US Jobs Statistics Allegedly Manipulated Prior to Obama Re-election in 2012

The official "knee jerk" response has been to always deny and to call for investigation on charges of statistical manipulation.

From the Bloomberg:

There is no sign U.S. jobs statistics have been compromised by broad-based employee fabrication of data, according to the Census Bureau.

“We have no reason to believe that there was a systematic manipulation of the data described in media reports,” the agency said today in a statement.

An article in the New York Post alleged employment figures heading into the 2012 presidential election were manipulated. Under pressure from supervisors to boost response rates in the Philadelphia region, Julius Buckmon, a former Census Bureau employee, said he made up information for people he couldn’t reach two years before the 2012 election, according to the Post.

The newspaper, citing an unnamed source, then said the practice went beyond a single employee, escalated in the year of the election and continues to this day. Attempts by Bloomberg to locate Buckmon were unsuccessful.

The US congress has been reported to open an inquiry on this matter.

The link to the NY Post here

If true, then this would validate Jack Welch, former chief executive officer of General Electric Co. who in October of 2012 raised eyebrows when he went on air to question labor statistics saying that the numbers “defied logic”

This adds to the number of growing instances as in EU, Asia, Japan, China, Argentina among the many where fabricating statistics has been a political ploy. Even in the Philippines, I recently quoted an admission by a BSP official on the credibility of domestic CPI data.

This also goes to show why the public should always be leery or skeptical of the accuracy of government statistics since they can be or has been used to reflect on political agenda or the self-interests of political agents rather than the actual state of the economy. The worship of statistics is like the worship of untruths

Why Americans Are Jobless

Here is my reply to a joke circulating in the cyberspace blaming globalization for US job losses.

The faulty insinuation is that the world has been “stealing” jobs from the US.

This is a mercantilistic perspective that tries to shift the blame on Filipinos, Chinese, Brazilians, Russians or the world for her economic woes.

For further explanation on these see my posts here: Trade Fallacies: Big Business Sucks Out Lifeblood From The Consumers and Mercantilism: Misunderstanding Trade And The Distrust Of Foreigners

Here is why Americans have lost jobs

1. Americans lost jobs primarily due to the misdirection of resources and employment (as revealed) in the aftermath of bubble policies:

a. monetary policy-low interest rates that fueled a credit boom,

b. housing policies- encouraged speculative purchases and subsidizes mortgage indebtedness via the GSEs (fannie Freddie fha etc..), community reinvestment act,

c. tax- encouraged banks and other firms to assume and maximize debt relative to equity and

d. bank capital regulations- which prompted for regulatory arbitrage which resulted to financial innovation such as securitization (and its offspring-the shadow banking system).

Simply said, when a big segment of the population got employed as mortgage or real estate brokers, bankers, contractors or investors indulged in real estate flipping, construction or constructed related investments, traded mortgage backed securities and ancillary industries because that’s where prosperity seems to be, a burst in the bubble exposed popular delusion and rendered a massive dislocation in the economy. In short, this resulted to lost jobs and lost investments. (the retail, financial and construction sectors are the largest employers see chart below)

2. Existing circumstances such as burgeoning fiscal deficits aside from political reforms towards cap and trade and health seem to be causing regime uncertainty or anxiety in the investment environment which is assumed to entail greater risks of higher taxes, more rigidity in employment requirements and etc.

Furthermore, with over $10 trillion of expenditures and guarantees on the assets of the US banking system, this may have “crowded out” potential investments elsewhere (albeit current interest rates have not yet been validating these, on the other hand interest rate markets are being skewed by government “quantitative easing” or money printing).

And the resulting fiscal policies have a major influence in the investing decisions when considering alternatives [see my post Competitive Global Tax Structures As Major Investment Determinant]

Simply said diminishing competitiveness and [indirect] consequences from political actions may have had a substantial impact on the investing and employment dynamics.

Nevertheless in spite of the crisis, the US still is the primary recipient of Foreign Direct Investments [see my post Global Foreign Direct Investments Down; US Still Dominates]

3 . The composition of the US economy could be transitioning to a post industrial or the information age. When 20-30% of the public’s time in OECD economies (including the US) are estimated spent on social media (facebook or twitter or myspace) then such magnitude of lifestyle changes are likely to impact economic output (investment and employment decisions)

Current statistics have been designed to measure industrial era output and not metrics geared towards the information age, so employment data may not be “accurate”. But again there are evidence that implies of such transition [see my post US Leads In Global Service Exports].

Although many argue that the contribution of the technology is small, my impression is that this is being underestimated (see chart below from McKinsey Quarterly)

So while there are still many other factors that may contribute to the state of “unemployment” in the US, blaming the world for the losses is another popular delusion founded on false premises.

McKinsey Quarterly: 5 Popular Myths of Jobs Creation

McKinsey Quarterly's James Manyika enumerates the 5 popular myths about how to create jobs in the US

Quoting Mr. Manyika, (bold highlights mine) [comments mine]

1. Surely there’s a quick fix.

Oh, were that only the case. The scale of the challenge is enormous. Quick action is important, but remember that the US economy has lost more than 7 million jobs in the past two years. The country would need to create more than 200,000 net new jobs each month for the next seven years to get unemployment back to what was once considered a normal 5 percent. Quick fixes focused on 2010 alone won’t be enough.

Of course, the right mix of government policies can help. But even if Obama’s proposals were enacted right away and they accomplished all that he hopes, they would at best represent a good start. America’s jobs challenge is a multiyear marathon, not a sprint.

2. The key to boosting employment quickly is to help small businesses.

New jobs come from both small and big businesses. From 1987 through 2005, nearly a third of net new jobs were created by businesses that each employed more than 500 workers. By 2005, these big companies accounted for about half of the country’s total employment, although they made up less than 1 percent of all US firms.

But a look at the past two economic booms shows that the pace of job creation depends on more than the size of the businesses. During the economic expansion of the 1990s, large US multinational corporations—which employ an average of about 1,000 workers each in the United States—created jobs more rapidly than other companies. This was because they dominated computer and electronics manufacturing, the sector that drove much of that boom. During the more recent expansion of 2002–07, most of the net new jobs came from local service sectors, such as health care, construction, and real estate—which comprise both large and small businesses.

[yes, the jobs created in 2002-2007 had obviously been in response to policies oriented towards inflating the real estate bubble.

I'd like to add that the current weak job conditions in the small business sector had been a product of uncertainties from ambiguous policies, according to the Wall Street Journal, ``Last year "was a very difficult year for small business," said NFIB chief economist William Dunkelberg. "Continued weak sales and threatening domestic policies from Washington have left small-business owners with little to be optimistic about in the coming year."]

3. High-tech jobs will solve the problem.

There is a lot of talk these days about green businesses, biotechnology, and other emerging industries that will create the jobs of the future. While they are obviously part of the solution, these industries are too small to create the millions of jobs that are needed right away. The semiconductor and biotech industries, for instance, each employ less than one-half of 1 percent of US workers; clean-technology workers, such as those who design and make wind turbines and solar panels, account for 0.6 percent of the workforce.

We’ll be able to generate significant numbers of new jobs only by spurring broad-based job growth across the economy, particularly in big sectors such as retail, wholesale, business services, and health care. High-tech innovations will help employment grow over the long term, as new technology spreads throughout the economy and transforms other, larger sectors. For example, while the semiconductor industry alone doesn’t account for much US employment, the computer revolution has fueled the growth of other industries such as retail and finance; similarly, the clean-technology business by itself doesn’t employ many people, but its developments could transform a big sector such as energy, creating new business models and new jobs.

4. Higher productivity (when an economy produces more goods and services per worker) kills jobs.

Not so. While productivity growth means that individual companies may need fewer employees in the short term, it spurs long-term gains in the economy as a whole. Since the industrial revolution, increasing worker productivity has brought rising incomes, higher profits, and lower prices. These forces stimulate demand for consumer goods and services and for new plants and equipment—fostering, in turn, industry expansion and job creation.

Take cell phones. Even 15 years ago, they were big, unwieldy, expensive, and worked only in limited coverage areas. But as new technologies enabled workers to produce phones and provide service more cheaply, the industry took off. Cell phones are now ubiquitous, and this has created jobs not just among phone makers but also among retailers, service providers, and a new industry of developing and selling applications for smart phones.

5. Increasing exports will revive manufacturing employment.

Maybe for some companies in some industries, but not for the economy overall. While it’s painful to accept, reducing unemployment is not mainly about regaining the jobs that have been lost. Sure, rising exports will cause some factories to scale up again, and many laid-off workers will be called back. But most new job growth will come from other sectors.

History shows that recessions—particularly those that follow a financial crisis—accelerate the growth or decline already underway in industries. In this recession, for example, the auto, financial-services, and residential-real-estate industries have contracted significantly and won’t regain their peak employment anytime soon.

[that's because these areas constituted the concentration of the boom or malinvestment phase]

An increase in exports may stem—but will not reverse—the multidecade decline in manufacturing employment. In today’s developed economies, net growth in new jobs doesn’t come from manufacturing; it comes from service industries. Fortunately, boosting exports creates jobs in supporting service industries, such as design, trucking, shipping, and logistics.

[Some will call these the recalculation or a transitional phase where the economy tries to figure out where to reallocate resources following the market clearing process from the recent recession or bust.

However, what McKinsey's Manyika seems to imply is that policies aimed at directing public resources for job creation to specific sector/s do not guarantee solutions to the present dilemma. Hence the unintended consequences is that these could lead to waste.

Said differently, let the markets decide where investments should be and jobs will eventually follow.

As Ludwig von Mises wrote, ``Profits go to those who succeed in filling the most urgent of the not-yet-satisfied wants of the consumers in the best possible and cheapest way. The profits saved, accumulated, and plowed back into the plant, benefit the common man twice. First, in his capacity as a wage earner, by raising the marginal productivity of labor and thereby real wage rates for all those eager to find jobs. Then later again, in his capacity as a consumer when the products manufactured with the aid of the additional capital flow into the market and become available at the lowest possible prices."]