Mitchell’s Musings 6-13-11: Interpretation

Mitchell’s Musings 6-13-11: Interpretation As many readers will know, our Employment Policy Research Network (EPRN) – which hosts this blog – had the lead slot at the annual LERA-National Policy Forum in Washington, DC last week.

Apart from the specifics of the various sessions and presentations, several thoughts came to my mind because of the event and the location.

The DC types who attended kept referring to “Friday,” not as a day, but as a political/economic event. In one session, someone (an out of towner) asked exactly what was “Friday.” It turned out to be a reference to the monthly media release of the U.S. Bureau of Labor Statistics (BLS) on the employment situation of Friday, June 4. The release indicated that payroll employment growth – while positive – was disappointingly small. The unemployment rate was above 9% (9.1% to be precise), up 0.1 percent, an increase which BLS characterized as “essentially unchanged.” The implication was that economic growth, or at least job growth, had stalled with all the political freight that a poor job market could imply for election year 2012.

In an earlier blog entry, I mused about the frequency with which official economic data are released and whether we might learn more from less frequent – but larger sample/more detailed – information. And I could repeat that question here. Note that we are talking about preliminary data, seasonally adjusted, that will later be revised. However, beyond the frequency issue, I had a sense that there was confusion within the DC bubble between the BLS media release and the public perception of the employment situation.

As it happened, the Washington Post released its opinion poll (Washington Post-ABC) about the president and (to me) more importantly about public views on the job situation. The key thing to note about the poll was that, although it came out on the second day of the conference, i.e., after “Friday,” it was taken before the BLS release appeared. So public perceptions could not have been influence by the release (which only policy wonks read) or the media reporting of the release (which could conceivably influence public perceptions).

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What is most apparent from the poll (see the pie chart above) is that more than half of respondents thought the recovery had not begun. To economists the issue is not whether there is a recovery but whether it is too slow or might stall. But to a good chunk of the general public, there isn’t a perceived recovery at all despite the fact that there has been both (some) job growth since the bottom of the Great Recession and (some) lowering of the unemployment rate since that bottom. Month-to-month vagaries in BLS media release data are not driving this public perception. Real world experience is.

On the other hand, media releases and newspaper headlines can drive policy – or at least policy discussions – within the DC bubble. By coincidence, I gave a PowerPoint presentation at the Policy Forum on June 6 on public pensions. One of the points I made was that big numbers on the unfunded liability of public pensions can drive policy discussions although media reports typically do not get into the mechanics of how such estimates are calculated or what they mean.

To illustrate this point, I calculated the unfunded liability of the Pentagon, not retirement expenses but simply of ongoing military operations, using Social Security-type methodology. I produced a figure of $24 trillion!! The Defense Department has no dedicated revenue stream – only spending – but the federal government is constitutionally obligated to provide for the national defense indefinitely out of general revenue. Currently, the cost is in the range of $700 billion per annum. (Since forever is a long time, I stuck to the 75-year horizon used for Social Security in making my calculation.) The problem is that while $24 trillion is a scary number, it doesn’t tell you much about whether, for example, we should have become involved in Libya.

Indeed, by itself, $24 trillion is useless information.

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(Mitchell’s Slide of 6-6-11) Just as the Washington Post cooperated in making my point on the labor market, USA Today conveniently helped make my point on calculating liabilities.

Of course, USA Today’s headline of 6-7-11 referred to Social Security, Medicare, etc. It did not include my estimate of the Pentagon’s unfunded liability. And, beyond that omission, how enlightening is the headline? Within the DC bubble, will it contribute to rational discussion of “entitlements”? Will anyone note that defense is an “entitlement”? Perhaps more importantly, will such headlines divert attention from the finding of the Washington Post poll that found that over half of respondents think the recovery has yet to begin – and would presumably like something done about that state of affairs? Sadly, these questions tend to answer themselves.

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