By: Dennis Schroader
Class: BUS 308
Instructor: Nicole Rodieck
Date: October 11, 2010
.There is, perhaps, no greater consumer or generator of statistical data than the federal government of the United States; in fact, every governmental agency generates some sort of statistic, the subjects of which range from business and economics to crime and punishment, and many more than can be described or are useful for the purposes of this paper. The mere fact that data is gathered, compiled and analyzed may concern some average Americans who worry about government intrusion and individual liberty, however, voters are increasingly questioning any statistic cited by politicians and government officials, particularly as an election looms near. Recent polls show a growing public distrust of government to do the right thing, which leads to uncertainty and volatility in financial markets, which further leads to a slowing of economic growth. This paper discusses two examples of federal agencies that generate large amounts of statistical data and their valid uses by the United States government, the growing distrust of government by the populace at large, and why that distrust is bad for America’s economy.
While statistical measures have been around longer than the United States, the Constitution of the United States specifically requires the government to collect such statistical data by way of the census (Article 1, Section 2, clause 3). Since 2010 is such a census year, this paper presumes the reader’s familiarity with the collection methods and type of information gathered. The original purpose for the decennial census was for apportionment of representation in the House of Representatives. According to the U.S. Census Bureau’s website (2010), census data is also used to redraw the lines of state congressional and legislative districts, distribute taxpayer dollars for social programs, and community planning. Many people, however, raise serious questions about the information required by the census.
One major opponent to some of the questions asked in the 2010 census was Rep. Ron Paul (R-TX), citing questions such as race and homeownership as unnecessary and without basis in the Constitution (McCullagh, 2010). The former presidential candidate is not alone; a poll conducted by Zogby International – a widely recognized public opinion polling firm – dated March 16, 2010, showed forty-nine percent (margin of error ± 1.5%) of the voters surveyed were not confident that their information would be kept confidential. In this student’s analysis, this is a symptom of the greater problem. Before going into that, it is imperative to describe another major government source of statistical data.
The federal agency most directly responsible for gathering employment and other economic data is the U.S. Bureau of Labor Statistics. This agency reports monthly on topics such as unemployment and the Consumer Price Index. The Employment Situation report, in which one finds unemployment data, is a large and complex document. According to media reports and politicians, the unemployment rate in America is currently 9.6% (Bureau of Labor Statistics, 2010). They glean this information from Table A-15 in the report, but it is a selective statistic, counting only those who are completely unemployed and actively looking for work. While some pundits prefer to cite the U6 number – currently 17.1% – this number is also misleading because it counts everyone who is unemployed and underemployed, even by choice. It is the opinion of this student that the U4 number – currently 10.3% – is the more representative statistic because it includes the conventionally unemployed as well as discouraged workers. Ideally, this statistic would also include those employed part time for economic reasons (unable to find full time work). Be all that as it may, most cite the U3. The confusing nature of this report and the statistics contained within is another cause of public skepticism in government. The data from these two agencies – and particularly the latter – is widely cited by news outlets, politicians and bloggers (among others) to lend credence to a political agenda, the examples of which are so numerous that they defy quantification and thus this student presumes the reader’s familiarity.
Public distrust of government
A Pew Research Center report (2010) shows that fifty-two percent of those surveyed believe that the political system in American can work; it is the members of Congress that are the problem. The report issued by Pew states that no fewer than seventy-six percent of those surveyed agreed with each of the following regarding politicians in Washington D.C.: “…that they care only about their careers, are influenced by special interests, are unwilling to compromise, and are profligate and out-of-touch” (Distrust, discontent, anger and partisan rancor). The report ends with a note that the margin of error at the ninety-five percent confidence level is just 2.5 percent. By any measure, this shows a huge majority of public opinion against political insiders and elected officials.
Historically, it appears that the public trust has declined steadily over the course of the forty-two years shown in the graph with significant drops intersecting with significant political scandals, such as Watergate, the Clinton impeachment hearings, and the unpopularity of the 2003 invasion and subsequent occupation of Iraq. As an interesting side note, the most notable increases in public trust occur 1) when the Congress and Whitehouse are not controlled by the same party and 2) in response to catastrophic crises, such as the 9/11 terrorist attacks. It is also interesting to note that those increases seem to have been tempered with the advent of the twenty-four hour news cycle and the internet.
Political misuse of statistics & other spin
One of the causes of the public’s rampant distrust of the government is that the people simply do not believe their elected representatives are telling the truth. A quick search using Google Scholar yields 61,000 hits for “political misuse of statistics” (Google, 2010). A recent example close to this student’s home is found in an editorial by the editorial board of The News Tribune (2010) blast incumbent U.S. Senator Patty Murray (D-WA) for outright lies and fabrications in her attack ads against her Republican opponent.
This, of course, is not news. In 1973, The American Statistician published a piece by Phillip Hauser (Statistics and Politics) in which he excoriates governmental pressure on statisticians “to make a given administration, administrator, or agency ‘look good’, ‘make a case’ or support a decision already taken on other than factual grounds” (p 68). Hauser focuses particular attention on both the Census Bureau and the Bureau of Labor Statistics, both of which faced public scandal and subsequent scrutiny at the time.
In 2007, then Senator Barak Obama (already running for president) made a claim that there were more young black men in prison than in college. According to the Washington Post (2007), no bastion of right-wing ideology, “this is an old myth that has been frequently shot down before” and that college enrollment of young black men is roughly five times the population of young black men in federal and state prisons and about two and a half times the total number incarcerated (p A6).
These are just a few of the countless examples of politicians “playing politics” with statistics and other data, a practice widely known as “spin”, and although expected by the public, it is the root cause of public distrust of government. The following section describes just why this distrust is bad for business.
Correlation between trust and unemployment
The Pew Research Center’s website (2010) shows a line graph of public trust in government from 1958 to the present. When compared with the monthly unemployment rate, there is an apparent inverse correlation between the two: as public trust in government declines, unemployment increases shortly thereafter, at least since the Carter administration. Since it is widely known in economic circles that unemployment is a “lagging indicator” (Investopedia.com, 2010), meaning that the unemployment rate is used to confirm weakness in the overall economy rather than predict it, it follows that public trust in government may have some causal relationship to unemployment and that the reverse could not be true. Let it be clear that this paper does not suggest a direct causal relationship.
A graph of the percentage change in Gross Domestic Product also shows a decrease in the growth of GDP (and in some cases, actual declines in GDP) slightly lagging declines in public trust. Once again, the fact that declines in GDP growth lag declines in public trust, there seems to be a correlation, although a look at these graphs does not suggest such correlation is linear or even direct.
Correlation between trust and investor confidence
While the Dow Jones Industrial Average (hereafter, “the Dow”) – a measure of how the stocks of thirty large, publicly held companies in the United States have traded during a standard trading session – is the most recognizable stock index, and is often cited by pundits and politicians alike, it is only a measure of thirty companies and not very representative of the marketplace as a whole. The use of this index as a metric by which the U.S. economy is tracked by media pundits and politicians bewilders this student.
The Standard and Poor’s 500 index (hereafter, “the S&P 500”) is a far superior measure of U.S. economic health because it tracks five hundred publicly traded stocks and represents roughly seventy percent of the total value of stock markets in the United States (Schick, 2010). While the raw data necessary to draw a clear linear correlation is unavailable to this student, a look at the five-year history of the index shows that public trust and the S&P 500 seem linked. This was determined by observing the shape of the graphs over the specified five-year timeline.
To somewhat confirm this suspicion, the Reuters Deep Pocket blog reports that investors have shown themselves increasingly less risk tolerant, particularly with regard to the equities market. In a particularly plainspoken passage, Reuter states of investors, “They’ve taken their marbles – $70 billion worth during that time period – and essentially gone home” (Scared investors sitting on the sidelines, 2010). Further, the seemingly interminable rise of gold prices indicates a global no-confidence vote in the American dollar and expectations of huge inflationary conditions. The Huffington Post (Craft, 2010) reports that a recent surge in the price of gold was caused by the Federal Reserve’s indication of further lowering of already historically low interest rates, an economic environment known for spurring on inflation.
Why public distrust is so bad for business
Since it has been established that public distrust of government has a correspondingly negative effect on businesses – at least as far as can be established within the limitations of this paper – it is now incumbent upon this student to explain why. When a population at large does not trust its own government to do the right thing, there is a great amount of anxiety as to what is coming next. That anxiety causes market instability, particularly in the equities market where a large part of regular citizens’ retirement savings is invested (Dow, 2010). Governmental “tinkering”, such as abnormally low interest rates and massive new industry-wide regulations and takeovers – such as banking reform, large-scale healthcare legislation and governmental control of large automobile manufacturers – along with apparent tax hikes and new energy legislation create uncertainty in the marketplace (Konzelmann, Wilkinson, Fovarvue-Davies, & Sankey, 2010).
While no one has ever successfully invented an economic crystal ball, a stable and growing economy requires a predictable set of taxation and regulation, otherwise entrepreneurs and venture capitalists have little incentive to take risks (Ringland, Sparrow & Lustig, 2010). It logically follows that this leads to fewer private sector jobs created, less discretionary consumer spending, lower tax receipts at all levels of government, and ever-higher personal and public debt levels. The U.S. private sector economy is largely dominated by consumer spending. As shown in the previously mentioned graphs, declining public confidence in government creates that instability.
Conclusion
This paper has attempted to cover a great deal of ground in a relatively short amount of space. In an effort to explain one of the sources of the public’s distrust of government, two of the largest and most recognizable agencies responsible for data collection and reporting were discussed along with some of the complaints about how that information is used in political discourse and the confusing nature associated with its general dissemination. This was followed by a few examples of the misuse of statistical data to deliberately obfuscate an issue, and an analysis of how public trust is apparently linked with unemployment rates and the economy in general.
There are no simple answers to problems as complex and institutionalized as those described here. The public needs to be able to trust that their government is more concerned about looking out for the public well being and less concentrated on pet projects (pork barrel spending), filling their campaign coffers, and generally looking out for #1. Trust that has been eroded for so long cannot be rebuilt overnight, or even in a single election cycle. That process will need to begin with politicians telling the truth, using statistical data honestly, and passing legislation with greater concern for the overall health of the American economy. The vast amount of data collected by the federal government is not, in and of itself, bad or dishonest. The way it is used by people who should otherwise know better most certainly is.
References
Bureau of Labor Statistics. (2010, October 8). Employment Situation. Retrieved October 9, 2010 from http://www.bls.gov/news.release/empsit.t15.htm
Craft, M. (2010, September 23). Gold prices fueled by anxiety, distrust of government, analysts say. The Huffington Post. Retrieved October 10, 2010 from http://www.huffingtonpost.com/2010/09/24/gold-prices-fueled-by-anx_n_737787.html
Dow, S. (2010, September). Cognition, market sentiment and financial instability. Cambridge Journal of Economics, 35(5). First published online August 20, 2010 doi:10.1093/cje/beq029.
Editorial board. (2010, October 8). Murray’s attack ads stretch facts beyond recognition. The News Tribune. Retrieved October 8, 2010 from http://www.thenewstribune.com/2010/10/08/1373699/murrays-attack-ads-stretch-facts.html
Hauser, P. (1973, April). Statistics and politics. The American Statistician, 27(2), 68-71.
Investopedia.com. (2010). What are leading, lagging, and coincident indicators? What are they for? Retrieved October 9, 2010 from http://www.investopedia.com/ask/answers/177.asp
Konzelman, S., Wilkinson, F., Fovarvue-Davies, M., & Sankey, D. (2010, September). Governance, regulation and financial market instability: the implications for policy. Cambridge Journal of Economics, 35(5), 929-954.
McCullagh, D. (2010, March 22). Census time heightens privacy concerns. CNet News online. Retrieved October 9, 2010 from http://news.cnet.com/8301-13578_3-20000859-38.html
n.a. (2007, October 3). The facts: Where do they get them? The Washington Post, p. A.6. Retrieved October 10, 2010, from ProQuest Newsstand. (Document ID: 1351574481).
Pew Research Center. (2010, April 18). Distrust, discontent, anger and partisan rancor. Retrieved October 9, 2010 from http://people-press.org/report/606/trust-in-government
Pew Research Center. (2010). Public trust in government: 1958-2010. Retrieved October 8, 2010 from http://people-press.org/trust/
Reuters. (2010, September 29). Scared investors sitting on the sidelines. Deep Pocket blog. Retrieved on October 8, 2010 from http://blogs.reuters.com/deep-pocket/2010/09/29/scared-investors-sitting-on-the-sidelines/
Ringland, G., Sparrow, O., Lustig, P. (2010). Beyond Crisis: Achieving Renewal in a Turbulent World. West Sussex: John Wiley & Sons.
Schick, K. (2010). A market by any other name. Investopedia.com. Retrieved October 9, 2010 from http://www.investopedia.com/articles/analyst/102501.asp
Scholar.google.com. (2010. Search results for “political misuse of statistics”. Retrieved October 10, 2010 from http://scholar.google.com/scholar?hl=en&expIds=17050,25657,26486,26488,26492,26494,26645,27007,27015,27028,27056&sugexp=ldymls&xhr=t&q=political+misuse+of+statistics&cp=9&client=firefox-a&hs=BFl&rls=org.mozilla:en-US:official&um=1&ie=UTF-8&sa=N&tab=ws
US Constitution, Article 1, Section 2, clause 3.
U.S. Department of Commerce, Bureau of Economic Analysis. (2010). Table 1.1.1: Percent change from preceding period in real gross domestic product. Retrieved October 9, 2010 from http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=Yes&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1958&LastYear=2010&3Place=N&Update=Update&JavaBox=yes#Mid
Zogby International. (2010, March 16). Census consensus: 87% of Americans plan to complete census. Retrieved October 9, 2010 from http://www.zogby.com/news/ReadNews.cfm?ID=1833
