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More on Job Creation

Posted By Barry Ritholtz On February 15, 2004 @ 5:29 am In Finance,Politics | Comments Disabled

You may have noticed a shift in theme recently. No, I’m not gonna get all political. I’ve simply run out of patience for intellectually dishonest economists, politicians and other “playas.”

My newest peeve is the massaging of data, the presenting of false projections, the politicizing of matters best left unpoliticized.

Here’s an example: Take a look at this chart of the 3 prior year’s jobs projections, overlayed on one another.

projections_for_jobs.jpg [1]
Chart courtesy of Max Sawicky [1]

If it was one year’s projection, or maybe even two, we could chalk it up to bad forecasting, unforseen issues, etc. At a certain point, I just throw up my hands and declare it to be willful. This is emblematic of a lack of honest economic projections. Both parties — and all candidates do it. While not specific to this adminstration, they seem to have honed it to a fine art. Perhaps it would be more accurate to describe this process as wishful financial thinking.

The U.S. financial press has finally begun to take notice of these things. Initially, the media out of Great Britain started fisking the projections, noting the discontinuity with reality: First the Economist, then the Financial Times. Now, this meme has started to spread, and its gaining traction in the U.S. Here’s a recent comment out of CBS Marketwatch’s Rex Nutting [2]:

“The U.S. economy would need to add between 3.6 million and 5 million jobs between now and the end of the year to meet the administration’s official job-growth forecasts, not the 2.6 million figure cited Monday by the White House. In the Economic Report of the President released Monday, the White House’s Council of Economic Advisers said employment would average 132.7 million jobs in 2004, about 2.6 million more than the 2003 monthly average . . . Creating 2.6 million new jobs by the end of the year won’t raise the monthly average by that amount.

Assuming steady growth month after month for the rest of the year, employment would need to reach 135.3 million in December in order for the monthly average to be 132.7 million for the year. That’s 5.2 million more than in December 2002 and 5.1 million more than the current 130.16 million. That’s 462,000 new jobs each month between now and December.”

This is more than a simple math error. This is purely a politicization of economics. And its spreading throughout the economic communtiy; Even the Council of Economic Advisers [3] have become fully politicized:

“The Council of Economic Advisers says its report isn’t political. But then why did the CEA inject itself into partisan politics by unilaterally changing the starting date for the 2001 recession so that it began during Bill Clinton’s last weeks in the presidency, rather than during Bush’s second month in office, as determined by the nonpartisan National Bureau of Economic Research [4]? The CEA broke the gentleman’s agreement that the NBER’s rulings [5] are not to be dragged into the mud of campaigns.

Let’s hope our financiers [6] don’t notice . . .

MaxSpeak! [1]


The Business-Cycle Peak of March 2001 [5]
NBER’s Business Cycle Dating Committee


Bush plan would need up to 5mln jobs [2]
Rex Nutting
CBS.MarketWatch.com, 6:23 PM ET Feb. 10, 2004


White House sees economy improving, Nation to add 2.6 million jobs this year [3]
By Corbett B. Daly
CBS Marketwatch, Feb. 9, 2004 7:56 PM ET


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/02/more-on-job-creation/

URLs in this post:

[1] Image: http://maxspeak.org/mt/archives/000146.html

[2] CBS Marketwatch’s Rex Nutting: http://cbs.marketwatch.com/news/story.asp?guid=%7BF0542557%2D91DC%2D4D0C%2D8033%2DA1E9BBE67CC6%7D&siteid=mktw

[3] Council of Economic Advisers: http://cbs.marketwatch.com/news/story.asp?guid=%7B97AE81F7%2DC4AA%2D4C87%2D9227%2D7D1D6443438E%7D&siteid=mktw

[4] National Bureau of Economic Research: http://www.nber.com/cycles.html/

[5] NBER’s rulings: http://www.nber.com/cycles/november2001/

[6] financiers: http://bigpicture.typepad.com/comments/2004/02/world_skeptical.html

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