Economicians and policymakers are concerned about the validity of data in the world’s largest economy following President Donald Trump’s firing of a top US statistician last week.
After the release of disappointing employment figures on Friday, Trump’s dismissal of Bureau of Labor Statistics Commissioner Erika McEntarfer sparked concerns about the accuracy of Washington’s economic data, which are trusted by countless businesses and investors in the US and around the world.
The “baseless” ouster, according to the National Association for Business Economics, “could result in long-term harm to the institutions that support American economic stability.”
According to Erica Groshen, the director of the Bureau of Labor Statistics under former President Barack Obama, “it could open the door to political meddling and certainly will undermine trust in federal statistics that businesses, policymakers, and individuals use to make some of their most crucial decisions,” she told Al Jazeera.
If Trump’s firing of McEntarfer and other presidential appointees is allowed to stand, Groshen said, he might make it a habit to do so for any head of a statistical agency or other organization that distributes “unwelcome news.”
He is likely to be replaced by appointees who place their needs before the mission of their organizations, ethics, or scientific integrity, according to Groshen.
Trump announced on Sunday that he would name a new Bureau of Labor Statistics head in three or four days, citing McEntarfer’s claim that he had been “rigged” without any proof that the most recent job figures had been “rigged” to make him look bad.
“Global ramifications”
A deterioration in trust in US official economic data would have consequences for all countries.
The US continues to be the world’s largest economy by some distance despite the growing influence of emerging economies like China and India.
More than one-quarter of the world’s economy is accounted for by the US’s gross domestic product (GDP), which is estimated to be $30.3 trillion. About two-thirds of China’s GDP is thought to be that amount.
Businesses and investors from London to Dubai and Tokyo are closely following US government data on trade, employment, consumer spending, and GDP, which are regarded as crucial indicators of the direction of the global economy.
Many nations, including democratic states, have been accused of manipulating economic data for political reasons, frequently with bad publicity.
Greece was accused of purposefully falsifying data in a shameful report by the European Commission in 2010.
Argentina was officially criticized by the International Monetary Fund in 2013 for providing allegedly inaccurate information about economic growth and inflation.
“Migration of economic data”
According to some research, strong-arm leader-led nations are particularly susceptible to misrepresenting the state of their economies.
Economic openness and democracy, according to a study conducted in 2024, reduced the ability for governments to manipulate statistics, despite the lack of discernible benefits from the freedom of the media or the statistical office’s independence.
According to Luis Martinez, a professor at the University of Chicago, autocratic nations artificially increased their annual GDP growth by about 35% in a paper from 2022 that used satellite imagery of nighttime light as a proxy for economic development.
According to Tomasz Michalski, an associate professor of economics at the HEC Paris business school, “economic data manipulation is pervasive in history, especially in autocracies and dictatorships, to create narratives for the people, typically to embellish standards of living.”
However, “in countries that strive to be democracies or are more developed,” such deliberate behavior is more uncommon.
Critics immediately noted similarities to tactics used by strongman leaders to acquiesce to public support for their policies following Trump’s firing of McEntarfer, a career economist who was appointed in 2024 with overwhelmingly bipartisan support.
On Substack, a subscription-based newsletter platform, Nobel Prize-winning economist Paul Krugman said, “This is one more step on our quick descent into banana republic status.”
Under President Bill Clinton, Lawrence Summers, the US Treasury Secretary, characterized the firing as “the stuff of democracies clinging to authoritarianism.”
Although it was unclear whether Scott Sumner would attempt to directly influence the government’s economic figures, Bentley University professor of economics Scott Sumner said Trump’s decision made the US “look more like a banana republic.”
According to Sumner, “It’s actually difficult to deceive the public, and almost nobody was deceived by the manipulation in Argentina.”
“It’s not yet known whether Trump will attempt to do the same. Any attempt to do so is likely to fail.
The state of US economic statistics.
The Trump administration’s freeze on hiring federal employees and staff cuts at numerous agencies have been a growing concern for some time about the quality of US economic data.
Some economists expressed concern about the government’s economic statistics after Commerce Secretary Howard Lutnick disbanded two expert committees in March.
Due to “current resources limitations,” the Bureau of Labor Statistics (BLS) announced in June that it had stopped collecting price-related data in three US cities: Buffalo, New York, Lincoln, Nebraska, and Provo, Utah.
However, declining response rates to surveys among the general population in recent years had made data collection more challenging, raising questions about accuracy even before Trump’s resumption in January.
89 of the 100 policy experts surveyed in a poll conducted by the Reuters news agency indicated they had at least some reservations about the state of US economic statistics.
According to Michalski, associate professor at HEC Paris, “some data is just unreliable because people stopped responding to surveys or the responses became so biased because of the nonhomogeneous response rates.”
Given that many people don’t use landlines, are unreachable, or give careless answers to investigators, he said, there aren’t often simple ways to improve data collection.
Once politicians become involved, data are always at risk of manipulation, Michalski continued.
According to him, “it is possible to spin a story about inflation or GDP growth even with accurate numbers” by altering the base years or incorporating specific periods into narratives.
“There are undoubtedly incentives to manipulate and fabricate.” There is little to no punishment, really.
We seem to be heading in that direction, Groshen said, even though she doesn’t anticipate that US economic data will become less reliable in the near future.
The BLS will continue to operate as it has before, she said.
Source: Aljazeera
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