Introduction to Post-Truth Statistics
The world is already suspected to be in a post-truth era, but the possibility of entering an era of post-truth statistics is becoming increasingly concerning. The US employment report, released monthly, is one of the most closely watched indicators of the world’s largest economy’s health. The numbers in this report can significantly impact financial markets. However, when the jobs report was weak, US President Donald Trump labeled the numbers as "phony" and fired the head of the agency responsible for the report, Erika McEntarfer.
Attack on Government Statistics
This unprecedented attack on the government’s impartial statistics body, the Bureau of Labor Statistics, raises concerns about the trustworthiness of US economic data. The Bureau of Labor Statistics is responsible for tracking crucial numbers such as jobs, wages, and inflation, which are essential for understanding the economy’s performance. Trump’s actions have sparked a war on numbers and long-standing institutions, making it questionable whether US economic data can be trusted anymore.
Chipping Away at Independence
Replacing the head of the Bureau of Labor Statistics with a Trump loyalist might seem insignificant on the surface. However, the issue goes beyond firing one official, as the Trump administration has taken steps to undermine the quality and independence of America’s economic data. The employment report is a vital tool for millions of Americans to understand the economy’s growth, slowdown, or trouble. Without reliable data, making informed decisions becomes challenging.
Disappearing Data
Hundreds of US datasets and over 8,000 government webpages have vanished due to staff firings. These datasets, funded by taxpayers and relied upon by researchers, are now endangered. Academics have launched the Data Rescue Project to preserve and share this data publicly. Critical economic statistics agencies, including the Bureau of Labor Statistics, have cut staff, resulting in less precise data. The irony lies in the administration attacking officials for unreliable data when the unreliability is a direct result of their own budget cuts.
The Importance of Data Quality
Data is a public good, and its quality enables good policy decisions. The Federal Reserve relies on the Bureau of Labor Statistics’ jobs report and inflation numbers to set US interest rates. The consumer price index, a widely watched inflation index, is a benchmark for the US central bank’s mandate to keep inflation at its 2% target. Financial markets also closely watch government data, with US stock and bond markets moving sharply on jobs and inflation releases.
Alternative Data Sources
Sophisticated institutional traders, such as hedge funds, have long profited from access to higher-quality data. Some hedge funds use satellite images of Walmart parking lots to count the number of cars, predicting quarterly sales. A recent academic paper investigates whether private satellite data can substitute for official data. While satellite data can be useful, it has limitations, such as being expensive and only available to a few deep-pocketed investors. This creates inequities in data access and undermines market fairness.
The Future of Economic Data
The technological advancements in AI and the commercialization of space make satellite data ubiquitous. However, this data is still years away from replacing hand-collected inflation numbers or labor market surveys, which generate public statistics for everyone. The quality of economic data is crucial for making informed decisions, and any attempts to undermine it can have significant consequences.
Conclusion
The US is facing a crisis of trust in its economic data, with the Trump administration’s attacks on government statistics and institutions. The disappearance of data, staff cuts, and reliance on alternative sources have raised concerns about the reliability of economic data. While satellite data and other alternative sources can be useful, they are not a substitute for official data. It is essential to prioritize the quality and independence of economic data to ensure that policymakers and financial markets can make informed decisions. The future of economic data relies on maintaining its integrity and accessibility to all, rather than just a select few.
