How to Make Jobs Disappear At precisely 8:30 a.m. on the first Friday of the month, thousands of people (including me) stare at a dull government Web site and hit refresh until they see the number: how many jobs were created or lost during the previous month. Then, with amazing speed, reports and analysis of the number are disseminated by newspapers, bank economists, independent analysts, investment newsletters and countless TV pundits. Within minutes, the national narrative is set. Either the economy is doing far worse (like last month) or far better (as in January) than anyone realized. The jobs number, which only the most die-hard econonerds (including me) used to care about, is supposed to tell us how the economy is doing. Now, though, it is doing something much more complicated. The report on past job performance has morphed into a driver of future job performance, essentially mucking up the thing it’s measuring. And that’s not good, because the initial jobs data are not as precise as many people seem to think. Take the most recent report. After it was announced that only about 69,000 jobs were created during May — and that the unemployment rate rose slightly, to 8.2 percent — some observers who had expressed cautious optimism as recently as 8:29 a.m. were instantly transformed into grim Cassandras. All at once, it seemed, everyone agreed that President Obama’s re-election chances had taken a serious hit and the global economy was headed down the tubes. What would have happened, I wondered, if the number had instead been 169,000 new jobs? In that same instant, the economy would have appeared back on track; pundits would be talking about Obama’s shoo-in second term; global investors would feel reassured. By the way, the number might actually have been 169,000. The initial report is an estimate with a margin of error of around 100,000 people. (We might have lost 31,000 jobs in May too.) But whatever the precise number turns out to be, tens of thousands of jobs either way is only a few hundredths of a percent of the U.S. work force. A tiny blip of a change in an admittedly uncertain statistic shouldn’t have such an impact on the national narrative, right? Isn’t that kind of dangerous? If you ask the people who publish the jobs data, as I recently did, they’ll tell you two things. One, the monthly jobs report is truly a marvel of modern statistical science. And two, even so, it’s best used as a long-term guide, not as a month-by-month panic- or joy- inducing catalyst. (Regarding the latter, the jobs number is revised a few months after it’s released.) After all, the two surveys conducted by the Census Bureau and the Bureau of Labor Statistics — one of citizens, the other of businesses — that make up the report were born during the Great Depression. That’s when John Maynard Keynes, then the world’s most important economist, realized that it was crucial for everyone to know how the overall economy was doing. Before this, government officials had little more than rough guesses about whether their Depression-fighting policies were working over the long term. Since then, the jobs data (along with a host of other indicators) have become essential business tools. Most major corporations (and plenty of minor ones) have economic- forecasting teams that use the new data to prepare reports that guide executive decision making. Will enough people buy cars next year to justify a new glass factory for sedan windows? Will they have enough money to go on vacation, and if so, does that mean that soda sales will spike? This raises the inadvertent, insidious aspect of the report. Economic growth is, in part, driven by people and businesses feeling optimistic about the future. And after hearing how lousy the job sector looked over the last month, some consumers decide not to buy things, like a new house or even an extra appetizer. After hearing that so many of their customers are out of work, some companies decide there isn’t enough growth on the horizon to warrant hiring. Just like that, a bad initial jobs report (obsessed over by a frantic news media) might make a bad situation worse. It sounds simplistic, but much economic policy — from austerity to stimulus — comes down to attempts at mass psychotherapy. For extremely dysfunctional countries, like Greece, no amount of ginned-up optimism can resolve the very real problems. Greece owes lots of institutions lots of money, and it has to pay it back — or at least persuade the Germans to pay it back — and then develop goods and services that people in other countries will pay for. The U.S., however, is not Greece. This country has the world’s largest market, which means that our own consumers’ confidence has a positive impact on the overall economy. (China, for example, needs other countries’ consumers to buy their stuff in order to grow.) If Americans started feeling good about the economy, it could spark a positive feedback loop. Economists know this. In fact, most of the big problem-solving ideas come down to different forms of nationwide economic group therapy, ways of improving the outlook of American consumers and businesspeople. Of course, being economists, they disagree on how best to do this. A majority of economists (about two-thirds, I’d guess, but I’ve never seen a good poll) support a Keynesian approach — meaning that the government should spend a lot of money (through infrastructure projects, for example), which will create enough activity to spur self-sustaining confidence. The opponents of stimulus — largely the Chicago School and many political leaders in Europe — argue that the only way to make people and businesses feel more optimistic is to cut government spending, pay down debt and also (somehow) lower taxes and reduce regulation at the same time. Those measures, they argue, will get private companies to invest and hire. In the 1930s, John Maynard Keynes and Friedrich Hayek — founding fathers of the stimulus and anti-stimulus schools, respectively — would sometimes share a meal. While they disagreed on so much, they seem to have liked and respected each other and could talk constructively about their different ideas. I sometimes imagine a world in which major economic decisions were run like a Keynes-Hayek lunch. Nonpartisan technocrats would look at the economic data over long periods and refine theories rooted in data and impervious to breathlessly reported new estimates. They would always keep in mind that, indeed, every bit of data is an estimate, not a certainty, and that no theory has been definitively proved. We can’t be sure that world would result in better economic policies or inspire more confidence. But at least the economy wouldn’t be so vulnerable to the modern news cycle.
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