On Thursday, two former heads of the Bureau of Labor Statistics — one appointed by President Obama, the other appointed by President Trump — sounded the alarm bell in The Wall Street Journal:
Today, we’re raising an alarm: Perhaps the most vital indicator the agency uses to understand our nation’s economy — the U.S. monthly unemployment rate — is in imminent danger.
Once a month (usually on the first Friday), policymakers and financial traders react to the so-called Jobs Day report from the BLS, which estimates the monthly unemployment rate. Unfortunately, this nonpartisan fact-finding agency has been underfunded for more than a decade.
Specifically:
The BLS needs adequate funding to help run the Current Population Survey, which feeds into Jobs Day reports. At current funding levels, cuts to the survey’s sample size in 2025 will be unavoidable. That would endanger the quality and variety of estimates the BLS can produce. As technology evolves, people are less likely to answer calls from an unfamiliar number or open the door for a stranger. When the pandemic hit, without safe ways to conduct in-person surveys, response rates dropped to all-time lows. They’re still trending down.
From 2016 to 2020, the BLS and Census Bureau crafted a plan to modernize the survey by shifting most data collection to the web. Under this plan—which would require around $25 million—the BLS could modernize the Current Population Survey without sample-size cuts in only three years. But the money has never been appropriated.
If Congress doesn’t fully fund BLS’s current needs plus the modernization project during this funding cycle, we’ll lose major kinds of critical economic data.
The two former BLS commissioners — William Beach and Erica Groshen — are absolutely right.
In 2017, the economist Diane Schanzenbach and I laid out the case for high-quality, accurate government statistics. Our argument:
At a relatively small cost — only about one-fifth of 1 percent of the federal budget — the government statistical agencies do important work that is valuable to business, policymakers, and families. Cutting their budgets would be penny wise but pound foolish. It could very well cost the economy more money than it saves by hurting the ability of businesses and government to make critical decisions that affect all our lives, and our pocketbooks.
Businesses rely on government data to make crucial decisions. If the data are not of sufficient quality, the decisions are worse:
“Businesses, such as Kroger, rely on third-party proprietary models that use [American Community Survey] small area estimates to project sales for potential new grocery stores sites or remodeling of existing stores,” according to a 2015 report by the U.S. Department of Commerce. “Retailers, such as Target, use the ACS for neighborhood-level demographic data such as population density, owner-occupancy, and household size to determine the optimal mix of goods with which to stock its stores throughout the country,” according to the same report. Charles Schwab cites International Energy Agency (IEA) data in a 2017 report on the market outlook for the energy sector.
Should you open a business in Dallas? You might want to know information about the education and demographic characteristics of Dallas’ labor market and customer base. For that, turn to official government data. Retailers use official government data to benchmark wages and benefits, monitor consumer expenditure patterns, and determine when and where to open stores and distribution centers. Potential entrepreneurs use official government data when deciding to take the plunge and start a business. Firms use official statistics to forecast future demand, customer preferences, and to help with planning and management. Official statistics on employment, prices, and gross domestic product (GDP) are monitored closely by both individual businesses and the market as a whole.
The allocation of hundreds of billions of federal dollars rely on government data being high quality. There are serious consequences for the taxpayer if the data are off:
Social Security checks are inflated using the Consumer Price Index (CPI). If the CPI is off by even a little bit, billions of your tax dollars will be misallocated. It is important, therefore, for the CPI to be accurate. Information from the ACS helps determine how more than $400 billion in government funds are distributed each year. The Federal Reserve uses labor market, price, and other macroeconomic data to make decisions that impact the interest rate on your next car or home purchase. If those data are flawed, you could pay more for your house.
Professor Schanzenbach and I, along with economist Ryan Nunn and my AEI colleague Nicholas Eberstadt, wrote a report in 2017 that goes into this issue in much more depth.
American’s founding fathers knew the importance of high-quality government data. The U.S. Constitution has fewer than 5,000 words — roughly five times the length of this column — yet in the Constitution the founders required the government to collect data on population.
And James Madison, with his characteristic eye for practicality, argued in a speech in 1790 that data on economic activity would help legislators make better laws and would help elected officials better represent citizens. Madison observed that that kind of information had never been collected in other nations—and that for the U.S. to have accurate economic statistics would help the new nation to grow.
If gentlemen have any doubts with respect to [this information’s] utility, I cannot satisfy them in a better manner, than by referring them to the debates which took place upon the bills, intended, collaterally, to benefit the agricultural, commercial, and manufacturing parts of the community. Did they not wish then to know the relative proportion of each, and the exact number of every division, in order that they might rest their arguments on facts, instead of assertions and conjectures?
Today, in 2024, “in order that they might rest their arguments on facts, instead of assertions and conjectures,” the U.S. Congress needs to adequately fund the federal statistical agencies.