One can’t really fault the president for repeating mindlessly that the economy is “strong and growing stronger.” He is a politician facing election. His job is not to reflect facts but to shape opinion — if he can. And lies about economic performance are, well, comparatively innocuous; they don’t normally lead to war.
But what are we to make of our economists, on whom the press relies for guidance?
On July 1, the New York Times accompanied Alan Greenspan‘s rate move with a blast from the hawks. Headlined “As Greenspan Chases Inflation, Critics Shout, ‘Faster!’” it reported widespread “fears that Mr. Greenspan has opened wide the door to inflation in the United States by keeping interest rates too low for too long.” The gist of this story was that, in the professionals’ view, absent sharp interest rate increases, we would soon be on the brink of inflationary disaster.
Yet the next morning, the Wall Street Journal’s online edition led with an “economic forecasting survey.” This one was uniformly upbeat, with a consensus of business economists expecting steady growth, a takeoff in the industrial sector, and both falling inflation and falling unemployment. Some were even more optimistic. Diane Swonk, chief economist with Bank One, was quoted as saying: “We’re entering a phase where the economy is picking up momentum.” She added that with “record profits, record cash flow … top-line revenue growth and order backlogs — you can’t ask for more.”
Then, by midafternoon, another Wall Street Journal story had gone up. “Jobs Growth Slows Sharply” read the headline. Only 112,000 new payroll jobs were created in June. And the previously bullish numbers for April and May were also revised downward, by 35,000 jobs. Manufacturing employment fell, as did the workweek. And factory orders, shown in a separate report, fell in May for a second straight month.
In what may be the lamest spin on record, the Journal next dug out a certain Ian Shepherdson, of High Frequency Economics, to say that the bad job numbers were due, in part, to “an inexplicably small estimate for job creation.” (Reassuring, isn’t it?)
By Monday, you’ll be pleased to know, the cheerleading squad had recouped. Reuters summed up the new reason to be happy:
“Economists … welcome moderation of the expansion to strong from very strong. It will ensure the Federal Reserve can be ‘measured’ as it raises interest rates, avoiding the risk of an economic swing from boom to bust if runaway growth sparks inflation and prompts the Fed to hike rates more aggressively.”
Are you confused?
If so, let me remind you that newspapers are not so different from politicians. They exist to sell advertising. What goes on the page in between the ads is not so very important.
Let’s suppose, on the other hand, that you want to learn something about actual economic conditions. Then let me commend a measure first worked out by economic statistician Paul Manchester, then a colleague of mine on the staff of the congressional Joint Economic Committee, more than 20 years ago. The “Manchester index” multiplies the number of unemployed by the average duration of their unemployment. In this way, it captures one of the most important features of being without a job: that the situation gets worse the longer it lasts.
Here is a chart of the Manchester index since 1979.
As the chart shows, the index reached highs on three occasions. The first was just after President Reagan’s stinging midterm election defeat in 1982. The second was just as Bush the elder was beaten in 1992. And the third peak came in 2003, with a trivial decline since then.
One can go further. Reagan recovered from his early miseries, and the index was down sharply in 1984. It was down even more by 1988. Having risen under Bush I, it was still too high for President Clinton in 1994. But it was down sharply by 1996, 1998 and 2000. In 2002, it was in dangerous territory for the second President Bush — who might have been walloped in the midterm elections but for the death of Sen. Paul Wellstone and the impending Iraq War. Only President Carter in 1980, in this analysis, seems to have been dealt a raw deal by voters.
But Carter’s problem was inflation and, of course, high gas prices. Oh.
The miserable jobs performance of the past four years — alongside stagnant real wages for those still working — isn’t the only economic issue. But it remains the first and biggest issue. And it won’t end just because the economy starts to grow or a few new jobs are added. The real test is whether growth continues, long and strong, until the jobless are working again.
Last week’s news on jobs was a very bad sign on that score.