New York Times' Adam Davidson Strikes Again, Tells Us to Ignore Downer Jobs Data and Trust the Confidence Fairy
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The next leg of Davidson’s argument is even nuttier. Businesses aren’t hiring and consumers are being scared from spending as much by the big bad NPF release! That old NPF release is SOOO unreliable anyhow, wouldn’t it be better if we just ignored it and went out and shopped, and left this all to technocrats who’d be cool headed enough to look at longer term trends?
Reading this, one has to wonder if Davidson knows anyone in the real economy. Small business has long been the engine of job growth in the US. Large companies were shedding jobs even in the last expansion. It’s difficult to imagine that much of any small businesses caring about the monthly jobless numbers. They look at their drivers of revenues, which are always more specific. There are businesses that lead the economy, lag the economy, and are countercyclical (tailors being the classic example). Most see their demand track influenced by local/regional or industry-specific factors. And the same is true of most people. Either they feel somewhat insulated from the vagaries of the economy (they have a decent job security with a pretty solid employer, or operate a recession-resistant business, like a mortician, or are part of the 1%) or they are in a more precarious position (self employed, owner of a small business working for a small firm where their job or hours depend on how well the business does, or un or underemployed).Those who are less secure similarly have their willingness to spend influenced by personal considerations (level of cash and savings buffers, level of current and prospective earnings), not the latest Big Data Release.
Davidson is also saying, to the extent a business is in a field where national job gains are germane, that we should ignore information and cheerlead. He also implies that the reactions to adverse data releases are at least as pronounced as to good ones. That’s hogwash. First, psychologists have documented a bias in most people towards optimism, and that is very much enforced in the US (notice how many business and self help books stress the importance of being gung ho, and how “negativity” is an even worse pejorative than “liberal”?). Second, we have entire industries dedicated to cheerleading: equity fund managers and analysts (who are ex hedgies are structurally long and therefore need to be bullish most of the time), the PR industry, and increasingly, the Obama administration, which seems to believe the answer to every problem is better propaganda. Third, there actually might be real performance problems beyond the ability of the confidence fairly to solve. Davidson dismisses that with his “we’re not Greece” discussion. But this ignores the lasting impact of a global economic crisis and the continuing impact of private sector deleveraging, made worse by the bad policy decision to zombify the financial sector rather than restructure the bad debts and use aggressive fiscal stimulus to offset the resulting downdraft. That means ex a change in course is the best we are likely to get is a halting recovery.
Davidson does deviate from channeling Dr. Pangloss to imagine an even better world, one in which the lion and the lamb, or in this case, Keynes and Hayek, would settle their differences and make sense of all that noisy data. We’ll just leave aside that Hayek would be rolling in his grave to have the fact that he and Keynes had friendly discussions taken to mean he’d happily participate in a world where “major economic decisions” were made by “non-partisan technocrats”. Reader Mrs. G took on the “non-partisan” part of this history-mangling fantasy: