Lying about job growth (again)

February 9th, 2004 – 9:44 pm
Tagged as: Uncategorized

Today the annual Economic Report of the President predicted that 2.6 million new jobs will be created this year. This is, to say the least, a ridiculous forecast, but rather than try to explain why, I’ll let people with a better technical grasp of economics explain it for me.

Brad DeLong (Professor of Economics, U.C. Berkeley) puts it succinctly in the first of his series of posts today on the topic:

To average 131.9 million payroll jobs this year, the administration Troika has implicitly forecast that during the rest of 2004 the U.S. economy will gain 320,000 payroll jobs a month. The U.S. economy has only gained 200,000 payroll jobs since last June.

But wait, there’s more:

To get an idea of how silly the forecast is, consider that productivity growth has been averaging some 3.2% per year since 1995. Consider that they are forecasting fourth quarter-to-fourth quarter real GDP growth of 4% in 2004. Consider that 320,000 payroll jobs a month is an employment growth rate of 3% in 2004. Consider that when employment rises, hours per worker rise as well.

Since 4% (GDP) – 3% (employment) – 1% hours) = 0% (productivity), the administration’s economic forecasters are implicitly forecasting that worker productivity will drop by 0% this year.

That’s completely incomprehensible.

Not done yet:

How is it that people wind up issuing a forecast that already has private-sector economic forecasters rolling on their office floors in helpless fits of laughter?

Here is my guess, presented only because I cannot think of another alternative, and because I can think of no way to justify stagnant productivity in the next year. In the fourth quarter of 2000, U.S. payroll employment was 132.3 million. In the first quarter of 2001, U.S. payroll employment was 132.5 million. Somebody in White House Media Affairs took a look at the draft of Table 3-1, and saw the real estimate for average payroll employment in 2004: something like 131.2 million.

Whatever powerful person it was then called the forecasters in on the carpet: “We cannot publish a number saying that payroll employment in 2004 will be lower than it was at the start of the administration. That number *must* be bigger than 132.5 million. If that number is smaller than 132.5 million, there will be lots of negative newspaper stories saying ‘Bush administration forecasts negative job growth over first term’. We can’t have that.”

And so the number is 132.7 million.

That’s my guess, but it’s an informed guess. And if anyone in Treasury OEP, OMB’s Office of the Chief Economist, or the CEA wishes to pitch me an alternative story for how the 320,000 per month payroll employment growth number fits with the 4% annual real GDP growth rate, I’ll be happy to listen.

I think he’s hit on the only rational explanation for this, and it’s basically the same thing that supposedly happened with the who Iraqi WMD mess. Certain people get the impression from the White House, whether it’s conveyed explicitly or not, that it’s in their best interests to say what the administration wants them to say, and the result is nonsense. Remember, the last set of lies about job growth numbers helped get the tax cuts for the rich passed.

There’s also a great post about all this by Billmon over at Whiskey Bar, so be sure to check that out too.

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