Voodoo Economics, 2011 – OpEd
It is part of America’s state religion, the Free Market fundamentalist religion that is accepted as gospel by all leading politicians, by the “brain trust” that sets goverrnment economic policy, and by the supposedly hard-nosed analysts who convince American investors where to put their money, that “markets know best.”
How then to explain the panicked reaction of investors and markets to the Labor Department’s monthly Bureau of Labor Statistics report on the latest monthly jobs and unemployment figures?
Those numbers reported out for the month of June, released at 9:00 am after the usual kind of tight secrecy you’d expect of a National Security Administration international risk assessment, came in at an anemic 18,000 net new jobs, and a new official jobless rate up slightly from 9.1% for May to 9.2% for June. An hour later the stock market plunged by about 1% in a matter of minutes (that 1% drop represented a paper loss to investors of $140 billion!). The reason given by analysts and financial journalists for the plunge was that the “expectation” of investors, based upon forecasts of the jobs number made by economists and analysts the day before the BLS announcement, was for somewhere between 90,000 and 120,000 new jobs, and for a dip in the jobless rate to 9.0%.
So because the actual number of new jobs reported by the BLS was somewhere like 72,000 to 102,000 lower than the forecast estimates, and because the jobless rate edged up instead of down, investors dumped a pile of shares, causing the value of most shares on the exchanges to lose value.
That investor reaction, and the poor jobs numbers themselves, were interpreted by those same economists and analysts in the following days as an indication that the US economy was in trouble–that the supposed recovery from the deepest recession since the 1930s had “stalled.”
The “wisdom” of the market was saying that the American economy was stumbling again.
But hold on a minute. What has really changed with those numbers?
Before that BLS number came out, most analysts and economists were talking optimistically about the economy. They were claiming that the U.S. economy would show positive growth through the year, even picking up steam in the second half of 2011. They were saying unemployment would edge down over the year. And now all that was out the window because of one pair of numbers?
Let’s look at those BLS numbers, though. According to Betsey Stevenson, the chief economist at the Department of Labor, who works directly under the Secretary of Labor, the BLS new jobs figure, which is developed each month through a survey of 400,000 randomly selected companies about their hiring, has a historic record over the past 35 years of erring by about plus or minus 115,000 jobs. Furthermore, the initial number released at the start of each month gets repeatedly revised as harder figures come in, and can change by a lot over time. For example, the number for May, which was first released in early June, was initially 50,000, but has since already been revised downward to 25,000. That is to say, the concensus forecast of economists for 90-120,000 new jobs in June, just released on July 8, is within the BLS survey’s historic margin of error. Months from now, the June jobless number could turn out to be as much as 133,000 or -87,000, based on the historic record of these things.
The 18,000 number, in other words, was really no surprise at all.
As Stevenson told me, with a laugh, “It is kind of funny when there is such a dramatic reaction in the market” to release of the BLS numbers.” She says the truth is, “One monthly figure doesn’t tell you much. These jobs numbers provide a pretty good measure of what’s happening in the economy, but you really need to look at trends over 12 months’ time.”
Of course, the 12-month trend she refers to tells a pretty grim story: unemployment is stuck at an official rate of around 9%, and that’s just the people who are actively looking for work and who have found nothing. The June figure of 9.2% unemployed represents 14.1 million people officially out of work. It does not count, according to the BLS, 8.6 million “involuntarily part-time” workers and it did not include 2.7 million “marginally attached to the labor force” who want jobs but have despaired of finding work and have given up looking. It also doesn’t include another 1.7 million who haven’t looked for work for over four weeks and who have returned to school or decided to stay home, perhaps caring for kids, rather than continue futile efforts at finding a new job. All those people–13 million of them–are also jobless because of this ongoing deep recession/depression. That’s another 8.4% unemployed, if we’re being honest, which means that the Department of Labor is really saying is that today, nearly four years into this economic crisis, we have a real unemployment rate of 17.8%, meaning more than one in six workers is still jobless.
Furthermore, those numbers have barely budged. If you want a real picture of what’s going on with the US economy, you don’t look at the BLS’s monthly jobs number. You look at how the jobless numbers have been trending, as Stevenson correctly notes. And you might also look at how many of those jobless have been jobless for a long time. The would be those 8.6 million laboring at part-time jobs, and the 2.7 million who have been jobless so long (more than a year) they’ve given up looking. And add to them the 6.3 million of the “officially” jobless whom the BLS says have been looking unsuccessfully for work for over six months. That’s 17.6 million people who have been jobless for at least half a year or more. And 17.6 million is 11.6% of the American labor force, or more than one in nine American workers!
Clearly the idea that investors have some kind of collective “wisdom” is a sad joke. Asked why they would leap to their computers en masse and start selling shares on the release of one bad monthly report from the BLS, Ryan Sweet, a senior economist with Moody’s, one of the three big rating agencies, says, “It’s often overlooked by investors and analysts that the [BLS] number can be off by [100,000] either way.”
Of course, the BLS contributes to this nonsense by wrapping its economic research in super secrecy, such that nobody outside the BLS gets to hear how the surveys of job creation and total official unemployment are going while they’re underway, and the results are kept secret even from the chief economist, the Secretary of Labor, and the White House until 8 am on the morning of the official release. That lends the numbers an air of importance they simply don’t deserve.
It’s a bit like the line of people waiting for communion in a Catholic service. The tension builds as the line of churchgoers slowly moves up to the altar, so that when the priest finally offers each congregant a cracker and a sip of wine it seems like it’s really the body and blood of Christ instead of just a cracker and some cheap booze.
It’s okay for ordinary people and for investors, even, to be fundamentalists, but when the president and his economic and political advisers start making policies based on such mumbo jumbo, as when the president says the latest BLS figures are evidence that employers need “more certainty” about action on the national debt, or when Republican leaders, like House Speaker Boehner, even more ludicrously claim the numbers show the results of the White House’s “stimulus binge, excessive regulations, and an overwhelming national debt,” its like we’ve handed over governing and national economic policy-making to Pat Robertson, John Hagee or the Pope.
And the worst part? The corporate media play right along with this nonsense, trumpeting the numbers as if they really meant anything, and reporting on the policy comments as they they were anything but propaganda and statements of faith-based nonsense.