For lack of a better word:
The U.S. jobs report, a key measure of how well the economy is doing, has gotten increasingly less accurate in the past 20 years. The fix for that problem could be in a surprising place: Twitter.
Those are the conclusions of two separate reports out this month. The first report, published by the National Bureau of Economic Research, found that the unemployment number released by the government suffers from a problem faced by other pollsters: Lack of response. This problem dates back to a 1994 redesign of the survey when it went from paper-based to computer-based, although neither the researchers nor anyone else has been able to offer a reason for why the redesign has affected the numbers.
What the researchers found was that, for whatever reason, unemployed workers, who are surveyed multiple times are most likely to respond to the survey when they are first given it and ignore the survey later on…
This works out to an under count of the unemployed and/or an over count of people not in the labor force – the bottom line is that the official unemployment rate doesn’t really reflect the unemployment picture. This is something we’ve known for a while just by the labor force participation rate: if we are in a recovery, it should not be going down. The fact that it is down means that something is off – and calculations of unemployment based upon, say, a 2007 level of participation would still likely have the official rate in double digit territory. But now we see that aside from that, the basic survey is just flawed.
I’ve long had grave doubts about the whole methodology we use to judge the state of the economy. We aren’t quite as bizarre as Spain, which is apparently set to use transactions in, shall we say, ladies who work in a very specialized form of entertainment, as part of their GDP, but we’re close. To me, there is something absurd in counting government spending as part of GDP, let alone counting what a lonely man blows a hundred bucks on. Real economic strength should be judged by what we make, mine and grow.
If the economy is improving, we’ll see it in statistics of corn production, gasoline refined, tons of iron ore mined, and things like that. These things can’t lie and they can’t be fudged. Did we, or did we not, produce more steel in July of 2014 than in June of 2014? July of 2013? July of 2004? If the answer is “less” then that would be a bad indicator. It still might be partially explained by other factors (maybe we’re more efficient in our use of steel, for instance), but the bottom line is that if the production is up, then things are better than if production is down…because people don’t produce for customers that don’t exist. I want to know the measure of production for real goods that people use – I want to know what it is last month, the month before that, the year before that and ten years before that…this way I can see how things are going in both the short and long term; and no need to seasonally adjust: each July will be pretty much like all other Julys. Just tell me what was made, mined and grown – I’ll then see for myself if things are worse, better or just the same…and that will also inform me of what the employment picture is like. If we’re producing less steel, it is a cinch that we’ve got less steel workers, and so on.
We don’t need to know how many people are working in the legal industry – it produces no wealth. Don’t need to know how many people are working in the tourist industry – it also produces no wealth, once you understand that wealth is not a casino mogul in Vegas raking it in hand over fist, but a farmer in the midwest growing corn. The reality is that the entirety of our economy – all of that government and law firms and casinos, etc – is dependent upon the ability of the United States to make, mine and grow things. If we don’t make, mine and grow enough things, then the economy is doomed, no matter how much money the Fed prints to keep things going for years after the economy collapsed. So, let’s start counting what matters and see what our economy is actually like – it’ll tell us what we need to do.