Power Line Economic Analysis: Continuing Its Clue-Free Ways

by: Hale Stewart

In a post titled "Talkin' Unemployment Blues," Scott Johnson of the Power Line blog referenced the following chart from "ShadowStats":

Click to enlarge

So, according to ShadowStats, the real unemployment rate is about 22.5%. This stands in stark contrast to the U6 and U3 rates of unemployment from the BLS.

Click to enlarge

For the sake of argument, let's assume SS is correct. Wouldn't that mean there could be no wage pressure at all? At that level of unemployment, employees have, literally, no bargaining power. An employer could say, "there are, literally, 100 people who will take your job." Yet, as the following chart from the FRED database shows, wages have increased about 2% Y/Y for most of this expansion. That pace increased a bit over the last 6-9 months, and is now around 2.5%.

Click to enlarge

I wonder how Mr. Johnson would explain that rather glaring logical inconsistency.

This is but one of the many problems with SS's numbers. According to SS, its "alternate" CPI index based on 1980 calculations is ~7.5%. If that were really the case, the 10-year would now be trading at a -5.75 yield (Just to help Mr. Johnson out: the current 10-year CMT was 1.75% at the close of yesterday's trading. 1.75 - 7.5 = -5.75%. In case you were wondering, that's called "subtraction" which is a basic mathematical function). Trust me on this one: if the 10-year were trading at 5.75%, you'd be hearing about it.

Here's the point. The guys at Power Line aren't clueless; that description might imply that, at some point, they had a clue. No: Power Line's writers are economically clue free. Over the last few weeks, I pointed out that John Hinderaker - who is now in charge of a conservative think tank - thinks Minnesota should change its economic policies. This, when the state's unemployment rate is below 4% and wage gains are between 2.5% and 5% Y/Y. And now Scott Johnson is partially basing his argument on ShadowStats - a website used by, quite literally, no reputable economist. And this is before we consider that these guys spent the entire 2014 blog year providing economic commentary that was, literally, 100% incorrect. That's just dumbfounding.

This post will have no impact on Power Line. They'll continue to argue that they are economic geniuses. And we'll be here to document the latest economic missive from the clue-free crowd at Power Line as they post.