Use the Right Figures

Goose ... gander ... there is a pretty interesting application of that concept that actually needs to be put in place as we are now fairly healthily into the Trump Administration.  And I'll bet you can't guess where I'm going with this.  So I won't keep you in suspense.

In several of the columns on this site, I have decried an over-reliance on the use of the common unemployment-rate statistic as an indicator of the economy's general health.  The definition of what constitutes the labor force, the number of people employed, that sort of statistical basis for comparison, all that has been a challenge to interpret.

We know, for example, that the number of people actually employed took a nose-dive around the time of the start of Barack Obama's first term, and it took six years of that administration before there were as many people working again as when he took office.  The long-term curve of employed totals over time is a surprisingly steady slope, i.e., it increases at almost exactly the same rate, decade over decade (the same rate of increase as has been going on since 2010).

The sudden, anomalous drop in that number early in the Obama Administration was followed by a steady rise at the same slope (see graphic) as the rise had been for the previous decades.  America's economy can even survive Barack Obama, one imagines, although the phase-shift drop when he took office reset the baseline a good bit.

Rate of increase in the number of people employed, after the precipitous decline in actively working people following the election of Barack Obama and his anti-business, labor-deterring policies (source: Bureau of Labor Statistics)

Why do I bring this up?  Because aside from my articles, it is important to know that Republicans have been legitimately kicking and moaning for eight years about how the Obamists were cooking the books over at the Labor Department to make their numbers look good.  Particularly, the previous White House was accused of tinkering with the numbers and focusing on the resulting unemployment rate.

Critics, myself included, felt that the "4.8%" rate was cooked heavily at worst, and was unreliable at best.  That's because, while the number of people employed was unreliable enough -- the definition of "full" and "part-time" was a bit squishy under Obama -- the denominator, the people available for work, was tied too much to those receiving unemployment insurance payments, or to who had filed for it.  That didn't accurately reflect people who had given up looking, for example.

My point in all of this is some advice to the new president.  If the unemployment rate was deceptive under Obama, you can't fix it.  You can make it more accurate, sure, by properly counting the labor force in general.  But even if you do that, it will be nearly impossible to re-institute confidence in the unemployment rate among the people, after having explained its faults.

So -- I urge the administration to go back to what was said over and over in the campaign as far as which indicators were reasonable and reliable, and use them primarily.  Don't go out and say "Hey, we got the unemployment rate down to 4.7%", after you spend a year saying that it was a meaningless figure and unreliable to use.

The first time I heard Sean Spicer refer to that rate, and not go to Labor Participation or another figure that had been touted by the Republicans during the campaign as being accurate, I panicked a bit.  If the rate was useless last year, it is useless this year.

It is a similar thing with the stock market, only with a little nuance.  We trust the figures; we just have to understand the reasoning.  For example, the very large increase in the value of the Dow Jones Average over the time of the Obama Administration was a gradual increase, fueled predominantly not by corporate improvements and consumer confidence, but because there was nowhere else to put anyone's money!

Savings interest rates disappeared to fractional points after the Fed's interest rate tinkering drove them below 1%.  If you wanted even to keep up with inflation, you had to be in the market, which (supply and demand strikes again) gradually drove the Dow higher.  At the same tie, Dodd-Frank and other general Obama policies discouraged hiring and encouraged retrenchment and hoarding cash -- and cutting jobs.  That left the companies in better financial positions even as the economy was failing.  Revenues were weak, but the hiring freezes and robotization made the profits higher against those revenues.

The 2,000-point spike since the election, though, is a different case.  President Trump is a sane, pro-business leader who has reached out to the private sector heavily to work on going forward.  The Trump spike is because of market optimism -- there still are no alternatives to put your money, but at least now there is a reason to think that the economy will recover in actuality as opposed to smoke-and-mirrors.

I do hope that the president and his spokesmen will be very careful about which stats they cite, and make sure that they're not relying on figures that they derided as unreliable only a year ago.

Food, I hope, for thought.

Copyright 2017 by Robert Sutton
Like what you read here?  There's a new post from Bob at www.uberthoughtsUSA.com at 10am Eastern time, every weekday, giving new meaning to "prolific essayist."  Appearance, advertising, sponsorship and interview inquiries cheerfully welcomed at bsutton@alum.mit.edu or on Twitter at @rmosutton.