Optimism/Pessimism, Spin and Public Policy

One thing I've noticed about discussing the economy is that if you want more stimulus and less austerity, it's suggested that you highlight how bad things are. Yesterday, Duncan Black wrote that he was looking for bad news in today's job report.

As I've written before, I have no desire to destroy the Village to save it, and I have no desire for a single more person to be without a job. But the number that comes out tomorrow is just an estimate, and all estimates are imperfect. I'm not confident that anything will spur elites to do more, but the best chance we have is bad news, or a bad estimate of the actual news. The reality should be bad enough, but for some reason it isn't.

Also, people who have been arguing for more stimulus can say "I told you so" if or when the numbers are bad.

But that can be depressing, so sometimes it's nice to highlight the bright spots in the economy, like the fact that it's growing (however slowly) and the private sector added around 83,000 jobs last month (better than losing jobs). Also, the worse the economy is, the better the Republicans will do in November.

Ezra Klein writes about the White House's dilemma.

"Today’s employment report shows continued signs of gradual labor market recovery," reads the first line of Christina Romer's analysis of the May jobs report. She emphasizes the 83,000 jobs created in the private sector (the 125,000 net job loss is due to census jobs expiring), and says that non-census employment rose by 100,000. That's true, and it may be an important way to look at it, but the census jobs were still jobs, and we're not growing nearly fast enough to reabsorb those workers.

Romer's blog post and recent statements from and meetings with administration officials suggest that the White House's broad approach on the economy is to emphasize how much improvement there is, rather than how much needs to be done. That makes political sense, of course: The economy has largely stabilized, which is a huge achievement, and the only chance Democrats have in the midterms is convincing the country that they're responsible for that stabilization. But it also makes it difficult for the White House to run around with its hair on fire about how bad things are and how necessary it is that Congress doesn't abandon the labor market in order to pretend to care about the deficit.

Probably, the best practice is to try to describe the situation as accurately as possible. Christina Romer isn't running around with her hair on fire, but in the blog post Klein links to, she does assert that the country needs much stronger job growth.

June marks the sixth month in a row that private sector employment has increased.  These continued signs of healing are important, particularly given the recent volatility in world markets and the mixed behavior of other recent economic indicators.  However, much stronger job gains are needed to repair the damage caused by the financial crisis and put the millions of unemployed Americans back to work.

As Dean Baker would point out, the blowing and popping of the housing bubble (in the US and Europe) caused the financial crisis and caused a massive drop in demand. Coordinated action by the world's governments helped stabilize the economy, but stronger job gains are needed to repair the damage caused by the bursting of the bubble and the financial crisis.

To end on a somewhat bright note, David Leonhardt writes that the government is probably understating job growth right now.

As a rule of thumb, the government has understated job growth by roughly 50,000 to 100,000 jobs a month during the first year after a recession’s end. The main reason is the difficulty estimating job changes at new businesses and failing ones. Floyd Norris has written about this issue.

None of this guarantees the government is making the same mistake again. And even if it is, the economy remains a very long way from being healthy. But it’s worth keeping in mind.