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Thursday, June 29, 2017

Dishonest Economics A Threat to Wyoming

On Tuesday, the Bureau of Economic Analysis released another set of data on state-level personal income. Here in Cheyenne, the state's de facto chief economist Jim Robinson trips on his own shoestrings in an efforts to turn negative economic news into a success story:

Wyoming Senior State Economist Jim Robinson says a new report on personal income growth in the first quarter of 2017 is the latest sign that the slumping state economy might be picking up. The report from the U.S. Bureau of Economic Analysis [BEA] shows personal income in the Cowboy State grew by 1.1 percent over the period of January-March of 2017. That matched the personal income growth for the Rocky Mountain, which includes Colorado, Montana, Utah, and Idaho as well as Wyoming. By comparison, overall income across the United States grew by just slightly less over that period, at 1.0 percent. Breaking down the Wyoming numbers, the state saw income growth in 8 of the 24 BEA-defined industries over the first quarter. ... Robinson says the income report overall confirms trends that are being seen in other areas, including a gradual increase in the number of jobs in the critical mining sector. He says the overall picture is that "things are slowly improving in the state" as far as the economy is concerned. 
I just can't let this one fly. I have done my best to be respectful toward Robinson in the past. After all, he is hired by the state to tell the state legislators what they want to hear, not what they need to hear. However, what is a man's loyalty to his masters worth if his deeds help bring doom to his community?

Macroeconomic analysis is not some esoteric conversation over numbers among a bunch of PhD's. It is not some inconsequential academic dinner party. 

Macroeconomic analysis, in case Jim Robinson has forgotten it, is about people's lives. Yes: the analysis that he provides is used by politicians to change people's lives. What he tells our legislators can make the difference between a bright future for our children here in Wyoming - or tax hikes destructive enough to turn our state into an economic wasteland. 

To put a number on the difference: can you afford $700-$1,000 per year in higher taxes, per man, woman and child in your family?

Let me show you the numbers that Jim Robinson is talking about when he says he sees signs of improvement in the Wyoming economy. Let me show you what he calls an increase in personal income. 

In Figure 1 below, the blue bars are changes to personal income in the U.S. economy as a whole. The red bars are growth in personal income in Wyoming; the yellow bars represent decline in our state's total personal income. Please note the bars that represent the first quarter of 2017, at the right end of the chart:

Figure 1
Source: Bureau of Economic Analysis, State Personal Income Data 

The increase in personal income that Jim Robinson said signals a brighter future for our state; the increase he said was higher than the increase in U.S. personal income; is really a decline. And not only that: the decline in personal income in the first quarter of 2017 is the sixth consecutive quarter of decline.

How does Jim Robinson turn this decline into an increase? Simple. Pick the data that suits your purpose. The oldest trick in the book. 

Robinson is looking at the change in personal income from the fourth quarter of 2016 to the first quarter of 2017. Viewed that way, it looks like personal income is increasing. There are just two problems with his number:

1. It is still the only economically relevant increase in 2.5 years, and the first quarter since Q1 of 2016 when personal income has not been in the negative. In plain English: his number is an anomaly, not a sign of a new trend. But even if we accept his number as relevant, it still does not tell us anything close to what he wants it to.
2. His number is not relevant. The quarter-to-quarter change in any macroeconomic variable tells us absolutely nothing about long-term trends in the economy. It is a little bit like judging the long-term performance of a retail business by comparing Thursday sales numbers to Wednesday sales numbers in the same week.

Jim Robinson knows this. He knows that the real trend-relevant number is the year-to-year change in economic activity. Yet if he used that number, he would get the results I reported above in Figure 1.

Sorry, folks, but this is not a popularity contest. I am not in this to be buddies with our elected officials. I am in this to provide analysis of the Wyoming economy, as impartial as I possibly can. This means telling our legislators what they need to hear, which sometimes is quite different from what they want to hear.

Let me explain the numbers in Figure 1 in a different way. Suppose that in the first quarter of 2010 you deposited $100 into two different bank accounts. In one account the money would grow at the same rate as personal income grew in the U.S. economy as a whole from 2010 to the first quarter of 2017. In the other account the money would grow at the personal-income growth rate for Wyoming over the same period. 

Figure 2 explains how much more money you would have had in the Wyoming account:

Figure 2
 
The Wyoming account performs better for the first 4-5 years, then the U.S. account starts catching up. By the first quarter of 2017 the U.S. account actually holds more money! And please keep in mind that these numbers include the personal income of both coal miners and government employees, all of whom make quite a bit more money than the average private-sector employee.

When Jim Robinson compares the Wyoming personal-growth rate to that of the U.S. economy, he flips around the red, negative bar at the end of the time line in Figure 2. He can do this by using quarter-to-quarter growth numbers, because there is a slowdown in the rate at which the U.S. account catches up with, and now outgrows, the Wyoming account.

The consequences of providing dishonest macroeconomic analysis are far greater than most people realize. The welfare statists in our  legislature will take Jim Robinson's words as reason to continue to push for a Gross Receipts Tax. They will also use Robinson's words to convince fence sitters that it is perfectly fine to impose the tax on the Wyoming economy, because the state's senior economist says that the economy is showing signs of improvement. 

Let me point out that the inflation-adjusted numbers for personal income in our state are even worse than shown by the current-price numbers we discuss here. Let me also point out that the private sector of the Wyoming has been losing jobs for 25 months in a row. How Jim Robinson can turn this into a sign of improvement is beyond me, even factoring in his status as the state's senior economist. 

Again, sorry for being full of beans this morning, but there are few things I dislike more than professional dishonesty among economists. But my dislike of that dishonesty pales in comparison to the consequences if legislators actually use Robinson's creatively manufactured numbers as reason to raise taxes. Tens of thousands of Wyoming families could be left without jobs, forced to leave the state, maybe walk away from a home they have invested years of time and money in. Children will be uprooted from their schools and communities.

And at the end of the day, economists like me and Jim Robinson have been put on this Earth to help secure the future prosperity of those families. It is a privilege for us to be able to do what we do - it is not an entitlement that we can take for granted, let alone use to further our own comradery with people in power.
Wyoming Senior State Economist Jim Robinson says a new report on personal income growth in the first quarter of 2017 is the latest sign that the slumping state economy might be picking up.

Read More: Wyoming Economist Calls Report 'Pretty Good News' | http://kgab.com/wyoming-economist-calls-report-pretty-good-news/?trackback=tsmcli

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