Tuesday, October 17, 2006

Front Page News

TaxProf takes note of two pieces in today's WSJ. One was an interview, on page 1 (i.e., a news page), of this year's winner of the Nobel Memorial Prize in economics, Columbia University professor Edmund Phelps. The other was an op-ed piece by Brian S. Wesbury, the chief economist at First Trust Advisors L.P. The two pieces clashed, with Prof. Phelps suggesting higher taxes ("[I]t would be a good thing for the federal government to raise taxes and run big surpluses until we have retired the public debt. In the short run the higher tax rates might be unpleasant. But in the long run, with the debt reduced or eliminated, incentives to work or to advance in the world would be enhanced, because after-tax pay rates as a proportion of wealth would be higher.") and Wesbury recommending that we stay the Bush tax cut course.

Presented in this way, it would appear that there are merely two economists who simply reach different conclusions after reviewing the same data. However, further investigation of one portion of the Wesbury piece exposes his essential intellectual dishonesty. Specifically, he states that:
During the 12 months ending in September 2006, the [Bureau of Labor Statistics] household survey reported 2.54 million new jobs. Going back 24 months shows 5.5 million new jobs, an annual average of 2.75 million. This exceeds the booming 1995-2000 average of 2.34 million new jobs per year. The household survey, in contrast with the establishment survey, has consistently signaled a resilient economy. And it continues. In the past two months, the household survey has expanded by 261,000 per month, while the establishment survey rose by an average of just 120,000.
While it is a little wonkish, there are good reasons why economists typically do not use the household survey, but instead rely upon the indice known as the "Employment, Hours, and Earnings from the Current Employment Statistics survey (National)." Barry Ritholtz explains the reason that the household survey, unadjusted, was misleading. His conclusion:
Let's see who has the intellectually honesty to step up to the plate with a big mea culpa. You may assume any of the original advocates of this now totally untenable position [that the unadjusted household survey is more accurate] who adhere to it are little more than partisan hacks, and disregard them as appropriate.
Just so the record is clear, here's the Employment, Hours, and Earnings from the Current Employment Statistics survey (National) on a monthly basis from January, 1992, through September, 2006:

(Click to enlarge.)

Do the math: During the 96 months of the Clinton Administration, the country added 22,635,000 jobs or almost 236,000 jobs a month. By contrast, during the 79 months of the Bush Administration, the country, on a net basis, has added only 3,109,000 jobs, or just a shade under 40,000 jobs a month. Even isolating the most recent 24 months, as Wesbury does, we find that only 4,026,000 jobs have been added or an average of just 167,750 per month. In other words, even when rebounding from a recession, job growth during this Administration is just over 70% of what it was during the Clinton Administration.

(Wesbury also wrongly states that the "the booming 1995-2000 average [was] 2.34 million new jobs per year." In fact during the 60 months from January, 1995 through December 2000, a total of 16,428,000 jobs were created, an average of 273,800 jobs per month or 3,285,600 jobs per year.)

In the end, the Nobel guys tend to shoot straight. They get on the first page of the WSJ. On the other hand, "partisan hacks" are relegated to the knave opinion page.

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