The Mystery of the Awful Economists

In the past, I discussed the dividend tax cut and post-bubble hangover here, and the unintended consequence of accelerated depreciation here.

But that still leaves a long list of unconventional issues that may be at least partly responsible for anemic jobs numbers:

From Bias to Underemployment

Political Bias: Hard though it might be to imagine, some economists have a political bias.

I am not referring to well-known political economists such as Paul Krugman or Larry Kudlow. Both of these gentlemen are well-known partisans. Rather, I am talking about those hacks -- on both the left and the right -- who month after month put forth partisan predictions contradicted by the weight of the economic evidence. Rather than providing economic guidance to businesses, investors or policymakers, they serve as a balm to political operators looking for intellectual support of a particular agenda.

The analyst scandals of the 1990s focused attention on the biased, conflict of interest-riddled research departments of large brokerage firms. Today, economists have become the new analysts. But instead of whoring themselves out for banking business, some have allowed the hope of a plum appointment to the Fed or White House or think tank to influence their tortured modeling or forecasting. Their analyses have morphed from dismal science to political propaganda.

Not-in-the-labor-force: The 5.2% unemployment rate has been a soothing data point for the bullish economists. Unfortunately, it is also a highly misleading one. A new class of unemployed has been driving the unemployment data and could also be another source of forecasting error.

The math is simple: The employment rate is a percentage of people with full-time jobs divided by the labor force. The unemployment rate is the balance (100% minus employment rate percentage = unemployment rate percentage).

Historically, employment goes up (and unemployment rate goes down) when more people get jobs. But this time around, we see a new phenomenon: The employment rate has increased not because people are finding work, but because they are dropping out of the labor force, and in significant numbers. It's not that the numerator is going higher (more jobs), it's the denominator going lower (smaller labor pool) that has been driving the unemployment data.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].