I just finished reading one of the most disturbing articles I've seen in some time: Numbers Racket: Why the Economy is Worse Than We Know, by Kevin Phillips, in May's Harper's Magazine.

Phillips documents the changes that various administrations have made to the statistical methodology used in calculating the three major economic indicators: GDP, CPI, and Unemployment. Since 1961, nearly every U.S. president has "tweaked" the calculation of these numbers to mask certain politically inexpedient economic realities.

The cumulative result of these successive tweaks has been a severe case of what Phillips terms "Pollyanna Creep." The true health of the economy has come to be severely overstated by inflated statistics. According to Phillips:

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional "Pollyanna Creep," what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically, but globally.

Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt . . . that props up the American economy. . . . As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

Face full of cold water, indeed. Our gut instincts have been right: things are not as well as they seem. As it turns out, the federal government has been cooking the books every bit as much as the Enrons and Worldcomms of the world. It should come as no surprise - given the revolving door between the beltway and the boardroom - that federal bureaucrats would be busily hiding away the grim truth of the U.S. economy, just as Ken Lay and his cronies were hiding away the truth about Enron's debts.

Yet this news is very disturbing, as it reveals yet another tremendous shortcoming in the economic calculus that drives the United States. Brace yourselves, people, because we're in for a bumpy ride.