How to See Through Politicians’ Claims About the State of the Economy

Many Swarthmore students will decide to pursue careers in public service, including some as economists at agencies such as the Treasury Department, Federal Reserve, or Bureau of Labor Statistics. These Swatties will have the responsibility of interpreting economic data, such as periodic reports on employment, economic growth, and inflation, to determine how the economy is doing. However, they will often have to rely on politicians to communicate this information to the public, even though most politicians are not trained in economics. Some politicians, particularly the current presidential administration, have a nasty habit of using economic data to mislead, exaggerate, or make downright false claims about the state of the economy. Particularly when employment data is released, the Trump administration claims that the strong economy is a result of its policies, rather than where we are in the business cycle. Whenever the unemployment rate or gross domestic product growth is released, my Twitter feed is filled with economists pushing back on some politicians’ skewed interpretation of the data and adding caveats and nuances to the administration’s outlandish claims. Given the frequency with which politicians deliver misleading claims about the economy to the public, here are some things to keep in mind when you hear politicians talking about how the economy is doing.

First, remember that the presidential administration’s policies often have little effect on the state of the economy. How the public perceives the economy is doing, which is largely shaped by politicians’ spin on the economic data, could drastically affect how the public feels about the president. However, the president does not have direct control over fiscal and monetary policy, and other channels of shaping the economy’s trajectory such as regulation take time to implement. The current presidential administration inherited a strong economy; much of the economic growth it takes credit for can be attributed to the fact that the administration was lucky enough to take office during an economic expansion. The Trump administration may boast about many consecutive months of job growth, but if you look at a graph of total employment since the Great Recession (available from Federal Reserve Economic Data), you see a steady increase that has barely budged since the Trump administration began.

 

Economic data is often revised before being released, sometimes changing interpretations of it significantly. For example, the monthly employment report is revised twice and has a 90 percent confidence interval of approximately 115,000 jobs. A small increase in employment could be revised the next month into a small decrease in employment. This doesn’t mean that the initial figure was wrong; agencies such as the Bureau of Economic Analysis and Bureau of Labor Statistics provide timely estimates of economic indicators and then later update them with more complete information. However, this process does mean that the initial estimate receives the majority of the attention and revisions that change the economic implications of the data may be ignored.

Remember that changes in economic data that seem negative on face value might actually be signs that the economy is doing well. If the unemployment rate ticks up one month, it could be a result of an increase in the labor force participation rate, meaning that discouraged workers or people previously out of the labor force were drawn back into the labor market. Politicians may miss nuances like this when communicating to the public about the economy, so it helps to get the perspective of economists by following them on Twitter or reading their columns in the newspaper.

Lastly, fiscal policies that are ultimately ill-advised could have initial expansionary effects on the economy. According to the Tax Policy Center, the Tax Cuts and Jobs Act, a tax reform passed in 2017, would increase GDP by 0.8 percent in 2018 but have essentially no effect on GDP in 2027 and 2037. Additionally, economists almost universally agree that it benefits higher-income taxpayers much more than lower-income taxpayers. Politicians could spin the short term expansionary effects of the TCJA to their advantage, potentially causing the public to view the legislation positively and not recognize its negative distributional and budgetary implications.

The vast majority of Swatties will not pursue careers that require them to interpret data about how the economy is doing. Still, it’s important for the public to think carefully about what their representatives are saying about the economy and whether the administration’s economic policy really has as much as an effect on the economy as it claims.

 

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