Lies, damned lies, and statistics: Spanish and Greek youth unemployment much lower than reported

One of the most commonly cited Eurozone crisis statistics over the past several years has been youth unemployment, which in hard hit countries such as Spain and Greece has been reported to be as high as 50%.

In a recent post over at Project Syndicate Steven Hill dissects Eurostat's unemployment rate methodology and comes up with markedly different figures:

Unemployment estimates also are surprisingly misleading – a serious problem, considering that, together with GDP indicators, unemployment drives so much economic-policy debate. Outrageously high youth unemployment – supposedly near 50% in Spain and Greece, and more than 20% in the eurozone as a whole – makes headlines daily. But these numbers result from flawed methodology, making the situation appear far worse than it is. 

The problem stems from how unemployment is measured: The adult unemployment rate is calculated by dividing the number of unemployed individuals by all individuals in the labor force. So if the labor force comprises 200 workers, and 20 are unemployed, the unemployment rate is 10%. 

But the millions of young people who attend university or vocational training programs are not considered part of the labor force, because they are neither working nor looking for a job. In calculating youth unemployment, therefore, the same number of unemployed individuals is divided by a much smaller number, to reflect the smaller labor force, which makes the unemployment rate look a lot higher.

So what we have here is a simple division problem: the unemployment numerator is accurate, but the labor force denominator has been fudged.

What are the real youth unemployment figures in countries like Spain and Greece?

The youth unemployment ratio – the number of unemployed youth relative to the total population aged 16-24 – is a far more meaningful indicator than the youth unemployment rate. Eurostat, the European Union’s statistical agency, calculates youth unemployment using both methodologies, but only the flawed indicator is widely reported, despite major discrepancies. For example, Spain’s 48.9% youth unemployment rate implies significantly worse conditions for young people than its 19% youth unemployment ratio. Likewise, Greece’s rate is 49.3%, but its ratio is only 13%. And the eurozone-wide rate of 20.8% far exceeds the 8.7% ratio.

Certainly these much lower youth unemployment figures are still a matter for serious concern. And as Hill notes later in his post it is likely that at least a significant portion of young people who are in school are there because they cannot find work.

There is, however, a substantive difference between the 50% shock headline figures and the real picture of youth unemployment, and this difference may explain why we have not seen a full-on revolution in countries like Greece or Spain (at least not yet).

The final question is why has the media only reported the much larger youth unemployment figures and not the arguably more meaningful, lower youth unemployment ratio? Certainly the larger figure is much more sensational and attention grabbing.

At the risk of sounding conspiratorial, another way of asking this question is who benefits by reporting the larger figure? Undoubtedly larger figures aid the narrative of the pro-bailout and pro-stimulus, anti-austerity contingent. 50% youth unemployment sounds pretty drastic, and drastic times call for drastic measures.

As they say, "never waste a good crisis".

No, No, No: Erin Burnett, the Government Bank Bailouts Were Not 'Profitable'

Oh boy.

On location at Occupy Wall Street, CNN's Erin Burnett is perpetuating the myth that government bailouts for banks were profitable for taxpayers.

Here, here, here and here are my previous posts about why this is not true.

In short, it's misleading to claim that the bank, or Wall Street, portion of the government bailouts (called TARP) is profitable without referencing the trillions in other bailouts provided by the Fed, the ongoing support for Fannie Mae and Freddie Mac (which could cost taxpayers trillions), and other taxpayer support which directly and indirectly bailed out Wall Street beyond just TARP. The reason is that the recipients of the government bailouts are intricately connected. Wall Street had (still has?) vast real estate holdings, so the support provided to Fannie/Freddie and the Fed's purchase or mortgage backed securities were second and third bailouts, respectively, for Wall Street on top of TARP.

Erin, it is fallacious to promote a myopic view that the government got its money back and then some on the TARP tranche of the government bailouts.  You need to also look at where taxpayers have not yet received their money back (Fannie/Freddie) or are still exposed (Fed's nearly $3 trillion balance sheet). To do otherwise is to engage in an incomplete, inaccurate and deceptive accounting of the bailouts.

For those interested in more detail line-by-line accounting of the various government bailouts can be viewed here.

Video: Jim Chanos on Why China is a Bigger Bubble than LinkedIn

Your PhD in Managing Money

(click to enlarge)

Full article here.

Video: David Einhorn on Bloomberg TV

The David Einhorn December media tour continues.

Topics in the below Bloomberg interviews include: European debt crisis, Too Big to Fail, Apple's stock price and importance of Steve Jobs, when David first got an iPhone, and the unemployment problem. Much of this will be familiar to anyone who has seen some of David's other recent media appearances  (which have also been posted on this site).

Video: Rare David Einhorn Interview on Shorting, Rating Agencies, Apple & Gold

I'm a big fan of David Einhorn's investment strategy, particularly his ability to identify accounting shenanigans at firms such as Lehman Brothers and Allied Capital, both of which he successfully shorted. (He wrote a well received book on his rather disturbing saga with Allied Capital.) He also rarely gives public interviews so the following video caught my attention.



The contribution of the credit rating agencies to the financial crisis have been well documented. Dodd-Frank financial 'reform' failed to make any material changes to rating agency model, which contains an inherent conflict of interest (bond issuers make payments to rating agencies, which incentivizes issuers to 'shop' for better ratings). To address this problem Einhorn simply advocates that credit rating agencies, such as Moody's (which he is short), should be abolished. Of note, famed investor Warren Buffet has been steadily reducing his large Moody's holdings.

Einhorn also discusses how a value investor like himself can be long Apple, which many have argued is in a bubble, as well as his current gold holdings (the largest position in his hedge fund). For more from Einhorn on his rationale for owning gold see this NY Times op-ed.

David Brooks and Dick "Buy Lehman" Bove Perpetuate TARP Profitability Myth

David Brooks

Some myths just won't die. And if repeated often enough they can become legend.

Banking analyst and regular CNBC talking head Dick Bove is doing his part to keep the TARP was 'profitable' myth afloat. Joining this cause is NY Times columnist David Brooks, who on a recent episode of Charlie Rose made it abundantly clear that accounting is not his forte. Like Bove, Brooks mistakenly believes that TARP is 'profitable'.

To my knowledge Brooks, who based on appearances could easily be mistaken for an accountant, is no financial expert. So perhaps he can be forgiven for sending his proselytizing mouth into terra incognita. Bove, on the other hand, should definitely know better.

As discussed previously here, here, and here, the only way to claim that TARP is profitable is by viewing it in isolation of the entire government bailout, which in addition to TARP includes GSE conservatorship, Fed asset purchases, etc. Bailing out Fannie and Freddie alone could wind up costing taxpayers trillions, thereby swamping any gains seen by TARP.

The results of TARP are intimately connected and influenced by the other government bailout programs. Claiming that the relatively small TARP bailout sliver is profitable is intellectually dishonest and emblematic of the accounting shenanigans which continue to distort the balance sheet picture of our financial system and government.

Is there a political motivation behind the repeated claims of TARP profitability? Establishing this perception would certainly make the the banking sector look better in the eyes of taxpayers. It would also cast a more favorable light on the massive government intervention initiated by 'Government Sachs' and Treasury Secretary Hank Paulson and then furthered by the Obama administration.

Unfortunately this notion of TARP profitability seems to have gained a toehold in the mass media. As such we can expect to see future government bailouts justified on myopic, misleading accounting.

Here We Go Again: More TARP was "Profitable" Hooey

We're coming up on Wall Street bonus season, rumored to be another record setter. So it shouldn't be too big a surprise to see more propaganda being pumped out on the "profitability" of TARP.

On this blog I generally strive not to repeat myself. However, I hope you'll agree that dispelling the reoccurring attempt to foster a myth of TARP "profitability" is worth making an exception. So here goes: it is intellectually dishonest to try and disentangle the "profits" from TARP from the total government bailout.

The real shame about this particular piece of "analysis" is its source, Bloomberg, which had been doing yeoman's work on challenging Fed secrecy and reporting the true cost the entire government bailout. Check this video out for a previous take from the very same Bloomberg on what the entire government bailout has cost taxpayers. (Note to Bloomberg's Editorial Department: you guys need to get your staff on the same page!)

Oh when of when will we cease indulging the fiction that Too Big Too Fail banks are private enterprises?

True Cost of Government Bailouts

Watch the full episode. See more Need To Know.

Today's Hooey: Claiming Bank Bailouts Are "Profitable" for Taxpayers

CNBC, Reuters, and other media outlets trumpeted Keefe, Bruyette & Woods claim that bank bailouts are profitable for the U.S. government (and hence the U.S. taxpayer).

If it weren't for the report's intellectual dishonesty this news would have made for a nice political headline and taxpayer feel good story.

The glaring problem with Keefe's Mr. Fred Cannon's "profitable" conclusion is that he arrived at it only by ignoring all the other government bailouts during the financial crisis.