John Williams lives in a one-bedroom Oakland apartment just a few blocks behind the Grand Lake Theater. He doesn't like to talk about politics, and he certainly doesn't like to talk about the stock market. He's sixty years old and has a two-man operation: a webmaster and himself. But in the obscure corners of the Internet, he's an unlikely legend, an economist who publishes a newsletter that purports to tell the real truth about the state of the nation's health. His thesis is both simple and surprisingly complex: over the course of thirty years, Washington politicians have pressured federal economists to tweak the methods by which they assess key metrics of the economy, to inflate the numbers and protect the incumbents from voters who would surely rise up in anger, if only they knew the truth.
And the truth, Williams claims, is that the economy has always performed much more poorly than the federal numbers indicate. Prices are higher, fewer people are working, and the economy is growing at a much slower pace. Even now, when the nation faces its greatest crisis since the Great Depression, the real dimensions of the disaster are still being obscured by gimmicks. It's a message that has earned him an odd bit of notoriety, to the clear frustration of some of the country's most prominent economists, who claim that Williams has built a career misrepresenting complex mathematical models and spreading panic.
Take February, for example. What does Williams think was the true state of the economy? The official unemployment rate was listed at 9.7 percent, but according to Williams' models, the real number, including part-time employees and workers who have just given up in despair, is closer to a staggering 21.6 percent. The official February inflation rate was 2.1 percent; Williams argues that it's really around 5.5 percent. And GDP for the fourth quarter of 2009 was not 5.9 percent, as the government claims, but 2.9 percent.
Williams says he's just using math to tell you what you already know — that your economic life, and that of your friends, is much worse than the government's numbers say. Everywhere you go, you can feel it. The NUMMI plant shutting down. Foreclosed homes rotting on your block, or being auctioned off on the courthouse steps. The anxiety in the eyes of passers-by. Times are tough.
"Take the unemployment rate," Williams said. "You ask the average person whether he or she is unemployed, you'll get an immediate response. They don't have to think about it. Yet if you were to count all the people who consider themselves unemployed, you'd get a higher rate than what the government reports. Because the government has a different definition of employment"
He's been saying this for years. And for years, officials with the Bureau of Labor Statistics and other federal agencies have scoffed at his claims.
After checking out the kinds of people who swear by his numbers — blogs dedicated to pumping investments in gold and alarmist conservative web sites such as Daily Paul, King World News, and WorldNetDaily — you might be forgiven for assuming that Williams is something of a crank.
Take the anonymous "financial advisor" who runs the "Coming Economic Depression" blog. Right next to ads for ammunition, dried foods, and "depression & survival guides," the author's mission statement is riddled with promises that he or she will "help you come to terms as to what is really happening in the financial world." "BE INFORMED!" the author adds. "PREPARE YOURSELF for the COMING DEPRESSION! BOOKMARK this BLOG for NEWS 7 DAYS A WEEK!" And right below that, you'll read an interview with John Williams, who urges readers to invest in gold and silver, while the blog's author claims that soon, the dollar could be worth as much as Zimbabwean currency.
Is Williams a crank? Is he cynically selling flawed economic models to panicky investors? Some of the country's most prominent economists certainly think so. But perhaps a better question is: after a catastrophe brought on by people who get paid to be the stewards of our economy, how can you tell who to trust? After all, Williams isn't the only Cassandra out there. Over the last ten years, a small collection of economists, investment analysts, and hedge fund managers were warning that something was dangerously wrong with the economy, only to be openly mocked from the pulpits of CNBC. On subjects from derivatives and subprime loans to Bernie Madoff, experts in suspenders assured us that nothing was wrong.
Nobody's laughing now, of course. For decades, the American way of life was built on a breathless optimism, a giddy delusion that home prices always rise, credit cards are your friends, and banks perform best when free of cumbersome regulations. It's been morning in America for thirty years. Now, that morning brings a bad hangover with it.
So perhaps this is John Williams' time to shine. Ever since the 1980s, he has been on a quiet crusade, claiming that politicians and their bureaucratic lapdogs have systematically hidden how poor we really are. Now we're reeling from the worst economic crisis in seventy years, one that was brought on by the obfuscations and risk algorithms of the very people who think Williams is crazy. After all, it wasn't Williams who had to personally apologize for wrecking Wall Street, but Alan Greenspan.
Americans are learning that perhaps they will have to live with less for a long time to come, and that it's time to face the facts. Williams believes he has a few, and they aren't pretty.