Political Bias Corrupts Economic Analysis
Those of you who over the many years have followed some of the thoughts and observations I jot down each morning may have noticed several themes. Prominent among them is that forecasting is folly; cognitive errors create investing mistakes; consider context when analyzing data; recency bias overemphasizes the latest data; mixing politics with investing is a costly mistake.
Which brings us to an article in the National Review that managed to combine many if not all of these themes: "2014's Jobs Boom Wasn’t Even Much of a Boom. Does This Jobs Report Mean It’s Already Over?"
As I noted back in 2011, “When you are in the polling booth, vote however you like; but when you are reviewing your investing options, it is best to do so with a cold, dispassionate eye.”
The same is true for analyzing economic data. Those of you who zestfully pursue politics will dislike this analysis, for it points out the many errors of your ways. You are not my intended audience; rather, the people who are actual investors will find this useful (and perhaps it will save them some money).
Let’s have a look review some of these analytical errors.
False Statement: Let’s begin with the headline, which starts with the assertion that “2014’s Jobs Boom Wasn’t Even Much of a Boom.”
That statement is demonstrably false, as any fair reading of the employment data show. (The author even implies as much in the article.) Bloomberg first noted the strength of the hiring figures halfway through last year. The pace continued for the rest of the year, and “2014 became the single best year for job gains since 1999.” In other words, there is no way to read “Jobs Boom” as anything other than a boom.
There are, to be sure, lots of ways to criticize the state of the labor market: Wage growth has been anemic, labor underutilization remains a concern and the labor force participation rate is the lowest since the late 1970s. Any of those areas would make for a far more accurate and compelling criticique. But to make the claim that 2014 wasn't a good year for job gains, isn’t just a misinterpretation, it's simply wrong.
Lack of Causation: I have written many times that presidents get too much credit for the good and too much blame for the bad. This is true for all presidents, including George W. Bush and Barack Obama.
We can track the markets by the "4 Year Presidential Cycle"; we can get more granular and look at the second year of four-year terms in a "Presidential Cycle"; we can even look at "Stock Market Returns by Party." But crediting or blaming the president alone for the state of the economy is simply foolish. The president is powerful. But the Federal Reserve and Congress have as much or more influence on the economy, as do state and local governments.
Selective Perception: Political animals see the world through a prism of partisanship. Their belief in the righteousness of their ideology knows no bounds. That is how you can end up with a sentence as absurd as this one: “Some called it the Obama boom; I prefer to think of it as the Mitch-McConnell-is-almost-majority-leader boomlet.”
If you believe that a year’s worth of hiring is being driven by calculations as to who the next majority leader of the Senate will be, there's really no way that I or anyone else can engage in rational debate with you.
Regardless of how you reach your conclusion, it isn't grounded in reality. There is no causation, it lacks any sort of empirical economic basis, combining as it does a mix of wishful thinking and self-deception.
Arguing in the Alternative: Defense lawyers create a variety of competing and, on occasion, mutually exclusive arguments in order to defend a client. Some of the reasons for this include pre-empting opposing counsel’s arguments, creating reasonable doubt, preserving specific rights on appeal or positioning the defendant for sentencing. That is why a defense attorney might say something like “My client did not do it, but if he did it was self-defense.”
In the real world, we don’t get to argue that way. It is intellectually inconsistent. To say there was no jobs boom and that it's already over is simply a notion driven by political bias.
There is a tendency to let politics drift into market discussions, as underlying economic ideologies often have a political component. After all, politics is very often about how the economic pie gets divided up. Rationalizing how that is accomplished is especially political.
Politics is squishy. The goal is winning elections, not a winning portfolio. That may be why some of most inaccurate financial commentaries have politics as their foundation.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Barry L Ritholtz at email@example.com
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