I don’t know how seriously people take the National Review on economic matters. But I suspect that Larry Kudlow is not that far off Republican talking points when he writes the following:
There continues to be much debate and confusion about the importance of this household survey, from which the unemployment rate is determined, and the corporate payroll survey, which is rising but at a slower-than-hoped-for pace. Economists have traditionally focused on the unemployment rate as a measure of economic health. But in this political season the softer payroll survey has received the lion’s share of coverage.
Virtually no one cites the increase in the entrepreneurial army of self-employed and independent contractors who have gone to work at lower tax rates, enabling them to keep more of what they earn. This is why the unemployment rate quickly fell from 6.3 percent when the Bush tax cuts were implemented last spring to 5.6 percent today. The media is trying to discredit this drop as it is scored in the more promising household survey, rather than the more pessimistic payroll tally.
But who’s being selective in choosing data that supports his/her desired conclusion? Both Brad DeLong and John Irons pounce on Kudlow’s assertion, pointing out that there in fact is no disagreement about the measurements of unemployment. Irons’ response is particularly good:
I used to say that the quickest way to throw one’s credibility out the door on economic matters was to call oneself a “supply-side economist.”
I think I have to modify my theory.
I now think a faster way to show that you have lost all credibility and that you never intend to be taken seriously ever again is to claim that either 1) the household survey is a better measure of employment than the payroll survey, or 2) that “economists disagree” about which survey should be used.
The payroll survey is better, and it is what everyone uses - there is as much disagreement on this as there is on the question of whether or not the earth is round.
Would these people really be running around talking about the weaknesses of the payroll survey if for some reason it showed job growth? I don’t think so.
But even the technical consideration aside, the National Review has a big problem. The unemployment rate measures only the percentage of those looking for work, not a percentage of the working-age population. The number of those looking for work has gone down, translating into a lower unemployment rate. Is this supposed to be a good thing?
One can’t help but suspect wishful thinking behind Kudlow’s assertion that the entrepreneurial army is responsible for declining unemployment rates. There’s no evidence for this view because the evidence points to the contrary. (From DeLong: “June, 2003 household survey estimate of self-employed workers: 9,258,000… February 2004 estimate of self-employed workers: 9,498,000… Difference… 240,000… Difference as a percentage of the labor force: 0.17%… Fall in unemployment rate: 0.7%–four times as much. “)
And even if we in general think that higher rates of self-employment are better for the economy (Remember that the country’s most prosperous years, the postwar decades, also were the least entrepreneurial, at least in industrial sectors), wouldn’t we want an increase to be made from a position of strength, from workers taking advantage of self-employment rather than trying to make do while after being laid off? It’s as if the National Review were saying “yes, we’re seeing recessionary trends, but don’t worry, we found some numbers that make things look better and, besides, some of you laid-off workers are acting more like we always thought you should anyway, so it’s a good thing you got laid off.” The ideology of the lemonade stand trumps any ability on their part to grapple with real problems of the business cycle.
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