Shoddy statistics will produce bad policy

President Donald Trump has removed the head of the US Bureau of Labor Statistics and appointed an economist from the Heritage Foundation to replace her. A legal exercise of the president’s powers? Absolutely. But the replacement, EJ Antoni, must be confirmed by the US Senate. I hope North Carolina’s Thom Tillis and Ted Budd give the matter careful consideration.

The stakes are high. BLS produces crucial data on employment, wages, prices, and productivity. To do so, it relies on monthly surveys of households and of business establishments, as well as other surveys and administrative data from government programs. Other agencies, universities, and private firms also conduct surveys and produce statistics. But few offer the breadth and depth of coverage that BLS does.

Many individuals and institutions rely on the data. Here in North Carolina, for example, fiscal analysts for the state legislature, governor’s office, and local governments use BLS statistics to project public revenues and expenditures. Companies use them to make investment decisions.

The two fields in which I’ve spent most of my career, journalism and policy analysis, also rely heavily on BLS reports. We report on monthly releases of unemployment rates, job counts, and price changes. We sweep months or years of BLS data into spreadsheets to calculate longer-term trends. Scholars download decades of BLS data to build econometric models and attempt to evaluate changes in public policy.

Even when other entities produce valuable information, they often test its validity by comparing their data to what the BLS reports. For example, recent research by UNC-Chapel Hill’s Kenan Institute of Private Enterprise and other partners shows that business-formation data collected by the North Carolina secretary of state represent a reasonably accurate predictor of changes in employment and economic activity. Why is that important? Because the secretary’s business-formation metric is readily available by county. Employment data (from BLS) and GDP data (from the Bureau of Economic Analysis) have much longer lag times, especially at the county level. This might well represent a handy new tool for assessing economic growth in North Carolina. It is, however, no substitute for monthly BLS reports (and quarterly BEA reports).

To put it bluntly, if large swaths of policymakers, executives, investors, and the general public come to distrust what comes out of the Bureau of Labor Statistics, that will make it harder to conduct prudent business or have meaningful conversations about economic policy.

I don’t assume that Antoni would manipulate BLS processes in an attempt to concoct a pro-administration spin. But the political circumstances that led to his nomination are worrying. When firing the previous administrator, Trump noted that she had been appointed by Joe Biden and claimed she had “rigged” job numbers to make him and Republicans “look bad.”

Declining response rates to BLS surveys have made the agency’s job more difficult. But as George Mason University economist Vincent Geloso found in a careful analysis of two decades of BLS data, there is no convincing evidence for the bias the president alleged. Sometimes BLS has revised job numbers down under Republican administrations. Sometimes it’s done so under Democratic ones. “The claims that the BLS is systematically partisan and incompetent collapse under scrutiny,” he concluded.

That’s not to say no improvements are possible. Indeed, the new head of BLS ought to consider University of Chicago economist Tomas Philipson’s idea of giving respondents cash incentives to fill out BLS surveys regularly and accurately.

“After all, such incentives are used by the IRS to reduce measurement errors for reporting taxable incomes,” Philipson wrote in National Review. “Paying respondents for their contribution to improve our understanding of the economy therefore generates a mutually beneficial exchange, just as wages do for any regular work.”

Perhaps this is the kind of reform that Antoni and the Trump administration have in mind. If so, great. If they modify the methodology or frequency of BLS reports without clear and convincing explanations, however, they’ll get a lot of blowback — and deserve it.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.