The Quality of Economic Statistics is About to Erode
Guest post by Andrew Reamer, George Washington University
House and Senate appropriations committees have approved substantial fiscal year 2012 budget decreases for the U.S. Census Bureau, the agency responsible for producing data to guide the government economic and fiscal policy and business investments across a $14 trillion economy. Sadly, the committees fail to recognize that their cuts, by leading to less effective public and private sector decisions, are likely to cost the nation dearly in terms of economic activity and jobs, while saving the public well less than a dollar a person.
To be precise: In July, the House Appropriations Committee slashed the Census Bureau budget by 17 percent below the president’s request, or $169 million. This past Wednesday, the Senate Appropriations Committee cut the request by 8 percent, or $81 million.
In response to the House committee action, the Census Bureau indicated that it would have to pull the plug on the 2012 version of the Economic Census, the agency’s flagship business survey conducted once every five years to gather data from the large majority of U.S. business establishments.
Without a 2012 Economic Census, government and business decision-makers would have to rely on a 2007 model of the economy for the rest of the decade. More specifically, the Economic Census’ termination would hurt the nation’s economic well-being in three ways.
First, it’d harm the effectiveness of our macroeconomic policies in the midst of attempting to emerge from a difficult recession. By creating a database of U.S. businesses, the Economic Census provides the foundation for twelve Principal Federal Economic Indicators—including gross domestic product, industrial production, labor productivity, producer prices, and manufacturing, trade, and services activity measures—that are used to guide federal macroeconomic policies. As the basis for the input-output model of the economy, a current Economic Census makes possible more reliable forecasts of GDP and federal and state revenues, no small thing at this moment in time.
Second, loss of the Economic Census would hurt the nation’s economic competitiveness. Individual businesses use it to compare their operations to industry norms, find markets, and make decisions about operating sites, capital investment, marketing, and product development. Industry associations rely on data from the Economic Census to gauge sector structure and trends. The Economic Census allows federal agencies like the National Science Foundation and the International Trade Administration to generate policy recommendations on innovation, competitiveness, and trade. State and regional development organizations rely on the Economic Census to assess their competitiveness and to estimate the impacts of proposed development projects. Academic researchers delve into Economic Census microdata to explain industry dynamics and the implications for public policy.
Third, and important for readers of this blog, termination of the Economic Census would mean that the substantial progress we’ve made in identifying the importance of entrepreneurship to economic growth would be significantly slowed. The Survey of Business Owners component of the Economic Census, capturing key data on 2 million businesses and their owners, would be no more. Further, the value of the Census Bureau’s Business Dynamics Statistics, which tracks the evolution of individual establishments, would be diminished. BDS data have been critical in helping us understand that new businesses are the nation’s primary job generators.
For the coming year, the best case scenario is that the Senate mark will prevail. But while the Senate committee’s cuts are less than half of the House committee’s and while the Senate committee directed the Census Bureau to preserve the 2012 Economic Census to the extent possible, an 8 percent cut is not minor—other, smaller, economic surveys will hurt instead. Have no doubt, next year’s budget will result in diminished economic statistics, in terms of availability, reliability, or both.
Fundamentally, Congress—both houses, both parties—lack understanding of the essential role of economic statistics in enabling national prosperity, the small costs of funding the statistical system, and the almost infinite returns on that investment. They also don’t recognize that federal leaders from the nation’s founding until recently placed great emphasis on business data collection to guide policy—an Economic Census was first carried out in 1810 and on a regular basis since.
To help Congress understand the value of economic data in general and the Economic Census in particular, the American Economic Association is hosting a Capitol Hill briefing, “Hi-Beams for the Economic Road Ahead: The Importance of the 2012 Economic Census for Business and Government Decision-Making,” on September 26 from 12-1:15 PM in the Rayburn House Office Building, Room B-340. Nineteen business, policy, and research associations are serving as co-sponsors. Readers of the Policy Forum Blog in the DC area are welcome to attend. You can RSVP at email@example.com.
While briefings can help educate this Congress, sustained investment in economic statistics will come only if congressional members hear directly from decision-makers and analysts. Unlike many federal efforts, statistical agencies lack politically influential allies. Their best friends tend to find advocacy an unnatural act. If we can overcome that, we’ll find that there is power in numbers in more ways than one.
Andrew Reamer is a research professor at the George Washington Institute of Public Policy at George Washington University.