At the far end of the politicization spectrum are those who believe the government cooks up the numbers in some dark corner of the Labor Department basement. It’s as if these folks decreed, “There shalt be no good news as long as Obama is president, the federal government is expanding and the Federal Reserve is printing money and debasing the dollar.”

I have a message for them. It’s not the data that are politicized. It’s the interpretation.

Friday’s report inspired an outpouring of accusations of “fraudulent employment statistics” and long screeds on updated population estimates from bloggers (ZeroHedge and the Economic Collapse) and editorial writers (the Washington Times) alike.

The household survey for January incorporated new information from Census 2010. Previous months were unrevised. Simply put, there is a December/January break in all the series that rely on the new estimates.

If the December data had been updated for the population- control effect, the civilian non-institutional population would have increased 175,000 in January, a typical month-to-month change, not the 1.7 million without the adjustment.

The composition of the population changed, as well. Conspiracy theorists seized on the 1.2 million increase in those “not in the labor force.” Adjusted for an apples-to-apples comparison, the number fell by 75,000 in January. That’s because the population increase was concentrated in persons 55 and over and in the 16-24 year-old age bracket: a population less likely to be in the labor force than the general population. (Tables B and C on Page 7 of the Employment Report outline these effects.)

My impression has always been that the conspiracy theorists are somewhat apolitical – or at least apolitical when compared to the many political types that only dabble in economics and finance. Of course, I could be wrong.

The Job Creation Index above is calculated by subtracting the percentage of employers who said they were more likely to let workers go from the percentage of employers more likely to hire and, in the case of North Dakota, those numbers were 8 percent and 42 percent respectively. Rhode Island had the lowest score of any state with just +4.

Perhaps more interesting than the above graphic is the well-being portion of Gallup’s State of the States survey, those of us living in the north central part of the country apparently a little better off when considering such factors as obesity, exercise, and diabetes.

North Dakota does pretty well on this measure too, ranking third behind Hawaii and Wyoming, though things don’t look too good in the rustbelt and the south (except for Georgia, for some reason), while Nevada stands alone as below average in the West.

Matthew Broderick provides more evidence of how much older (and bigger) our generation of ‘Mericans is getting – they say, on average, we add a pound a year once you hit 30…

This CSM story has more on today’s Super Bowl car ads and, of course, just search Google and you’ll get just about everything you could ever want on the subject.

New boss, same as the old boss … and the ones before that.

Maybe we’ll get a good third party candidate this year…

The CBO apparently tried to make this an apples-to-apples comparison by controlling for the many variables that affect wages and benefits and it seems to make sense – unless you’re a doctor or lawyer, you’re better compensated working for the gubment.

Bernanke Does Not Understand Savings
Twice in his press conference yesterday, Bernanke showed that he was out of touch with average Americans. He argued that average people could keep up with a 2% increase in the price level by investing in stocks and (presumably short-term) bonds.

(Speaking to The Bernank)

I’m sorry, Ben, but ya gotsta come down from the uneducated ivory tower and wallow in the mud wit da restov us. There are three problems with what you said:

- It’s hard to earn 2% (after-tax) consistently when the Fed funds rate is zero.

- Only the top 20% of the wealthy have enough assets to keep themselves afloat using the asset markets. Most people would like to do something to protect themselves from inflation, but lack the means to do so.

- Average people do not invest, they save at financial intermediaries like banks, S&Ls, and life insurers. Fed policy kills rates for savers. They will not become investors, because they lack the knowledge to do so.

I am again sorry, Ben, because your policies discriminate against the poor, and the lower middle class. Yes, the rich and the upper middle-class clever can escape the penalties stemming from your policies, but the lower-middle class and the poor can’t.

Think of it this way: your policies are making it more palatable for average people to buy gold, because the alternatives in savings are lousy. If there is no income, why not grab safety from inflation?

Author David Merkel then suggests a comparison to Arthur Burns, one of the worst Fed Chairman ever, a subject that will be taken up in the next item that appears here.

During normal times, economists’ models of how the world works seem to function reasonably well, but when a multi-decade orgy of money and credit creation came to a head a few years back, they were completely unaware of how badly some people were acting and how contagious this was.

The central bank meets this week and is expected to revamp how they communicate their thinking about monetary policy to the world, but, maybe they should spend more time figuring out how to better observe what’s going on in the world – looking beyond the charts, tables, and models that they had their noses buried in back in 2006, oblivious to the looming crisis in housing and credit markets.

It was all there to see for anyone willing to make a modest effort to get out into the real world and look around.

Wild-eyed buyers lined up for blocks to buy new condos and mortgage brokers with barely a high school education were raking in hundreds of thousands of dollars a year in commissions by peddling all kinds of “exotic” mortgages to borrowers who, in many cases, didn’t really understand what they were signing.

As we’ve come to find out, there was a good deal of fraud involved here by both lenders and borrowers as few seemed to care about how their individual actions might affect others in the fullness of time.

You might say that a good asset bubble brings out the psychopath in many of us.

Everyone was swept up in a financial bubble of the largest magnitude and, with only a few exceptions, economists were content to look at their models – models that ignored the “shadow banking system” and failed to reflect how a rapidly inflating asset bubble was affecting behavior – while predicting clear sailing ahead and patting each other on the back for having done such a good job.

The worst of the psychopaths were on Wall Street and those tales of excess came to light in the years that followed.

A pattern of disregard for others was at the core of what Wall Street did with mortgage backed securities and related derivatives, a point that became clear as internal emails were released in the years that followed. Investment banks made boatloads of money – both in selling securities and then betting against them – and this behavior became standard operating procedure for some firms.

One could argue that the 20-something mortgage brokers really didn’t understand the bigger picture, but that can’t be said for those peddling mortgage products on Wall Street.

They have no such excuse.

These were some of the nation’s best educated and brightest minds and they took their cues from top management, yet they exhibited all the characteristics of the fellow to the right – shallow emotions, the lack of a conscience, selfishness, and lack of remorse.

Meanwhile, economists, particularly those at the central bank, were blissfully unaware that anyone was doing anything wrong in the financial system and that it could all come tumbling down around them in just another year or two.

Former Fed Chief Alan Greenspan famously “found a flaw” in his theory of how the world works and that flaw was, basically, that the world is loaded with psychopaths, particularly on Wall Street.

But, psychopaths don’t exist within economists’ models.

In fact, I’m not sure if your run-of-the-mill economist acknowledges the existence of psychopaths in the financial system at all.

While trying not to paint with too broad a brush here (oh, what the hell), economists are an insular lot prone to group think and that much should be clear from the 2006 Fed transcripts. Some would say the dismal set is naive about how the world really works and not much interested in learning (in many cases a result of being scarred by bullying in grade school) and that they’ll continue to just keep trying to fit their square peg models into a world full of round holes.

Maybe they should pay a little bit more attention to what’s happening in the real world rather than relying on their models where only “rational actors” exist.

Either that, or they should get out of the business of stewarding the economy.

The year 2011 will be remembered as the time when many ever-optimistic Americans began to give up hope. President John F Kennedy once said that a rising tide lifts all boats. But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake.

In that brief moment when the tide was indeed rising, millions of people believed that they might have a fair chance of realising the “American Dream”.

Now those dreams, too, are receding. By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent. Unemployment cheques had run out. Headlines announcing new hiring – still not enough to keep pace with the number of those who would normally have entered the labour force – meant little to the 50-year-olds with little hope of ever holding a job again.

Indeed, middle-aged people who thought that they would be unemployed for a few months have now realised that they were, in fact, forcibly retired. Young people who graduated from college with tens of thousands of dollars of education debt cannot find any jobs at all.

It gets even more depressing the further you read, a point that should have been clear from the title – Many Americans gave up hope last year – 2012 will be worse – but, I couldn’t help think what it’s like for the millions of people my age who took a very different route through life, perhaps worsening their financial situation as a result of the housing bubble.

The way the discussion gets framed tends to go like this: Did Fannie and Freddie cause the crisis? Although this is the wrong question, I’ll try to answer it anyway by highlighting the difference between the meaning of the words “a” and “the.”

Here goes. Fannie Mae was a cause of the financial crisis. So was Freddie Mac. U.S. government housing policies, which often encouraged people to take out loans they couldn’t repay to buy homes they couldn’t afford, were also a cause. None of these was “the” cause of the crisis, because there was no single cause.
…
Two people often cited as proponents of the notion that Fannie and Freddie caused the crisis are Peter Wallison and Edward Pinto. Both are fellows at the American Enterprise Institute, a Washington think tank. Wallison was a Republican member of the Financial Crisis Inquiry Commission who wrote a 98-page dissent to the panel’s final report in 2011.

Last month, in an article responding to a column by Joe Nocera of the New York Times, Wallison and Pinto framed their thesis this way: “Our argument is and has been that the financial crisis would not have occurred but for government housing policy implemented principally through Fannie and Freddie and the Department of Housing and Urban Development.”

It’s a debatable, if not a particularly useful, observation. One reason Wallison and Pinto have drawn so much criticism for their work is that they consistently dismiss every other possible cause of the crisis, so that only Fannie, Freddie and U.S. housing policies survive the scholars’ own “but for” test. Never mind interest rates held too low for too long, worthless regulators or banks with excessive leverage, for instance.

Even New York Mayor Bloomberg came down in the “the cause” camp a month or so ago when referring to the role the government played in the housing bubble. It’s simply amazing to me that so many people seem to insist on viewing this as a black-and-white issue – that either Washington or Wall Street are to blame, but not a combination of the two.

On a related note, according to this McClatchy report, BofA and other too-big-to-fail banks have settled on their pick for President this fall – Mitt Romney. Employees at the big banks gave the Romney campaign $600,000 through September of last year, dwarfing the $200,000 sent to the bankers’ second choice – President Barack Obama – virtually ensuring that there will be little change to the status quo, big-bank-wise, until 2017 or later.