Wednesday, January 11, 2012

Employment Pander by Selection Bias

Presidents are routinely credited or blamed by the American electorate for the condition of the U.S. economy. Politicians on the left and right just as routinely pander to the dubious notion that an administration's economic policies have a direct causal relationship with recessions and recoveries.

The 'Big Government' stereotype notwithstanding (yet another pander), the U.S. economy dwarfs government. This past July the U.S. Treasury Department stated that the government had a total operating cash balance of $73.768 billion. At that time a single company, Apple Inc., held cash reserves of $75.876 billion.

Capitalism is by its nature unstable and subject to ups and downs. On the short time-scales of most recessions and presidential elections government policies only affect the economy on the margin. The best that government can do is ameliorate the effects of recession by providing extended unemployment benefits and stimulating the economy through temporary deficit spending to partially offset lack of private sector investment.

You will hear much pandering by the Republican Party and those seeking the Republican nomination about job losses under President Obama. Do they have a point? Not really. This chart from a recent Paul Krugman N.Y. Times editorial shows that while total employment is lower now than when the president took office, focusing on that one fact obscures the bigger and clearer picture.

Total Employment Rebounds

The recession and attendant loss of jobs began more than a year before Obama took office and technically ended about 4 months after. Economists label employment a lagging indicator. It's vicissitudes lag other measures of economic activity, so even after the recession ended total jobs continued downward for another year. But, whether you compare today's total employment numbers to the end of the recession or to 6 -12 months after President Obama's election, when his economic policies might have begun taking effect, total employment has actually increased.

The micro view that comes from comparing just 2 points on the plot, Obama's inauguration and the present, is a distortion and pander by time selection bias. The suggestion that President Obama is a job killer is pure pander. The larger view shows the president inherited an economy in free fall and that not only has the fall stopped, but the employment picture for the past 2 years is one of slow, but steady growth.

Should voters give President Obama credit? Panderbear demurs, but thinks whatever voters decide should be based on the larger and truer context of economic and employment recovery.

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  1. Wow. This is a *really* good chart. Like one of those charts that should go viral on the internet.

    I will make sure to post this on Facebook.

  2. Thanks for your comment. Please note that Panderbear attributes the chart to a Paul Krugman N.Y. Times editorial.