again, war is being paid for with a credit card while investments in our children’s future are tossed aside. These investments — $10 billion for teacher jobs, $1 billion for summer youth employment, $5 billion for Pell grants, $701 million for border security — were cut from the war funding bill coming to the House floor despite being fully paid for and not adding to the budget deficit,”

    This bill had to be sent again to the House, who, of course, didn’t have the kahunas to say no to the military-industrial complex and Obama, the warmonger. (Vote was 308 – 114) Before you flame me, please tell me how I’m wrong on that one; he threatened to veto the whole bill if education money was included without offsets. Of course, no offset for the war money. Apparently, anything war-related does not obey to the laws of double-entry book keeping.

    It goes without saying the Reichpubliscums in the Senate were in great part responsible for that; but the Democrass, once again acted as powerful enablers.

    So, there we have it: War yes, People no. Rotten bananas at that.

    And these REMFs will call me for my vote in November…This time, they have no idea of the lashing they’ll get!

  10. Tim Josling

    Compounds with private security for the very rich

    – Yes

    Limited economic/class mobility

    – The Economist ran an article about this a while back. The bottom line is that the US has relatively low, and declining social mobility.

    Debasing of the currency

    – Real value down 96% since 1930!

    Very high concentration of income and asset ownership in the very top echelon

    – Yes

    Government policies heavily skewed towards the very rich; looting of the treasury

    – Where did the money from the bailouts go? To the poor???

    Limited/no press freedom

    – The press in the US is in the hands of the oligarchs. Nominal press freedom means little.

    Election fraud; in extreme versions, coups, one party rule

    – It costs huge money to run for office and that means that the golden rule applies – “He who has the gold makes the rules”. Every worthwhile reform is blocked or diluted by the influence of lobbyists.

    Attacks on judicial independence/kangaroo courts

    Eg the supine attitude of the courts to the erosion of civil liberties over the last 10 years.

  11. mario

    Its worth to look at the us demographics to properly picture the unemployment or make far reaching conclusions. The picture is not all that gloomy. The crisis is mainly a mental thing. Recent outcry about BP is one of the examples.

  12. Craig

    Makes sense, Blacks only vote democrat, and we know why!
    Democrats give them free housing and food, and come election time, make sure they know which party got them their free benefits.
    Here in Miami-Dade county it is getting out of hand.

    But its a situation where, If you cut off the free housing and funds, the crime rate will skyrocket.

    Oh, I’m sure this post is going to get some liberal blogger all tangled up in his turtleneck, but I felt like letting this be known.

    1. mario

      “If you cut off the free housing and funds, the crime rate will skyrocket.”

      Of course the only industry that is afloat is finance – cherry picked working their ass off – yada-yada-yada

      1. Craig

        I can guarantee you that the guys in the finance industry do indeed work their ass off. Ethics, I won’t go into as it is irrelevant to the real problem.

        The past belief that everyone deserves an American Dream, and how Washington pushed government policies to make it easier for poor people to be apart of this ‘dream, is the heart of the problem.

        Over-leveraged and under-regulated Wall Street? Your looking at the scab instead of what caused the cut.
        The Finance industry will always work as hard as they can to make money, you give them any material that can be exploited, they will take it to the extreme. (Remember the best minds in the country went to Finance in the past few decades and unfortunately less towards science or engineering).

        The true cause is naive and populist politicians who believe total equality is achievable, and gov policy is the means to achieve it.

        Its not! There are have’s and have-not’s in this world, not everyone has the mental capacity to further themselves. Gov Policies that try to correct this will fail and leave our economy vulnerable to the financiers. The Finance Industry took all those American Dream speeches, devoured them, then returned the excrement in the form of an economic crisis.

        But we’ll repeat; we’ll tack on more regulation, more populist rhetoric, etc.
        The problem still remains, and I view it as a natural occurrence in a democratic society. People want solutions when things are bad, but don’t know exactly what needs to be done, so here lies the vulnerability for error.

        Now if anyone would like to respond to what I said about black people and their free ride, I’d like to hear it.

        1. Anonymizer

          “Now if anyone would like to respond to what I said about black people and their free ride, I’d like to hear it.”

          Drivel. Absolute drivel.

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