The numbers game

This data is so susceptible to being distorted for political purposes, one way or the other.

February 9, 2012 23:06
4 minute read.
US Capitol building in Washington D.C.

US Capitol building 311. (photo credit: REUTERS/Jim Bourg)

Two of the themes featured frequently in this column in recent years came together last Friday in an important economic event with potentially major political implications.

These are, on the one hand, the US labor market; and, on the other, the erosion of confidence on the part of the general public in “The Establishment,” including elected politicians and data published by official bodies. Thus, the fact that a national politician said something is no reason to regard it as true, in whole or even in part. Worse, perhaps, the data published by official government entities, despite being compiled and prepared by professional experts, is also not taken at face value. Rather, it is suspected of being “massaged,” meaning distorted to a greater or lesser degree, to achieve goals set by the professional’ political masters.

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The matter in question last Friday, as on the first Friday of every month, was the latest data regarding the American labor market. This includes unemployment data, as well as the average numbers of hours worked, average wage per hour and much else. All this is provided by the Bureau of Labor Statistics, known as the BLS – an acronym that has given rise to some unflattering alternative formulations, especially if the L is put in brackets or moved around.

The key datum this month was that the economy added 243,000 jobs in January, which was much higher than even the most optimistic prediction. Furthermore, the number of jobs added in the two previous months was revised higher, thereby reinforcing the good news regarding the labor market. The inevitable result of this dose of glad tidings was that share prices rose sharply, as financial markets reacted to data seemingly showing that the economy is performing better than had been believed previously. Shorty thereafter, the administration chimed in, with everyone from the president on down playing up the good news and, inevitably, claiming that this was the result of – and a vindication of – its economic policies and programs.

So far, so good – and so obvious. Now comes the interesting part. How did the general public respond to this good news, which, because it relates to the most bread-and-butter of all economic issues, namely jobs, is of supreme importance to everyone? The answer, if one can generalize, is that the data were met with a massive dose of skepticism and cynicism. While the mainstream media, especially the pro- Democratic ones, were trumpeting the numbers as a source of relief, if not joy, many ordinary people simply shrugged and said, “Yeah, that’s what they need in the run-up to the elections.”

In other words: a) “we” the people differentiate ourselves from “them” the leadership; b) we don’t take their claims at face value, and indeed we tend not to believe them at all; c) we immediately and instinctively seek and find ulterior motives in what “they” say; finally, d) we take for granted that “they” have subverted the supposedly objective, professional agencies that conduct the day-to-day business of government, using and abusing economic and other data for their own ends.

This widespread reaction speaks volumes about the state of the US (and other democracies) today, about the relationship between the leaders and the leadership elite on the one hand, and the general public on the other. More specifically, it is a measure of the degree of disenchantment with Obama and his failure to make good on his promises of change.

Beyond the politics, however, remain the actual data and what they do or don’t tell us about the state of the economy. No serious economist takes any data at face value – least of all, perhaps, those relating to the labor market. On the other hand, it is equally wrong to glibly swallow the chorus of anti-Obama and antiestablishment bloggers who instantly “rubbished” the labor-market numbers, straining to punch holes in them in every way possible. The reality is far more complex, which is a key reason why these data are so susceptible to being distorted for political purposes, one way or the other.

A full analysis of the January labor-market data would require several pages of The Jerusalem Post. Instead, let me make three quick points. The data are all estimates; nobody actually counts the more than 130,000,000 people employed in the US. That means they are inherently very imprecise and will be revised, certainly by tens of thousands and very likely by hundreds of thousands. Making a fuss about an estimate that 100,000 or 200,000 jobs were added or lost in a specific month is simply nonsensical.

Secondly, the latest data were particularly “problematic” because the BLS updated its models to reflect the results of the 2010 census, with the result that changes that had been occurring over five or 10 years appeared in one month: January 2012. That is simply unavoidable, but it cast hasty reports of “1.2 million jobs lost in one month” in a very different light.

Finally, there are ways of comparing the BLS estimates to “reality,” and the best one is to use the flow of data regarding tax payments. Unfortunately, the latter provide a much less rosy picture of the state of the labor market in recent months. If the picture emerging from the tax data is correct, expect a slew of downward revisions in a few months – and a repeat of last week’s media and political circus, in mirror image.

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