The ripple effects of the BLS firing

Politico

21 hours ago

SLIPPERY SLOPE — The good news for Donald Trump is that the Jeffrey Epstein saga didn't dominate the news cycle today. The bad news? Four days after firing the head of the Bureau of Labor Statistics, the president was still answering questions about sacking the civil servant who served as the stats chief for economic data, and his unproven claims that the latest jobs data was rigged to make him look bad.
His party has largely circled the wagons around him. Critics continue to draw some of the most unflattering — and uncustomary — parallels possible. Trump's move, they argue, is placing the world's largest and most advanced economy in the company of basket cases and developing economies.
Janet Yellen, the former Treasury secretary and chair of the Federal Reserve, described the firing to the New York Times as 'the kind of thing you would only expect to see in a banana republic.'
Others see comparisons to Argentina and Greece, two nations where government meddling with economic data famously led to harsh consequences.
In Argentina, former President Nestor Kirchner fired the head of his government's economic data agency and pushed the agency to produce rosier numbers. Argentinians began to doubt the veracity of the numbers, leading to even more pessimism about the country's economic outlook. The government's data was widely dismissed as unreliable, and the International Monetary Fund censured the government for not providing accurate economic data.
'It may sound implausible, but the same erosion of trust can happen to the United States if institutions like the BLS are politicized,' says Argentine economist Martín Uribe.
In a statement, the Council of Professional Associations on Federal Statistics wrote that the rationale for firing Erika McEntarfer, the former BLS commissioner, undermines the credibility of federal economic statistics. 'When leaders of other nations have politicized economic data, it has destroyed public trust in all official statistics and in government science,' the statement said.
The BLS is already struggling under resource cuts, staff reductions and declining response rates, and those challenges could worsen under a more partisan BLS commissioner, says economist Jed Kolko, who served as under secretary of commerce in the Biden administration. While he stressed that 'we're a very long way' from U.S. economic data being unreliable, Kolko says he worries about the BLS failing to publish thorough data sets that allow analysts to verify its numbers.
In that case, decision-makers could be left to rely on private sector data to fill in the gaps. But that alternative faces serious limitations, he says, because private sector data is often checked against the federal government's numbers to ensure it's accurate.
'Once credibility starts to unravel, it is hard to rebuild,' Kolko says. 'And policymakers, investors, businesses, households, all make decisions based on economic data that they need to be able to trust.'
The nomination of a partisan BLS commissioner as McEntarfer's successor could make things worse. And it would have knock-on effects at other agencies like the Census Bureau or the Bureau of Economic Analysis if civil servants fear presenting the White House with data that upsets the president, according to Kyle Handley, an adjunct scholar at the Cato Institute who leads UC San Diego's Center for Commerce and Diplomacy.
Handley stresses that giving up its edge in data reliability could mean 'ceding ground to other countries' for the U.S.
'A lot of organizations rely on us for government data, like the IMF and the World Bank, and that gives Washington some informational leverage on these international institutions,' says Handley. 'And if they don't think that the U.S. is the gold standard of statistics and data reliability anymore, then that's just another way in which the U.S. will become less of a player.'
That's in addition to a likely impact on bond yields resulting from a lack of confidence in economic data, which could further damage the American economy by impeding capital flows into the U.S.
The Trump administration's approach to trade policy could also be undermined since it is underpinned by the bet that the U.S. economy can withstand an extended trade war. If trading partners doubt data showing the strength of the U.S. economy, that could weaken the White House's position, says economist Steven Kamin, a senior fellow at the American Enterprise Institute who has worked for the Fed and the White House Council of Economic Advisers.
The appointment of a truly independent civil servant to lead the BLS would avoid that worst-case scenario. But even if the firing was just a fleeting burst of anger, says Kamin, trust in the agency will still take a hit.
'If the temporary fit of pique explanation holds, this certainly still degrades the U.S. standing in the world,' says Kamin. 'It reduces the administration's credibility. It reduces the desire of investors to hold U.S. dollar assets, and it reduces the desire of our trading partners to work with us.'
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