OMG, that's a REALLY BIG NUMBER!! Buy gold now!! Buy a gun!! Stock up on food and supplies!!
Actually, those are good ideas even when the number isn't really big. It's always a good idea to save.
Shadowstats is useless on three counts. One is simply that he provides no demonstration of his method. The second is that, in relative terms, all measure go up together regardless and the Shadowstats number provides no new information except it is bigger. The third is that the number is only meaningful in comparison to the natural level of unemployment.
In looking at the Shadowstats fuzzy description of how cost of living is determined, it is obvious that he lacks any fundamental understanding of measurement. The description of his measure amounts to estimating the general error of the BEA CPI, taking a small sample of prices, estimating the error for the new BEA CPI, then adding this to the BEA CPI.
It is like having bad yard stick, estimating how far off it is, measuring the length of a football field with it, measuring the length of the in-zone using a ruler of choice, estimating the the error of the yard stick measurement, then adding the estimated error plus the ruler measure to the yard stick measurement and coming up with a measurement of the total field length. It is too complicated, it is full of even more measurement errors, and it is useless.
We might just as well take the BLS number for U6, pick some arbitrary number that we like, then add that to every new BLS number.
That's all fine because, in the end, the absolute measure of unemployment means less than its relative value with respect to other months and years. Whatever measure is used, when unemployment rises, they all go up.
The Bureau of Labor and Statistics has six different measures of the unemployment rate. These are U1 through U6 and each successive measurement includes an ever increasing group of individuals, depending on how "unemployed" is defined. All of them are "released" to the media. Anyone can go look them up. Google "U6 BLS". It is table A-15. The only thing that is happening with "they don't release it to the media" is that everyone likes one number that they can compare to the last number. The historical definition has been U3.
The latest numbers are u1=4.9%. The latest number for u6 is 15.1%. If you like, you can take the total number of people that are employed, subtract it from the total population over 18, and divide by total population over 18. That will get a number that is the absolute maximum.
If you don't like 18, use 16. If you like, you can use the total population instead of those over 18. That will give you an even bigger number.
But it's all relative to what other months and years were as well as what is considered the "natural" unemployment rate. Whether we use the BLS numbers or Shadowstats numbers, we have some preferred level for that particular measurement. We know that the "natural" level of unemployment for U3 is between 5% and 7%. Without some natural level of unemployment for the Shadowstats number, the Shadowstats number is useless.
What we cannot do is to compare U6 in January to U3 in October or to the 5% - 7% natural rate for U3.
Anyone can, if they want to spend the time, find out the unemployment rate in their area. All you gotta do is go through the phone book and make your own sample. If you want to pay for it, then make random calls across the country. It's not hard, it's just a waste of time when the BLS has gone through the trouble to do it already.
What is notable is the psychology beneath using the Shadowstats number. Any feedback and control system is dependent on outside information to be precise and accurate. This is no less true of people. Without feedback, we would all be crazy. Crazy people suffer from some sort of disconnect from reality. Really crazy people are obvious, they act totally on some internalize images. PSTD is a form of this where the person reacts to the intense experiences from the past, like getting shot or road side bombs. People that have been abused do the same, reacting to the current situation as if it were the situation of abuse.
At a more subtle level, we all do this. We learn how to catch a block by watching our hand and arm. After a while, we can catch a baseball without paying close attention to our hand. The external feedback has been internalize and replaced with the feeling of how our arm moves.
There are more subtle levels of crazy. They are marked by some statement of "I don't pay attention to that." External feedback is summarily dismissed. The use of Shadowstats is no less true. Here we have six different measurements of unemployment provided by the BLS. We can pick whichever we want to go with. Some, rather than pick a measurement with published methodology, attach a sweeping assessment to all government agencies. They are all part of a conspiracy.
Sure, politicians and people have tendencies. One of the tendencies of professionals at the BLS, who invested a heck of a lot in learning the methodologies of statistics and economics, is that they are as precise and accurate as they can possibly be.
If we don't like U6, and think instead of 15.1% for Jan 2012, it should be 22.5%, we can do just as well as Shadowstats by just adding 7.4% to every U6 measurement. Here is that table
Seasonally adjusted
Jan 2011 17.3% + 7.4% = 24.7%
Dec 2011 15.2% + 7.4% = 22.6%
Jan 2012 16.2% + 7.4% = 23.6%
Seasonally adjusted
Jan 2011 16.1% + 7.4% = 23.5%
Sep 2011 16.4% + 7.4% = 23.8%
Oct 2011 16.0% + 7.4% = 23.4%
Nov 2011 15.6% + 7.4% = 23.0%
Dec 2011 15.2% + 7.4% = 22.6%
Jan 2012 15.1% + 7.4% = 22.5%
The natural rate would be between
5% + 7.4% = 12.4% and 7% + 7.4% = 14.4%
But what have we gained if we are simply interested in if the current rate is bigger than the natural rate? Nothing.
On the other hand, different economic conditions do mean that u1 through u6 will changed differently. Obviously, when we have "full employment" and U3 is at 6%, U6 will be much closer to it then it is now. We have a lot of people out of work that would take a job if they could get one. That includes discouraged workers that now reasonably expect rejection no matter how much hope they can muster. And that is important, so the difference between u6 and u3 gives us a number that is representative of that sense of things. And there are some good posts here that present good ways of looking at the numbers, even other numbers.
Shadowstats provides absolutely nothing in terms of what its measurement represents. I don't trust anyone. I trust Shadowstats even less. "You can't trust the government, but you can trust me." Why? For all I know, he walked up and down the street in East LA. Shadowstats doesn't provide any way of looking at it except, "I'm a conspiracy crackpot and believe in bigger numbers because bigger numbers are scarier."
