The Government releases countless statistics each year, but few get more attention from the press than the official unemployment rate, which is updated and released once per month by the Bureau of Labor Statistics (BLS). Employment statistics compiled by the government are relied on not just by policy makers, but also by business leaders, the press, and anyone else who is interested in gauging the state of the economy.
It doesn’t take long, however, for government stewardship of these statistics to be questioned. After all, if one of the main tasks of government is to facilitate employment, then can the government be trusted to issue statistics that will illustrate its success or failure in this task? Such questions were thrust to the fore on Friday, when the BLS announced that the unemployment rate had dropped from 8.1% to 7.8%, just one month before a presidential election that will be decided largely upon the public’s estimate of each candidate’s ability to create jobs.
Shortly after the announcement, the former CEO of General Electric, Jack Welch, took to Twitter to accuse President Obama’s political operation (which is based in Chicago) of manipulating the stats for political gain, writing “Unbelievable jobs numbers . . . these Chicago guys will do anything . . . can’t debate so change numbers.” This argument was taken up by other critics of the President, including Florida Republican Representative Alan West and CNBC commentator Rick Santelli, among others.
(MORE: Unemployment Rate Drops to 7.8% But Path to Recovery is Murkier)
The backlash against such conspiracy mongering was swift and overwhelming. The Internet has always been rife with paranoia, but it came as a surprise to many that such an establishment figure like Welch would question the credibility of the federal government statistics so directly. Even died-in-the-wool conservatives like CNBC host Larry Kudlow were critical of Welch’s comments. With the former CEO as a guest on his show, Kudlow hit back against Welch’s claims:
“I’ve worked in the White House under Reagan and there’s no way those numbers can be manipulated. Maybe the model is flawed but you can’t touch those numbers.”
Market strategist and columnist Barry Ritholtz took a more personal line of attack against Welch, reminding his readers that Welch’s time at the helm of GE was marked by a consistent and statistically-improbable beating of analysts’ earnings expectations, which helped the conglomerate’s stock soar:
“I have long stated that Jack Welch was one of the luckier, more wildly over-compensated CEOs around. He became CEO of General Electric in 1981, just before an 18 year bull market in big cap stocks began. He left in 2001, just as the market implosion was getting rolling.
GE’s revenues grew 385% under his watch, but the company’s market cap grew 4000%. How did that happen? GE increased earnings over the years, and with stunning regularity, managed a quarterly profit beat.”
It’s indeed ironic that a prolific massager of earnings such as Welch would have the temerity to criticize the Bureau of Labor Statistics of corruption and dereliction of duty, without any proof beyond a hunch.
Though the conspiracy theorists haven’t been explicit as to how they believe the Obama administration could coordinate a conspiracy to cook the books (which would involve coercing dozens of career civil servants to lie on its behalf), they do offer a rock solid motive: that the administration’s chances of reelection would benefit from a lower unemployment rate.
(MORE: What Are the Jobs Figures Really Telling Us?)
But this sort of manipulation would only get the administration so far. On the margins, voters might be swayed by what they hear the media reporting about the economy, but the main reason why presidents have a hard time getting reelected during times of high unemployment is that the lives of voters are directly affected by a bad economy. They have a harder time getting a raise, they know more people out of work, and they are confronted each day by their stagnant wealth. And no amount of propaganda is going to dissuade them of the reality they’re living every day.
In other words, while the risks of getting caught fudging the data are huge, the benefits are negligible. Though this may not sound very lofty, it’s the most logically sound reason to trust government statistics. As Slate’s Matthew Yglesias argued last week, the fact that statistics compiled by the American government are trusted is the real story. One-party governments like those running the show in China and Russia — governments which enjoy authoritarian control of the media and the capacity to retaliate against wayward government workers — don’t always issue reliable data. But we do. Yglesias writes:
“This is a remarkable fact and it’s a big part of what makes America great. Trustworthy economic data is a very valuable public good that serves as a useful production input for tons of private businesses. It also helps smaller-scale government agencies and nonprofits make smarter decisions. And last but by no means least, precisely because the BLS is credible, presidents know that they’d take an enormous political hit if they were seen as manipulating it.”
The conspiracy theorists point to the obvious incentives that government officials have to fudge numbers in order to inflate the public’s perception of their performance. And there’s no denying that given a riskless opportunity to do so, many (or even most) politicians would juice data to make themselves look good. But what these conspiracy theorists ignore is the risk of getting caught. All it would take is one BLS economist with enough probity (or even a desire for fifteen minutes of fame and a book deal) to step forward with his story of how the administration made him manipulate the stats and the jig would quickly be up.
There is a reason why statistics are trusted in America and not in China, and it’s not because Americans are constitutionally more trustworthy or honest. Much like markets, political systems are made better through competition and dissent. And while it’s in vogue to lament the fractious condition of our body politic, it’s precisely this state of affairs that makes the sort of conspiracy Welch is alleging more than a little hard to believe.