John Williams: Believe Him or Not 

This Oakland economist believes the government's major economic indicators are lies. Most other economists think he's a crank. But then, most of them also thought the economy was healthy.

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Williams doesn't like to talk about himself. Ask him about his politics, for example, and he mumbles something about being a conservative "with a libertarian bent" before changing the subject. Ask him about what he'd invest in, or to get in touch with a typical subscriber to his newsletter, or whether he wanted to be a fireman when he grew up, and he'd rather not say. But ask him about the time George H. W. Bush rigged the gross domestic product numbers in the early 1990s, and he's got a story for you.

Once upon a time, there was an incumbent president seeking reelection at the tail end of a painful economic downturn. It didn't matter that he'd just won a war against a Middle Eastern strongman or been in office when the Cold War ended. People were out of work and worried, and when that happens, they go looking for someone to blame.

How, he asked himself, can I convince people that their lives are better than they really are? Maybe it's time to put some of my guys to work. And so, alleges Williams, a "senior executive in the commerce Department" paid a visit to a "senior official in a computer firm" and pressured him to pump up his computer sales in a report to the Bureau of Economic Analysis. "The computer sales reporting was boosted, the GDP picked up as a result, the recession ended, and George Bush talked about how the economy was great," he said. "But people thought he had lost touch with reality."

Williams tells that tale in a delightfully paradoxical monotone, delivering stories of corruption at the highest levels in the style of someone who has read one too many actuarial tables. Although he now lives in the land of Peet's and medical marijuana, Williams is hardly attuned to his new home; he just moved out here two and a half years ago to be closer to his son and grandchild. Before that, he spent virtually his entire life in suburban New Jersey. His life seemed destined to be entirely prosaic — he never imagined he'd become a celebrity in the world of gold-standard conspiracists.

"I do my best to publish information that is free of political and Wall Street hype, and that information happens to suggest strongly that anyone living in a dollar-denominated world would do well to own some physical gold," he writes. "I view myself as an economist, not a 'gold-bug.'"

But as he began his career as a consulting economist, he began to suspect that something was wrong with the math he was working with. A company that manufactured commercial airlines used a model known as revenue passenger miles to sell their product, and at some point, the model it used to calculate them stopped working. The firm called in Williams to figure out what went wrong. As he bore down into the numbers, Williams claims he found the answer: the numbers hinged on the Gross National Product, and the method by which the government and its partners calculated the GNP was faulty. Williams undid the tweak to GNP, and the model started working again — at least until new changes to the GNP "made the underlying data worthless."

Soon, Williams said, he began to realize that there were a number of problems in how the government measured the economy — and that he wasn't alone. He conducted surveys of his colleagues in the National Association of Business Economists, and what he found dismayed him. "What I found in my surveys of the quality of government statistics was that most economists realized they were seriously flawed," he said. "I mean like 70 percent."

Worse, he claims that the more his colleagues knew what they were doing, the less faith they had in the government's data. "The first time I did the survey, I had the chief economist for a major retail organization filling it out," Williams said. "And he said, 'You know, I think the retail reports are worthless. I just don't look at it. But they think the money supply is a good one.' A second economist said 'Oh, the money supply is horrible.' What I found is the people who really understood the numbers they were working with thought there were serious problems."

This hasn't always been the case, Williams claims; we had a better picture of the economy back in the 1970s, for example. But over time and incrementally, government officials changed the methodology of measuring key economic indicators, painting an ever rosier picture of the economy, which just happened to benefit the incumbent politicians who ran the government. Or as he said in his calm, bland timbre, "Over time there has been a series of methodological shifts in the numbers to tend to create an upside bias in employment and downside in bias in inflation."

Soon, Williams threw himself into "reverse-engineering" the government's numbers. And as he dedicated himself to this project, he grew more and more specialized; where once his consulting business boasted Fortune 500 clients, now he publishes a web site, ShadowStats.com, and a newsletter, Shadow Government Statistics, for a few thousand subscribers, mostly individual investors. Although his most dedicated followers hail from the armies of Internet goldbugs, mainstream business papers like Barron's still regularly cite his work as well.

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