There is one sure thing about central banks and government agencies… neither one will ever do the right thing. And when the propaganda we have been getting for more than a decade from both the Fed and the Bureau of Labor Statistics (BLS) suddenly was shattered 10 days ago when Janet Yellen chose not to raise interest rates, the reality of believing in false models and manipulated data revealed itself like a Black Swan.
Which brings us to an economic model known as Okun’s Law, which says that for every one point increase in the cyclical unemployment rate, two percentage points of negative growth in real GDP are experienced.
One of the great mysteries surrounding the US economy is the seemingly inexplicable discrepancy between the plunging unemployment rate on one hand, which at 5.1% in August was the lowest since April of 2008 – a data point which on the surface would suggest virtually no slack in the labor force – and the crawling pace of growth of the broader economy, on the other hand, namely the deterioration in US output and labor productivity, and the constant failure of wages to actually grow despite constant predictions by economists and pundits over the past 5 years that “wage growth is just around the corner.”
This relationship has had a name since 1962 when Arthur Melvin Okun first observed the empirical relationship between unemployment and losses in a country’s production. It is called Okun’s law.
In theory, the original statement of Okun’s law said that a 2% increase in output corresponds to a 1% decline in the rate of cyclical unemployment; a .5% increase in labor force participation; a .5% increase in hours worked per employee; and a 1% increase in output per hours worked (labor productivity). Okun’s law states that a one point increase in the cyclical unemployment rate is associated with two percentage points of negative growth in real GDP. The relationship varies depending on the country and time period under consideration. – Zerohedge
We know from the great works that John Williams provides over at Shadowstats that the real unemployment rate is at least 12%, with total unemployed/underemployed numbers being closer to 25%. And since GDP has had three negative quarters since the Fall of last year, only to be revised by the government changing the models and doing a DOUBLE seasonal adjustment revision which took a print of .2% and changed it miraculously into 3.7%, there is no longer any reason at all to trust what is published by the government for monthly or quarterly statistics, nor from the Fed who willfully promotes these numbers despite their not trusting the data themselves.
Oligarchs, dictators, and fascists rely upon deception to hold their power, and the United States regime is no exception. But there are numerous economic models, like Okun’s Law for example, that can provide us a very clear picture of what is really going on in the economy, and with that data be able to forecast what the powers that be intend to do in the future… such as QE4, and not the raising of rates.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.