Wednesday, September 11, 2013

States Have an Incentive to Promote (Not Stop) Disability Fraud; So How Much Fraud Is There?

In response to Just How Distorted is the U.S. Unemployment Rate Number?, reader Bjorn asked "care to take a guess on the percentage of fraud among the population receiving disability compensation?"

Fraud Incentive

My Reply Follows:

I suspect fraud is in the neighborhood of 25-50% (and higher would not surprise me one bit). The reason is that States Have an Incentive to Promote (Not Stop) Disability Fraud.

This all goes back to 1996 when president Bill Clinton promised to "end welfare as we know it". He did indeed do just that, and fraud is the result.


The federal government pays disability, but states pay part of welfare costs. This creates a huge incentives for states to actively promote disability fraud (simply to get people off state-sponsored welfare programs).

Fraud escalated dramatically in the wake of the housing crash as jobs became scarce.

I discussed this previously in Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide; A Simple Solution

Here is the key snip.
Clinton Ends Welfare As We Know It

In 1996 Bill Clinton signed a welfare reform act, that he proclaimed to be the "End of Welfare As We Know It". It was. People moved off welfare on to even easier to get disability programs.

Part of Clinton's welfare reform plan pushed states to get people on welfare into jobs, partly by making states pay a much larger share of welfare costs.

The incentive "worked" using the term loosely. Welfare rolls shrank but disability rolls soared.

Welfare Costs States Money Disability Doesn't
[From the NPR report "Unfit For Work" - Please read this snip. It's key to understanding the fraud promotion claim]

A person on welfare costs a state money. That same resident on disability doesn't cost the state a cent, because the federal government covers the entire bill for people on disability. So states can save money by shifting people from welfare to disability. And the Public Consulting Group is glad to help.

PCG is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability. "What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria," Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.

The company has an office in eastern Washington state that's basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities:

"The high blood pressure, how long have you been taking medications for that?" one PCG employee asked over the phone the day I visited the company. "Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

The PCG agents help the potentially disabled fill out the Social Security disability application over the phone. And by help, I mean the agents actually do the filling out.

There's a reason PCG goes to all this trouble. The company gets paid by the state every time it moves someone off of welfare and onto disability. In recent contract negotiations with Missouri, PCG asked for $2,300 per person. For Missouri, that's a deal -- every time someone goes on disability, it means Missouri no longer has to send them cash payments every month. For the nation as a whole, it means one more person added to the disability rolls.
Disability Fraud

Who is making the case for the other side? Who is defending the government's decision to deny disability?


And that in a nutshell explains soaring disability roles and massive fraud.
When Jobs Are Plentiful

When jobs are plentiful, most people would prefer to work. But, when jobs are scarce, and welfare pays more than a minimum wage job, many would prefer not to work.

I wrote about this aspect on August 20 in Why Work for $7.25 When Welfare Pays $15.00 in 12 States and $8.00 in 33 States? Is a Low Minimum Wage the Problem?

When states come in and actively promote fraud as a means to get people off welfare, guess what happens?

Disability fraud is the answer.
Thank Bill Clinton!

Key Stats

Here are some stats from "Unfit for Work"

  • Every month 14 million Americans receive a disability check.
  • In 1961 the leading cause of disability was heart disease and strokes, totaling 25.7% of cases. Back pain was 8.3% of cases.
  • In 2011 the leading cause of disability was a hard to disprove back pain, totaling 33.8% of cases. The second leading cause was an equally difficult to disprove "mental illness" at 19.2%. Strokes and heart disease fell to 10.6%.
  • In Hale County Alabama 1 in 4 receive disability checks.
  • One thing nearly every case in Hale County Alabama has in common is Dr. Perry Timberlake who defines disability in a rather creative way.
  • Once people go onto disability, they almost never go back to work. Fewer than 1 percent of those who were on the federal program for disabled workers at the beginning of 2011 have returned to the workforce.

Quantifying the Fraud

Fraud varies state by state with welfare benefits and by how aggressive states are in pushing people off of welfare on to disability programs.

Given the incentive of states to push people into disability programs, and for people to never leave disability once in the program, a reasonable person would expect fraud to be rampant.

I guess 25-50% of disability claims are fraudulent, but higher would not surprise me in the least given back pain has soared from 8.3% to 33.8% and "mental illness" is at 19.2%. Combined that is whopping 53% of disability claims! 

Unemployment Numbers

Inquiring minds are asking "how does this affect unemployment numbers?"

That's a good question, so let's crunch some numbers. 

With 14 million collecting disability benefits ...

  • 25% Fraud would add 3.5 million to the Labor Force
  • 33% Fraud would add 4.7 million to the Labor Force
  • 50% Fraud would add 7.0 million to the Labor Force 

Let's assume 25% fraud, a rather modest assumption given the incentives for states to promote fraud coupled with the fact that a whopping 53% of disability claims are for suspicious reasons.

The examples below assume use of my practical definition of unemployment: Those who want a job, but do not have one. I also assume those fraudulently collecting disability payments would want a job if the payments stopped.

Base Numbers (from the latest jobs report - see BLS in Wonderland)

  • Civilian Labor Force: 155,486
  • Unemployed: 11,316,000

To the base numbers we need to add those not in the labor force but want a job.
That number is 6,285,000 (for a chart and further details, see Just How Distorted is the U.S. Unemployment Rate Number?)

Calculation Assuming 25% Fraud

Labor Force: 155,486,000 + 6,285,000 + 3,500,000 = 165,271,000
Unemployed: 11,316,000 + 6,285,000 + 3,500,000 = 21,101,000
Unemployment Rate: 21,101,000 / 165,271,000 = 12.77%

Calculation Assuming 33% Fraud

Labor Force: 155,486,000 + 6,285,000 + 4,700,000 = 166,471,000
Unemployed: 11,316,000 + 6,285,000 + 4,700,000 = 22,301,000
Unemployment Rate: 22,301,000 / 166,471,000 = 13.40%

Calculation Assuming 50% Fraud

Labor Force: 155,486,000 + 6,285,000 + 7,000,000 = 168,771,000
Unemployed: 11,316,000 + 6,285,000 + 7,000,000 = 24,601,000
Unemployment Rate: 24,601,000 / 168,771,000 = 14.58%

That is the disability fraud angle. It does not include those fraudulently receiving standard welfare (nor does it include those working part-time but want a full-time job).

The welfare fraud calculation is complicated by the fact that many on welfare work. Nonetheless, it's reasonably safe to add another 0.5% to 1.0% to account for welfare fraud (for those not yet pushed into disability fraud).

Comparison to BLS

Using my practical definition of unemployment, and factoring in disability fraud (but not welfare fraud), a realistic unemployment rate ranges from 12.77% to 14.58%.

For comparison purposes, the BLS has a base unemployment rate of 7.3% and a U-5 Rate of 8.7% (supposedly counting those who want a job but did not look).

Mike "Mish" Shedlock

Tuesday, September 10, 2013

Short Translation of Obama's Speech: "Flip Flop"; Long Translation: "I Don't Have the Votes"

Readers may be interested in the Full Text of Obama's War-Mongering Speech on Syria.

Fake Diplomacy

I can sum up Obama's speech in two words "Flip Flop".

Obama backed down from his John Wayne McCain guns-a-blazing approach to a  fake-diplomatic stance "I have, therefore, asked the leaders of Congress to postpone a vote to authorize the use of force while we pursue this diplomatic path."

Mish Translation "God damn it! I don't have the votes"

No Votes

Failure to attain a majority in Congress was clear earlier today when Senate minority leader Mitch McConnell Said 'No' On Syria Strike.

Does Assad’s use of chemical weapons pose a threat to the national security interests of the United States? And the answer to that question is fairly obvious: Even the president himself says it doesn’t,” McConnell said.

McConnell stood his ground in contrast to House Speaker John Boehner, Majority Leader Eric Cantor, Minority Leader Nancy Pelosi and Senate Majority Leader Harry Reid who, like John McCain wanted to proceed with warmongering regardless of costs.

Politico notes "In just the past 24 hours, GOP senators including Roy Blunt of Missouri, Dean Heller of Nevada, Mike Enzi of Wyoming, Johnny Isakson of Georgia and Lamar Alexander of Tennessee have all come out against a strike."

Putin Saves Obama's Ass

Seems to me, Putin saved Obama's ass with a proposal to let Syria destroy its weapons. Obama turned a "God damn it! I don't have the votes" horror story into a diplomatic "Give Peace a Chance" moment.

Putin gained stature and Obama lost stature. Putin's win is Obama's loss even if temporarily allows Obama to save face.

Hitler Card In Play

Nonetheless, I do not buy the "give peace a chance" line, especially since Obama played the "Hitler Card".

"In World War II, the Nazis used gas to inflict the horror of the Holocaust. Because these weapons can kill on a mass scale, with no distinction between soldier and infant, the civilized world has spent a century working to ban them", said Obama.

A few Days Ago the Guardian accurately appraised the situation as "Faced with sparse support for launching cruise missiles into a civil war, John Kerry compared Bashar al-Assad": Adolf Hitler: When in doubt, say 'Hitler'

Assad (assuming he used gas at all, and that is debatable) used it on political enemies in a civil war. Hitler planned to exterminate an entire race of people, simply because of their race and their faith.

Seriously, how lame is that comparison?

What's the Difference Between the US Using Chemical Weapons and Others Doing the Same?

Blatant Hypocrisy

David Stockman nails the heart of US war-mongering hypocrisy with this question:

"After having rained napalm, white phosphorous, bunker busters, drone missiles, and the most violent machinery of conventional warfare ever assembled upon millions of innocent Vietnamese, Cambodians, Serbs, Somalis, Iraqis, Afghans, Pakistanis, Yemeni, Libyans, and countless more, Washington now presupposes to be in the moral-sanctions business?"

For further Stockman discussion, please see End of U.S. Imperium—Finally!? Obama About to Suffer Glorious Defeat in Congress?

The hypocrisy of Obama (like Bush before him) is astounding. The biggest user of chemical weapons in history is the United States of America.

Don't believe it? For details, please see U.S. Going to Kill Syrians to Show Syria that Killing Syrians is Wrong

Mike "Mish" Shedlock

Latest Polls Not Looking Good For Merkel, 12 Days Before election

The German election is on September 22. And with 12 days remaining, things do not look good for a Grand Coalition headed by Merkel.

Via translation, the latest INSA poll looks like this:

  • CDU/CSU - 39%
  • SPD - 28%
  • Grüne (Greens) - 11%
  • Die Linke (Left) - 8%
  • FDP - 4%
  • AfD - 3%
  • Pirate - 3%

I believe AfD will make the 5% cut. I do not know if FDP will make the cut. If neither makes the cut, an unstable "Grand Coalition" is theoretically possible three ways.

Possible Coalitions if Neither AfD Nor FDP Get 5%

  1. SPD + Grüne + Die Linke
  2. CDU/CSU + SPD ("Grand Coalition" with Merkel)
  3. CDU/CSU + SPD ("Grand Coalition" without Merkel)

Possible Coalitions if AfD, not FDP Gets 5%

  1. CDU/CSU + AfD (with Merkel)
  2. CDU/CSU + AfD (without Merkel)
A grand coalition including SPD is theoretically possible.

Possible Coalitions if FDP not AfD Gets 5%

  1. CDU/CSU + FDP (with Merkel)

Again, a grand coalition with SPD is also theoretically possible.

There are numerous combinations if FDP and AfD both get 5%.

One More Merkel Snag

The CDU/CSU-FDP, CDU/CSU-AfD, and CDU/CSU-AfD-FDP possibilities all assume a working majority.

A coalition of CDU/CSU + AfD + FDP would easily have a majority.

A coalition of CDU/CSU + FDP might not have a majority if SDP continues to gain at the expense of CDU/CSU.

Election Not Over

With many sitting the election out and with many undecided voters likely to vote for someone other than CDU/CSU or SPD, this election is hardly over.

Indeed, the mess gets rather complicated if SPD tops 28% and the Greens and Left come close to 10% each. And that outcome is not out of the question.

Merkel should hope that any CDU/CSU slippage goes to FDP and AfD, not anywhere else.

Is CDU/CSU + AfD that bad an option? I think not, but I do not get to vote.

Mike "Mish" Shedlock

Obama Supporters Sign "Karl Marx for President" Petition

In the following video, Mark Dice, tells passers-by that Obama endorses Karl Marx for president in the 2016 election. People willingly sign a petition to get Karl Marx on the ballot.

Link if video does not play: Communist Karl Marx Endorsed by Obama

Mike "Mish" Shedlock

Monday, September 9, 2013

Does Your Job Require a College Degree? Should It?

For those of you who are employed, I have a simple question: Does your job require a college degree?

The reason I ask, is a Gallup poll shows Majority of U.S. Workers Say Job Doesn't Require a Degree.

Here is the question Gallup asked: Does the type of work you do require a bachelor's degree from a college or university or some other advanced academic degree?

From Gallup ...
Fewer than half of adults employed full or part time in the United States, 43%, say the type of work they do generally requires a bachelor's or a more advanced degree. Fifty-seven percent say it does not, unchanged from 2005, but down slightly from 61% in 2002.

High Income and College Go Together

There is no real difference between male and female workers' perceptions of their need for a college degree, and there are only slight differences by age, with middle-aged workers the most likely to say their job requires a degree.

However, there are significant differences by income, with the majority of workers earning $75,000 or more saying a degree is necessary, compared with no more than a third of lower-income workers.

Bottom Line

The majority of high school graduates in the U.S. go straight to college, no doubt believing that a college degree will open career doors and unlock higher lifetime earning potential. Positive expectations about attending college are generally well founded: government statistics show that four-year college graduates will earn roughly double what college nongraduates make over their lifetime -- amounting to an additional million dollars.

However, changes in the nation's economy in the past decade, coupled with a revolution in technology, may be challenging the traditional college bargain. The high tuition and lost-opportunity costs associated with spending four or more years getting a bachelor's degree may not be as palatable when weighed against a persistently anemic job market.
Cost is the Problem

The problem is not the degree. Rather, it's what you have to pay to get the degree. For those who end up trapped in fast food jobs, retail service, and numerous trades, the cost of college cannot possibly be worth the price.

And that assumes one lands a job. Millions don't. So what good is a degree in English literature or other Liberal Arts program going to do for you?

Hope or Hopeless?

For those trapped in student debt, with no job, there is not a lot of hope. For those still in grade school, help is on the way as noted in Future of Education is At Hand: Online, Accredited, Affordable, Useful

Mike "Mish" Shedlock

U.S. Going to Kill Syrians to Show Syria that Killing Syrians is Wrong

Abby Martin speaks with UK Parliament Member, George Galloway, about Syria war propaganda and his upcoming film 'The Killing of Tony Blair'.

Link if video does not play: George Galloway: Dogs of War Slaver over Syria, Powder keg for Disaster

Quote of the day goes to Abby Martin who says "We're killing Syrians to Show Syria that Killing Syrians is Wrong. I just cannot wrap my head around that".

George Galloway responded along the lines of "The next time you see President Obama happy clapping in a Christian church, tell him that Al Qaeda slaughtered the Christian people of Syria literally, their necks and throats cut, heads sawed off, the Christian churches on fire at the hands of Al Qaeda, paid for and armed by the United States of America."

Galloway was discussing this: Village 'liberated' by rebels... who then forced Christians to convert to Islam
One Maaloula resident said the rebels, many of whom had beards and shouted ‘Allahu Akbar’ (God is great), attacked Christian homes and churches shortly after moving into the village.

‘They shot and killed people. I heard gunshots and then I saw three bodies lying in the middle of a street in the old quarters of the village. Where is President Obama to see what has befallen us?’

Another Christian resident said: ‘I saw the militants grabbing five villagers and threatening them and saying, “Either you convert to Islam, or you will be beheaded”.’

Another said one church had been torched, and gunmen stormed into two other churches and robbed them.

The beautiful mountain village, 25 miles from Damascus, is one of the few places in the world where residents still use the ancient language of Aramaic, which was spoken by Jesus and his disciples.
Yes, the US is literally funding Al Qaeda rebels to fight an insane war on trumped up evidence that Assad used chemical weapons on Syrians.

The evidence is in dispute and if chemicals were used, it is equally likely the rebels used them to goad the US into action: Syrians In Ghouta Claim Saudi-Supplied Rebels Behind Chemical Attack 

Still More Hypocrisy

To top off the hypocrisy, the US is the biggest user of chemical weapons and other weapons of mass destruction, in the entire world.

Please read about the use of White Phosphorus by the US military in violation of the convention on chemical weapons.

White Phosphorus Images

The above from a Google search for White Phosphorus Burns.

What's the Difference Between the US Using Chemical Weapons and Others Doing the Same?

David Stockman nails the heart of US war-mongering hypocrisy with this question:

"After having rained napalm, white phosphorous, bunker busters, drone missiles, and the most violent machinery of conventional warfare ever assembled upon millions of innocent Vietnamese, Cambodians, Serbs, Somalis, Iraqis, Afghans, Pakistanis, Yemeni, Libyans, and countless more, Washington now presupposes to be in the moral-sanctions business?"

David Stockman is the author of The Great Deformation: The Corruption of Capitalism in America and the #1 New York Times bestseller The Triumph of Politics: Why the Reagan Revolution Failed.

For further discussion, please see End of U.S. Imperium—Finally!? Obama About to Suffer Glorious Defeat in Congress?

Mike "Mish" Shedlock

Just How Distorted is the U.S. Unemployment Rate Number?

On the first Friday of every month, I go through the jobs report and note the grossly distorted statistics.

For example, please see BLS in Wonderland written Friday, September 6

Every month I conclude with a couple paragraphs like these:
Grossly Distorted Statistics

Were it not for people dropping out of the labor force, the unemployment rate would be over 9%. In addition, there are 7,911,000 people who are working part-time but want full-time work.

Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation.
Wonderland Statistics

This past month I had a couple of extra paragraphs:
Compared to recent Gallup surveys, these BLS stats regarding the base unemployment rate and the alternative measures as well are straight from wonderland. For details, please see Gallup Says Seasonally-Adjusted Unemployment Climbs to 8.6%; Who to Believe (Gallup or the BLS)?

I believe Gallup. Thus, I expect more downward revisions in jobs, and upward revisions in the unemployment rate.
Let's take a look at BLS data to get a handle on what is happening, and why.

Civilian Labor Force Participation Rate

The participation rate is the "labor force as a percent of the civilian noninstitutional population."

Explaining the Graph

  1. Women entered the labor force in huge numbers as two-wage earners per household became the norm
  2. An internet boom provided ample jobs for those who looked for jobs (and you have to look for a job to be a part of the labor force)
  3. A dotcom crash followed
  4. In response to the dotcom crash, the Fed blew the biggest housing and credit bubbles the world has ever seen, but the effect on the participation rate was small
  5. The housing boom turned to bust, but even in the recovery, the participation rate continued to decline

It's Not Demographics

Many people believe demographics explains the decline in the workforce. However, that's not the case.

To prove the point, let's focus in on an age group that is generally not retired and historically not in school.

Civilian Labor Force Participation Rate - 25 to 54 years

Notice how the participation rate of those 25 to 54 has been in steady decline since
the year 2000 except for a slight uptick in the housing boom years.

Allowing 6-7 years after high school for college education, most of those 25 should be looking for a job or have a job. Yet the trend is unmistakable.

Rick Newman, writing for Yahoo Finance posted the following table in Here Are the Real Labor Force Dropouts.

Here is a chart I posted previously in Normalized Unemployment Rates; Cyclical vs. Secular Forces

Participation Rate by Age Group

Not in Labor Force Want a Job

To be in the labor force you have to want a job and look for a job. To be "unemployed" you have to be in the labor force.

At the start of the recession, there were 4,648,000 people who wanted a job but were not considered unemployed. There are now 6,285,000 people who want a job now but do not have one.

That is an increase of 1,637,000.

Adding just the increase back would raise the labor force to 157,123,000 from 155,486,000. It would raise the number of unemployed to 12,953,000 from 11,316,000. And it would raise the unemployment rate to 8.2%.

But why stop there?

It's All In The Definition

The definition of "unemployed" is what it is (for political reasons), but by my more practical definition "you are unemployed if you want a job and do not have one", the corresponding numbers would be as follows:

  • Labor Force: 155,486,000 + 6,285,000 = 161,771,000
  • Unemployed: 11,316,000 + 6,285,000 = 17,601,000
  • Unemployment Rate: 17,601,000 / 161,771,000 = 10.9%

Actual Employment

We can arrive at similar conclusions by looking at the number of employed. Once again the age group 25-54 is the most logical to study. (Total employment is not the best measure because of demographics, those over 60 retiring voluntarily).

Employment Rate: Aged 25-54: All Persons in the United States

Demographics sure does not explain that chart so something else must. The answer is threefold:

  1. Rampant Disability Fraud
  2. It Doesn't Pay to Work
  3. School: Kids stay in school for advanced degrees because there are no jobs, and middle-aged persons out of a job going back to school.
Rampant Disability Fraud

I have talked about disability fraud on numerous occasions. Here are a few examples:

Please read that last link above. It's a real eye opener.

Not in Labor Force With a Disability

I would love to show data pre-recession. Unfortunately, the data only goes back to mid-2008. We can see however, that nearly 23 million Americans are not in the labor force because of "disabilities".

I suggest "fraud" is more like it.

It Doesn't Pay to Work

The second reason the unemployment rate is artificially low is "It Doesn't Pay to Work".

I wrote about this recently in Why Work for $7.25 When Welfare Pays $15.00 in 12 States and $8.00 in 33 States? Is a Low Minimum Wage the Problem?


I hardly think hiding out in school because there are no jobs (when you really want a job) should constitute someone being "not in the labor force" (yet it does).

So What's the Real Unemployment Rate?

If you use my definition, "you are unemployed if you want a job and do not have one" then the starting point is 10.9%.

But what about those who do not have a job and don't want a job because of disability fraud or welfare considerations?

Factor that in and the unemployment rate would be several points higher, say 14-15%.

However, that does not count another 7% who have a part-time job but want a full-time job.

So if you watch the unemployment rate drop month after month, and you think the number is grossly distorted and totally void of common-sense reality, you are absolutely correct.

Mike "Mish" Shedlock