Provocation # 58. Why do economists present us with bad numbers?
What can economics – and INET – do about the use of economic indicators that are distortions of reality, either toward simplicity, or politically motivated? GDP is the most grievous. “Third world country X has an increased GDP so all is well, we are lifting billions out of poverty”. But increasing earnings at the top (the people who work for corporations or government or the professions) and lowering for the bottom 80%, GDP can be increasing, but most people are worse off. Th effect is amplified because while income is up, costs have risen faster, and people are being pushed off the land removing them from the statistics on earnings.
Janet Yellin’s testimony to congress last week got standard headline across most of the press. “Unemployment at 4.9% we should move the fed rate up.”
4.9% fails to deal with the large number that give up job search because there aren’t any in their neighborhood, and that those who are working are working fewer hours and for less wages than their previous jobs.
Yellin’s testimony to Congress was relatively nuanced but you have to go to the Fed’s web site to find her speech and see that nuance.
Her testimony. The Economic Outlook
The U.S. economy has made further progress this year toward the Federal Reserve’s dual-mandate objectives of maximum employment and price stability. Job gains averaged 180,000 per month from January through October, a somewhat slower pace than last year but still well above estimates of the pace necessary to absorb new entrants to the labor force. The unemployment rate, which stood at 4.9 percent in October, has held relatively steady since the beginning of the year. The stability of the unemployment rate, combined with above-trend job growth, suggests that the U.S. economy has had a bit more “room to run” than anticipated earlier. This favorable outcome has been reflected in the labor force participation rate, which has been about unchanged this year, on net, despite an underlying downward trend stemming from the aging of the U.S. population. While above-trend growth of the labor force and employment cannot continue indefinitely, there nonetheless appears to be scope for some further improvement in the labor market. The unemployment rate is still a little above the median of Federal Open Market Committee (FOMC) participants’ estimates of its longer-run level, and involuntary part-time employment remains elevated relative to historical norms. Further employment gains may well help support labor force participation as well as wage gains; indeed, there are some signs that the pace of wage growth has stepped up recently. While the improvements in the labor market over the past year have been widespread across racial and ethnic groups, it is troubling that unemployment rates for African Americans and Hispanics remain higher than for the nation overall, and that the annual income of the median African American household and the median Hispanic household is still well below the median income of other U.S. households.
Quite good, though I fault the lack of mention of automation and climate on future trends in employment. (I think these are already having effects). The press is a huge industry hungry for quotes, conflict, and emotion. How does a profession like economics function in such an environment? And how much have economists swallowed the 4.9% unemployment rate as real?
Perhaps the tendency of the press, echoing the more vocal economists, make things look better than they are is because the pressure is then off to do something, in particular redistribution.
I realize that in the time of false news, this is a bit quixotic, but standards are important for building a viable culture.
I sense that Trump’s overreach on a number of issues will lead to massive reactions and mid course changes. But meanwhile perhaps he tries to run the government as an infrastructure for Trump Inc. The feudal system of large corporations evolves toward a strong King. History favors this dynamic. The enlightenment reaction against absolute monarchy may have run its course and the parts, such as IT have aligned with central power.