Administration Plans Orwellian Statistics Fudge to Make Offshored Production Look Like US Made

I normally refrain from simply running sections of a press release as the basis of a post, but this proposed statistics-based exercise in propagandizing is so-ham-handed that it’s not hard to grok what is at issue.

Mind you, not only is there a proud American tradition of fudging official data releases to make the incumbent Administration’s performance look better than it really is, but this issue was actually a hot topic in the econoblogosphere in 2007. It’s died down in part because the Bureau of Labor Statistics did an effective messaging campaign against John Williams, the publisher of ShadowStats. And unfortunately, Williams does have some large weaknesses in his efforts to develop alternative measures that made him a legitimate target for criticism. However, Williams has done a very good job of compiling how the data collection behind and computation of various official statistics has changed over time.

This extract from a May 2007 post has the unintended effect of reminding readers how much the world has changed in seven years. Believe it or not, this was a bold statement by the standards of that day:

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.

Now to the latest offense on the statistics front. The Administration has released a proposal to change the classification of American firms that send production offshore as “factoryless goods” producers, which would also make them manufacturers. Representatives Rosa DeLauro and George Miller are issuing letters to the OMB and the Census Bureau challenging this scheme. From their press release:

If the factoryless goods proposal were to be implemented, the value of U.S. brand-name products made outside of the United States and imported here would be counted as manufacturing “services” imports, not imported goods. Furthermore under the Administration’s broad trade data reclassification proposal, white-collar workers at firms that have offshored their production would be counted as manufacturing workers.

DeLauro, Miller and other members of Congress rely on official data when formulating public policy and the new proposal would severely hamper their ability to write laws that help working and middle class Americans. In their letter, the representatives note that “OMB acknowledges the enormous effects our data classifications systems can have, yet at the same time claims that fact will have no bearing on any revisions.”

Lori Wallach of Public Citizen sent an e-mail that pointed out that this con effort is not going unnoticed. This proposed change is subject to public comments. The last time the Administration proposed a trade data classification revision, it got all of 11 comments. By contrast:

By close of business Monday, when the “factoryless goods” comment period closed, there were more than 26,000 opposition comments filed.. This is the lunatic proposal that would count most of the value of imports of iPhones from China as manufacturing service imports and the white collar workers at Apple as ”factoryless goods” manufacturers… This just adds to Congressional ire about USTR using the uncorrected Census data to try to hide the trade deficit by counting re-exports rather than the accurate USITC trade data.

Needless to say, this also attests to the desperation of the Administration in disguising the fallen state of American manufacturing. But this is worse than just trying to tart up appearances. If you deliberately undermine the caliber of data about economic performance, it makes it impossible to come up with sensible policy. Of course, since Team Obama has never seemed to care much about good policy, this outcome is probably an additional feature rather than a bug.

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  1. Paper Mac

    Out of curiousity, what’s wrong with ShadowStats? Is there a better alternative available?

    1. Yves Smith Post author

      Williams is excellent at documenting how official stats got degraded over time, but his efforts to develop alternative measures just aren’t credible. For instance, for his inflation measure, he simply takes CPI and adds 4%. That’s clearly problematic.

      Unfortunately, since government stats are free to users and the various bodies collect a ton of underlying data, it is pretty much impossible for a private sector source, particularly one guy, to come up with sound alternative. The best you can do is look at analyst commentary as to why a particular figure is sus, like the GDP deflator looked way too low (the GDP deflator being too low means GDP has been exaggerated). But you still can’t readily construct an adjusted data series from this sort of analysis.

      1. Malmo

        One thing is for certain. My COLA hasn’t kept up with my real cost of living for at least the past ten years. It’s not even close. And I’ll even exclude housing in my metric.

  2. Katniss Everdeen

    Jobless “recoveries,” factoryless “manufacturing,” profitless “investments,” interest-less “savings,” factless “news,” endless, victory-less wars.

    “Less” is the new more. Or, more accurately, less is all we’ve got.

    It’s really hard not to think of Orwell all the time, these days.

    1. Schofield

      “It’s really hard not to think of Orwell all the time, these days.”

      Time then for an Orwellian Oratory Day to replace the State of the Union Address. At least then we’ll all be clear the sociopaths are speaking “non-truth to life.”

      1. Katniss Everdeen

        Ironically (kinda, sorta) another word about which Americans are wildly enthusiastic is “free.”

        When used as a suffix, it is identical in meaning to “less.”

        1. econ

          At every national anthem at the ball park I have a very unenthusiastic “free” word hearing of the anthem…the anthem being played at ball park began during WW II to sell war bonds primarily and secondly to stir patriotic passions.

        1. Katniss Everdeen

          How did I forget that one?

          The George W. Bush election. The day “voterless” elections were born.

            1. ds

              This is nothing new. Kuznets, in the 1950s, excluded capital gains, expense accounts and pension in his work to show a rising share of wages post-war to justify lowering top income classes. Reagan reclassified the definition of unemployment to get it lower. I think in Clinton’s time they revalued, by lowering, sales of American industrial goods in the 20th Century to lessen the decline of manufacturing.

  3. Jim Shannon

    Welcome to the “New Normal” – artfully orchestrated over the last 50 years beginning with the Kennedy Tax Cuts!
    Governments always and everywhere are about the Money and who gets the most! Americans hearts and minds ALL poisoned by education and the media!
    Government by the Rich for the Rich, economic treators engaging in economic terrorism!
    This is what you get when the consumer allows the Military Corporate state to go unregulated by a government corrupted by MONEY!

  4. edmondo

    Isn’t this just a bookkeeping trick to make the country’s GDP rise?

    By turning imports (which are subtracted from gross GDP) into “factoryless goods”, they are now domestically produced and therefore added to GDP. He learned this lesson from Bill Clinton who changed the definitions of “unemployment: and therefore “solved” our jobless problems. Why not do the same with GDP?

  5. nohomehere

    Wouldn’t that make the deficit appear smaller ,the unemployment numbers drop the gdp higher thus lowering debt to gdp ratio making bonds attractive many book entry tricks . nothing new here move along nothing to see here keep moving!

  6. Fiver

    I wonder if this is related to a story I posted with a comment here on NC some time ago (2 years+, I think)? It concerned a meeting of trade and other economists, various Departmental Staff, with corporate representation of course, in Washington, to deliberate on how to treat the off-shore production of parts, sub-assemblies, etc. (some that are very complex machines in themselves) by a US subsidiary, which are then imported to the US for final assembly by the parent company, or another US-based producer. Anyway, given Apple to Boeing, the auto industry and so many others, the amount of money is huge. I would think it would be a significant and permanent (I know, nothing is) boost to GDP. I can also imagine tax implications, subsidy eligibility issues, and who knows how many more angles given the size of the supply chain. I also wonder what this would mean for other countries’ revenues and national accounts, global data, etc. Would this be a standard for TPP and the Atlantic equivalent?

    In general, there are so many known weaknesses in the major public data series and releases it has to actively be kept this bad. There are issues with survey design, collection, tools for analysis, to so many revisions any given Admin has way too much room to play. So they do. I’d also suggest the very poor quality and reliability provides the perfect climate for major market shenanigans based on ‘hits’ or ‘misses’ that can mean days $100 billion evaporates or appears. European markets often move in ‘reaction’ to reports not yet issued. JPM and GS and others almost never lose. The phenomenon has now appeared for some Fed releases, and various private groups: ISM, Conference Board, Chicago Composite Purchasers Index, and now Markit, which gives JPM et al a front seat at the ISM. A riot of data, often contradictory, frequent reversals of trend.

    There is no reason not to spend the money it would take to fix this. There is no reason now not to have a first-rate reporting system that far more accurately reflects reality and cannot be gamed by anyone.

  7. MRW


    I’m confused. I thought that the Clinton admin allowed American companies to count their overseas workers as American workers, which accounted for a large part of the 5 million new jobs that Clinton added. Did I make that up?

  8. Thumper

    change the classification of American firms that send production offshore

    But but with the new rules on “inversion”, wouldn’t the figures end up at the bottom of the barrel anyway? With 20% foreign “ownership”, Apple won’t even be counted as an “American firm”, will it? Or is there another piece of legislative kludge that will somehow reconcile these two laws, assuming they pass? Or maybe the administration will just lie as it always does. Same Company is “American” on manufacturing books but “foreign” on tax books.

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