The Cruel Truth About Government Statistics

There have been complaints about the quality of government data as long as there have been stock markets. The US is not much better than emerging markets, like China, where numbers are subject to huge, after the fact revisions. A broker friend of mine emailed the conversation below, which has been circulating around the street. Enjoy.

Costello: I want to talk about the unemployment rate in America.
Abbott: Good subject. Terrible times. It's 7.8%.
Costello: That many people are out of work?
Abbott: No, that's 14.7%.
Costello: You just said 7.8%.
Abbott: 7.8% unemployed.
Costello: Right 7.8% out of work.
Abbott: No, that's 14.7%.
Costello: OK, so it's 14.7% unemployed.
Abbott: No, that's 7.8%.
Costello:?Wait a minute. Is it 7.8% or 14.7%?
Abbott: 7.8% are unemployed. 14.7% are out of work.
Costello: If you are out of work, you are unemployed.
Abbott: No, Congress said you can't count the "out of work" as the unemployed.?You have to look for work to be unemployed.
Costello:?But they are out of work!!!
Abbott: No, you miss his point.
Costello: What point?
Abbott: Someone who doesn't look for work can't be counted with those who look for work. It wouldn't be fair.
Costello: To whom?
Abbott: The unemployed.
Costello: But?all?of them are out of work.
Abbott: No, the unemployed are actively looking for work. Those who are out of work gave up looking and if you give up, you are no longer in the ranks of the unemployed.
Costello: So if you're off the unemployment roles, that would count as less unemployment?
Abbott: Unemployment would go down. Absolutely!
Costello: The unemployment just goes down because you don't look for work?
Abbott: Absolutely it goes down. That's how they get it to 7.8%. Otherwise it would be 14.7%. Our government doesn't want you to read about 14.7% unemployment.
Costello: That would be tough on those running for reelection.
Abbott: Absolutely.
Costello: Wait, I got a question for you. That means there are two ways to bring down the unemployment number?
Abbott: Two ways is correct.
Costello: Unemployment can go down if someone gets a job?
Abbott: Correct.
Costello: And unemployment can also go down if you stop looking for a job?
Abbott: Bingo.
Costello: So there are two ways to bring unemployment down, and the easier of the two is to have people stop looking for work.
Abbott: Now you're thinking like an economist.
Costello: I don't even know what the hell I just said!
Abbott: Now you're thinking like Congress.

So, Who?s on First?

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