realitybase - Journal

Mark Thoma:

I want to make a . . . point that is being overlooked too often in the debate about the recovery package. Most observers are marking the turnaround in the economy as the point where GDP begins to turn upward, i.e. after the trough in GDP, and expressing worry that the stimulus package might extend beyond that point.

But looking to the last two recessions for guidance, the trough in employment came much later than the trough in output, the traditional one quarter lag between the upturn in GDP and the upturn in employment was extended considerably, and once employment did turnaround, the recovery of employment was sluggish relative to the recovery in GDP (overall job growth during the Bush years was relatively weak).

So marking the turnaround in GDP as the turning point in the economy rather than looking at the behavior of GDP in conjunction with other measures such as the behavior of employment can lead policymakers to pull back on the recovery effort too fast. If employment follows same path it followed in the last two recessions and lags GDP considerably, the need for stimulus in employment will extend far beyond the point where GDP begins to recover. Thus, if some infrastructure projects cannot be completed before GDP turns upward, and instead take a year or longer to complete - something we're hearing a lot of worry about - that won't be a problem, just the opposite as it will provide a helpful and needed boost to employment.

I agree, but the unemployment rate is not the only additional metric that should drive policy.

Public attention, and therefore political attention, now focuses only on GDP and to a lesser extent on the headline unemployment rate. Other economic data are followed only by wonks and traders in the financial industry. Obama has announced a goal of putting middle class incomes on an upward trajectory, but available metrics are inadequate and largely ignored. Family and household incomes should be very important in tracking progress toward that particular goal, but they are available only annually and long after the end of a year. If these data were available monthly, or at least quarterly, and promptly after the end of the period, they could be very useful and could garner sustained public and political attention. It would be necessary to change the way data are collected and devote more resources.

The Obama Administration should adopt a careful strategy of economic metrics because you can only "expect what you inspect." If there are no good metrics to track progress toward goals, or if the metrics are obscure, out of date, or hard to interpret, progress will not occur, goals will get fuzzy, and accountability becomes impossible.

Presentation and leadership matter too. The selected metrics should be issued in a user friendly format with graphics and historical context that can go straight into news media without technical assistance and straight onto web sites. Top government officials should make it known frequently that they are instantly aware of the latest data and incorporating them into their policy deliberations. Major speeches should refer to the selected metrics and progress or lack thereof. Habits of the media and the public need to be changed—and they can be changed through this kind of leadership. Four or eight years of this kind of focus might leave an enduring legacy of what people think about when they think about economic conditions.