New York Times' Adam Davidson Strikes Again, Tells Us to Ignore Downer Jobs Data and Trust the Confidence Fairy
While Adam Davidson’s current NewYork
It’s hitting the point where I’m getting such sharp, annoyed commentary about Davidson’s columns by e-mail that I have to work to read his columns with a fresh eye. From one correspondent:
Can we make Adam Davidson disappear? He seems to have carved out a special niche: Stupid-nomics. WTF is his point here? That Adam Davidson is an oh-so-reasonable-guy-who-just-wants-the-silly-competing-economic-theories-to-get-along so we can all feel good? That jobs would magically appear if we would just stop paying attention to them?
His articles seem to be an experiment how somebody with either innate or willful ignorance of macroeconomics — but a superficial curiosity coupled with a desire to preserve and not jeopardize his paycheck –would view economic questions. His assumptions –i.e. if Greece could just pay off those debts and sell some good stuff all would be well — are so wildly simplistic and wrong-headed that it’s hard to go on to the next sentence, because you know you’re heading down a path led by somebody who is blind. And you smack your head against the wall. Where is the aspirin?
If you haven’t encountered Davidson’s latest offering, he starts with the claim that the monthly nonfarm payrolls release has become a key (his breathlessness implies THE) indicator of economic performance, and is now driving hiring decisions. Davidson tells us this is terrible because actually knowing roughly how many jobs are being added when the results aren’t great frightens employers into not adding them and consumers into not spending.
Based on this sort of thing, it looks as if Davidson lives in some sort of weird alternative reality of as he styles himself, “econonerds” which I imagine consists of heavily of economics-oriented journalists and analysts. This crowd is in the business of having to be out, quickly, with a take on new information. But just because their business is to attribute meaning to various data releases doesn’t mean they have this sort of news has same impact in the wider world as it does in the media hothouse or with quick-trigger investors.
First, nonfarm payrolls aren’t a “one number to rule them all” release. They are prefigured by ADP employment report, published just prior to the Friday BLS report. Normally they tell more or less the same story. But the ADP reported less awful job creation for May (133,000 v. 69,000 for the NFP). And more worrisome, the report indicted the average number of hours worked fell a smidge. And there are other reports that give fairly current economic readings, such as retail sales. And for prospective indicators, there are releases like the Factory Orders Report and the forward looking sub-indices (such as new orders) in the various manufacturing indices. Thus, contra Davidson, thestock
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:
Hayek as a nonpartisan technocrat immune from a “breathless” media cycle?? How ignorant can this guy be about Hayek and partisanship? He really needs to Google “Hayek” and get a clue. Or maybe he’s paid not to.
I must confess I have a vested interest in debunking Davidson. Given his interest in changing mass psychology, I imagine I’d be included in reprogramming efforts to make sure there is plenty of happy thinking so we all get the prosperity we deserve if we do our duty and spend enough. And you might be too.