How bad is the economy? In the May issue of Harpers Magazine, Kevin Phillips cuts through the numbers in an article entitled “Numbers Racket: Why the economy is worse than we know.” The revelations Phillips makes are shocking. The U.S. government has been consciously cooking the books for decades.

How do you make inflation look lower than it is? Just remove some items from consideration and create value out of thin air (e.g., “product substitution,” “geometric weighting” and “hedonic adjustments”). Truly, you’ve GOT to read the details to believe what has been going on. If you think that inflation is running between 2% – 4%, think again. Using honest accounting methods, it’s more like 12%. If CPI had been honestly reported for the past couple of decades, Social Security checks would be 70% greater than they currently are.

We have an official unemployment rate of 5%. The government arrives at that nice low number by simply not counting all of the people who want jobs. If you really counted those people, the U.S. has an employment rate of about 9%.

Who profits from these fake number of low inflation and low unemployment?

Might it be Washington politicos and affluent elites, anxious to mislead voters, coddle the financial markets, and tamp down expensive cost-of-living increases for wages and pensions?

Don’t forget the utterly ridiculous concept of “imputed income,” one of several forms of phantom income, which constitutes 15% of GDP.

Phillips see nothing but trouble resulting from the use of these methods of cooking the national books. An honest accounting “would reveal a nation in deep difficulty not just domestically but globally.”

The undermeasuring of inflation is especially insidious:

[I]t hangs over out 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(from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy . . . The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.