Home > Don’t Shoot Him, He’s Just the Piano Player
Earlier this year, when the Bush administration was using some Enron-style arithmetic to jigger its 2004 employment growth estimates, Brad DeLong wrote a series of take-no-prisoners posts about the political disembowelment of the Council of Economic Advisors - the White House’s in-house economic think tank.
Under previous presidents, both Republican and Democratic, the CEA had a certain amount of credibility for the rigor and honesty of its work - as well as a certain insulation from the partisan cronyism that infests most of the federal government these days. Paul Krugman and Larry Summers, for example, both worked at the Reagan CEA - something that would be almost unimaginable today.
Professor DeLong, on the other hand, documented, in painstaking detail, the Bush II CEA’s intellectual decline into a pliable tool of the Bush-Cheney re-election campaign. Brad highlighted the willingness of the council and its chairman, Gregory Mankiw, to misrepresent their previous forecasts in order to spare Bush the embarrassment of having to admit his initial job creation target for 2004 couldn’t possibly be met.
Well, today we were given another demonstration of the intellectual collapse of the CEA, and the degree to which Dr. Mankiw is willing to prostitute himself to the greater glory of the Republican Party. He may not be the biggest whore in the Texas cat house that is the Bush administration, but he’s doing a hell of an imitation of the guy playing the piano in the downstairs parlor.
Briefing reporters on today’s dismal payroll report for July, Mankiw apparently went to great lengths to try to sell the GOP’s spin of the day, which was to stress the hefty jump in employment as measured by the so-called household survey.
(As explained in my previous post, the household survey is based on a poll of roughly 60,000 American. Payrolls - which showed virtually no growth last month - are based on a completely different survey of employers.)
Here’s Mankiw, spinning like an economic ballerina:
"You can’t ignore some pieces of data and pay exclusive attention to others," Mankiw said. "The truth lies in between those two estimates."
The truth, however, actually lies somewhere else entirely - and it’s not a place within easy reach of Dr. Mankiw’s statement. What’s more, there’s no question the chairman knows this - even an incompetent economist would, and there’s no evidence that Mankiw is incompetent, just intellectually spineless.
The issue is not whether the household survey is inaccurate - all economic surveys are, up to a point. But Mankiw knows perfectly well that the household survey isn’t designed to tell us how many jobs the American economy creates each month. It’s purpose is to tell us what percentage of the American workforce is employed - using the special definitions applied by the Bureau of Labor Statistics.
The Cleveland Federal Reserve published a very clear, non-jargony paper on this topic just a couple of months ago, if you want chapter and verse. But the short form is roughly this:
Because the survey is based on a relatively small sample, the BLS uses a population estimate from the Census Bureau to extrapolate the survey into results for the national population. If the census estimate is wrong, the national results will be wrong, too.
Some results, however, will be more wrong than others. Because the unemployment rate (and a related measure, the employment-to-population ratio) have the Census Bureau’s population estimate on both sides of the equation (the numerator and the denominator) they’re less affected by an error in the census data. The estimate of total employed individuals, however, can be thrown be wildly off..
This, as it turns out, is exactly what happened during the 2001-2003 period, when the payroll survey was showing huge job losses, while the household survey was showing moderate job gains. As the Cleveland Fed explains:
In its most recent review of the population, the U.S. Department of Census determined that it had overestimated the U.S. population for the period from 2000 to 2003 primarily because of unanticipated changes in net international migration patterns.
As a result, the BLS notes that the upward trend in the employment estimates produced by the household survey since the end of the 2001 recession is largely a function of this overestimate.
In fact, through the end of 2003, the accumulated overcount of the estimate of employment in the household survey was nearly half a million workers. (emphasis added).
The household survey, in other words, was giving a reasonably accurate reading on the unemployment rate, a reasonably accurate reading on the employment-to-population ratio, and a completely bogus reading on employment growth. And the conservative economists (or pseudo-economists, in Larry Kudlow’s case) who staked their credibility on trashing the payroll survey and praising the household survey (for something it was never designed to do) were shown to be completely wrong. About as wrong as it’s possible to be, in fact.
(Just as an aside, I visited the National Review’s web site this evening to see what the supply-side nut cases who congregate there might have to say about this issue - or about today’s employment report, for that matter. I found nothing - nada, nunca, zip, zippo. Not a word, not even in The Corner - the Review’s circle jerk web log. Either the supply siders all took the day off, or they finally know what a losing argument is when they see one.)
Mankiw also knows - just as he knows the accuracy of the household survey as a job creation measure has been disavowed even by Alan Greenspan (who’s also willing to put on the fishnet stockings for his political masters, but not at the cost of his own reputation). As the Great One himself told Congress last February:
"Having looked at both sets of data … it’s our judgment that as much as we would like the household data to be the more accurate, regrettably that turns out not to be the case."
Mankiw’s sin is a minor one, I suppose - at least when compared to misleading the nation into an unnecessary war, or revealing the identity of a covert CIA operative or fiddling the profit & loss statement of a major public corporation. But it demonstrates just how deeply the political rot has sunk into the intellectual muscle of the federal government. Truly, to the Mayberry Machiavellis, policy means nothing. Politics - and power - is all.
Which just might explain why they’re in the jam they’re in now.