Monday, December 13, 2010

DK has gone completely insane watch: David Stockman on CNBC

- by New Deal democrat

There is a diary that shot high up on the recommended list there, featuring a David Stockman interview on CNBC. The post purports to show how the "job market is worse than you think" by quoting Stockman to the effect that the only jobs created in the last year have been temporary jobs, and no jobs have been created in the "core economy."

Of course, it was breathlessly embraced as proving Doom. Apparently nobody (besides me) bothered to watch the actual video.

Let me say at the outset that I do suspect that the jobs added in the last year probably on average pay less than the 8 million plus jobs lost in the Great Recession, and that offshoring manufacturing jobs in particular is a tremendous headwind to the economy, not to say a great tragedy for all working Americans.

But, there are two problems with Stockman's approach. The first is that he nowhere justifies his opinion that the sectors of the job market that he claims aren't growing in fact pay higher wages than the part he claims is growing. In fact he takes entire swathes of the BLS jobs breakdown- including the entire retail sector - and labels them "part time" jobs without any support whatsoever. As to whether they are lower paying than the other sectors he claims in the "core" economy. like construction or insurance, tain't necessarily so. The answer is probably buried in government statistics somewhere, but the BLS certainly doesn't so categorize it's reports.

The second problem goes right to the heart of his claim. Here's how he comes to his "zero net job creation" metric. He divides the million jobs added this year into 3 or 4 subcategories. He then sets aside state and local government job losses of 250,000+ in a separate category. He then "nets out" one of the growth subcategories (in his case, basically manufacturing + construction, which we already knew weren't growting???) by grouping it with state and local govenment losses and - surprise, surprise - a slice of job growth + 250,000 government job losses ~= 0.

Additionally, part of his claim that the loss of "core government" jobs (by which he means, excluding eduction) is so bad, is a claim, at the 7:20 mark, that the average government job pays $15,000 a month!

It would have been equally valid, using his own metric, to opine, "The entire job stagnation this year is coming from low paying retail and part time jobs and from state and local jobs. All of the net job creation is coming from the higher paying sector of what I call the 'core economy' of manufacturing, construction, FIRE, media and information - and that is a great positive."

In short, any of the slices of job creation + state and local job losses approximately equals zero. The slice you choose to group with those losses, and the slice you choose to highlight as where growth is coming from is a completely editorial position, based on the story you want to sell. In other words, spin.

Of course, since Doom is what the commenters wanted to hear, Doom is what sold. Nobody bothered to check the actual information.

From Bonddad:

Here is a link to Stockman's video on CNBC: Between 3:90 and 4:20 in he describes the middle class jobs description: construction, manufacturing, finance, information tech etc.. In other words, he classifies goods producing and professional/business jobs as middle class. According to the NBER, the recession ended in June 2009, when -- according to the BLS -- there were 16,453,000 professional jobs. In the latest BLS report, there were 16,861,000 jobs, or an increase of 408,000. Construction and manufacturing jobs have been essentially flat.

Also note that Stockman does not include health care and education jobs in his tally. Had he included this in his calculations, another 554,000 would have been added since the end of the recession (total jobs increased from 19,165,000 to 19,719,000).

In addition, pay is down now because of the large amount of slack in the employment environment: wages simply are not going to increase when unemployment is over 9%.

Stockman's point is valid: job growth is too slow right now and needs to accelerate. In addition, he highlights the fact that what were once solid, middle class jobs (construction, manufacturing) are now areas of overall attrition. I highlighted this in a series about six months ago (see here and here). But this is a long-term trend -- as in 30 years; this recovery's data is simply a continuation of the trend.

But getting back to this recovery's data, his interpretation is flat out wrong.