Edward Lotterman
“Why did he do such a stupid thing?”
That was the question economist John Maynard Keynes asked in 1925 after Winston Churchill, then Secretary of the Exchequer, Britain’s treasury, decreed returning the pound sterling to its pre-WWI value against other currencies.
But the quote applies even more strongly to President Donald Trump’s lying about the validity of the Bureau of Labor Statistics’ job numbers released last week and then firing its very capable commissioner.
Churchill’s numbskull move immediately made all the exports of his highly export-dependent nation more expensive to buyers in other countries. Within weeks, tens of thousands of British workers were out in the street. In months it was many hundreds of thousands. The United Kingdom had created its own Great Depression five years before the rest of the world.
Trump’s action is equally boneheaded, but the harm won’t be as immediate or dramatic. Yet, in great part because he and minions like Kevin Hassett, director of the National Economic Council, keep doubling down, the damage may be broader, longer-lasting, and perhaps irreversible. However, few voters or members of the Republican party seem to appreciate the gravity of what is happening.
What is even more frustrating is that Trump is too obtuse to see how his lack of self control is self-sabotaging of his own goals.
Start with some simple facts and contradictions:
1. Trump wants lower interest rates, especially on politically critical ones like mortgages.
2. Trump wants to claim a booming economy with high employment and output.
3. Central banks, like our Federal Reserve, cut rates when an economy slows, with falling output and employment.
4. Central banks raise interest rates when an economy booms, with high and rising employment and output.
Therefore, Trump cannot have both 1 and 2 at the same time.
Now consider:
• The Fed targets interest rates but can only change them by increasing or decreasing the money supply.
• Changes in the money supply have great and immediate effects on very short-term interest rates, not mortgages.
• Long-term interest rates, however, especially for home mortgages or U.S. government debt maturing in 10 years or more, depend greatly on financial market expectations of the future, not Fed money supply jockeying today.
• If there is a great deal of uncertainty about what is happening in the economy and growth of the money supply reaches inflationary levels, markets will force long-term interest rates higher even if the Fed’s short-term target is lowered.
• Asserting without any factual basis that long-trusted employment numbers have been falsified for political purposes creates great uncertainty for financial markets, households and businesses.
• Uncertainty lowers the value of stocks, bonds, retirement accounts and other assets. It raises interest rates. It lowers the desirability of the dollar as a safe reserve for foreigners. It causes the value of the U.S. dollar to fall relative to other currencies.
• So Trump’s spontaneous outbursts are going to end up harming him more than helping. Unfortunately, most households and businesses will also be harmed.
Some background may be helpful.
The Bureau of Labor Statistics makes many tabulations of indicators each month. Two, the “household survey” and the “establishment survey,” focus on the most basic labor metrics with ones from the establishment survey at the center of the current brouhaha.
The Federal Reserve Bank of Kansas City does nothing in conducting or analyzing these surveys. It does, however, maintain a rich and highly used database of economic data that includes series derived from decades of these BLS surveys.
To better understand this week’s affair search online for: FRED Current Employment Statistics (Establishment Survey) https://fred.stlouisfed.org/categories/10; FRED Current Population Survey (Household Survey) https://fred.stlouisfed.org/categories/12.
(The first, a survey of employers is the source for about 700 data series. The second, contacting households, yields nearly 7,000 breakdowns by all sorts of criteria. After opening each of these pages, click the “Read More” link in the second line for explanations.)
Now for the big damage Trump’s little hissy fit will cause.
Start by understanding that information about our economy and society writ broadly is a “public good” in the sense of the term in economics. This is something of value that spills over to benefit others beyond the person, business or government entity that generates it. A public good is “non-rival,” again in economics terms: One person benefiting from it does not reduce anyone else benefiting. And it is “non-excludable:” Once produced, it is difficult to keep others from using it for their own good.
Given these factors, free markets do not provide sufficient incentives to produce information in quantities that are optimal for economic efficiency. If governments do not act to generate it, use of resources will be less efficient, and the people will be poorer.
It is not just private financial markets that benefit from, and depend on, government generated output, employment and price-level statistics. So do businesses in planning spending on new facilities or machines or hiring. So do local governments.
And farmers also need federally produced data. They rely on USDA stats on crop plantings and progress, grain stocks and exports and much other data, including from other nations beside ours. So do ag processors, trucking and rail firms, export elevators and others.
So what does this “public good” issue have to do with an impulsive president’s wild assertions about employment numbers?
Well, as Trump and sycophants like Hassett and Republican members of Congress continue to repeat these lies, they back themselves into a corner: Key people in business who depend on accurate data know that there was no BLS manipulation. But the more often the charges are repeated, the more pressure is placed on any loyal acolyte named to head the BLS to do exactly what Trump says shouldn’t be done: actually manipulate the numbers for political purposes to please a mercurial president’s ego.
And therein lies the crux of the problem: Trump says the trusted numbers can’t be trusted, so he creates a situation where everyone knows the numbers can’t be trusted.
If numbers released this month were, indeed, faked, will there be a revision raising them? How will that be calculated and explained? There are hundreds of BLS employees for whom the integrity of the system is part of their self-identity. Will none of them leak any nefarious actions of a Trump puppet?
Moreover, any political revisions of employment numbers long accepted as accurate by key users will taint confidence in other data series.
If employment data is untrustworthy, what about the World Agricultural Supply and Demand Estimate due out this Tuesday or the subsequent one on Sept. 12? Farmers, grain handlers and shippers, input suppliers and others, not just in our nation but around the world, depend on the accuracy of this report. They make decisions accordingly. If they cannot trust it, decisions will be riskier and resource use therefore less efficient. Someone’s food will cost more.
One can go on and on. A loss of faith in oil and gas data would have similar effects.
Mistrust will spread across all indicators. We got the “flash,” or Advance Estimate, of GDP for April through June from the Department of Commerce on July 30. Everyone in business knows that this first cut at output of goods and services is based on limited data. There always are revisions. But if the second estimate due out on Aug. 28 shows higher numbers than the first, who now will accept them unquestioningly?
The Consumer and Producer Price Indexes for July are due out this Tuesday and Thursday. It would be hard to fudge them. Yet if they are up, will we get more presidential denunciations?
With a new BLS commissioner in place, who will trust these same indicators for August when they come out in September? Some 70 million Social Security beneficiaries and another 8 million SSI recipients will get a cost-of-living adjustment for 2026 based on consumer prices for July, August and September. If the new BLS director is seen as dancing to the tune of a president who demands rosy numbers, can nearly 80 million of us count on a correct number?
What Trump fails to realize is that after this week’s outbursts, tens of millions of Americans, even many who voted for him, will suspect that their household budgets for next year will suffer because of an egotistical fear of any indication that tariffs or Trump policies are driving up living costs.
Overall, important outcomes are not always dramatic. They happen at the margins, often slowly. What happened this week will raise interest rates and the costs of borrowing for families, businesses and government. It thus will lower the value of physical and financial assets. It will reduce the value of our dollar, already down 6% or 10% relative to other currencies depending on the index used, even more.
None of this is good for the country and, ironically, not good for President Trump.
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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.
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