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What Jack Welch should have said

Jack Welch recently caused a ruckus by suggesting that the government was “cooking the books” with its economic data. Specifically, he tweeted the following last Friday after the employment situation report:

Unbelievable jobs numbers..these Chicago guys will do anything..can’t debate so change numbers

The clear implication was that President Obama was in trouble after his disastrous debate performance on Wednesday night. So Obama and his minions, as typically corrupt Chicago pols “who will do anything” to win a political contest, did something wrong to get a good jobs number.

This is absurd for a number of reasons. First, if I were going to rig the jobs numbers, I would have manipulated the non-farm payroll number because that is the number people look at. The household survey number that caused the large dip in the unemployment rate is notoriously volatile. Second, Welch explained away his nonsensical comment by writing an Op-Ed that pointedly contradicted the reasoning in the tweet. Welch wrote:

Some questions allow for unambiguous answers, but others less so. For instance, the range for part-time work falls between one hour and 34 hours a week. So, if an out-of-work accountant tells a census worker, “I got one baby-sitting job this week just to cover my kid’s bus fare, but I haven’t been able to find anything else,” that could be recorded as being employed part-time.

The possibility of subjectivity creeping into the process is so pervasive that the BLS’s own “Handbook of Methods” has a full page explaining the limitations of its data, including how non-sampling errors get made, from “misinterpretation of the questions” to “errors made in the estimations of missing data.”

Bottom line: To suggest that the input to the BLS data-collection system is precise and bias-free is—well, let’s just say, overstated.

Is that why he wrote the tweet – because of “the possibility of subjectivity creeping into” the BLS data collection process? I call bullshit. Welch originally tweeted “these Chicago guys will do anything..can’t debate so change numbers” That has absolutely NOTHING to do with BLS data collection process subjectivity. It’s an accusation of fraud, plain and simple.

I should point out that the household survey numbers are bottoms up data produced by civil servants. Even if the data collectors were biased on an individual level, the sample size and the number of civil servants producing the data is large enough that this wouldn’t matter as those data points would be overwhelmed by the mass of aggregated data. Such a process also makes it hard for a political appointee to insert herself and manipulate the data from the top down.

In any event, Welch goes on to question the employment numbers as an accurate interpretation of the employment situation, a more nuanced and effective thread in his criticism. I agree with Welch that the unemployment number is not the end all and be all of jobs data, one reason I often use the higher underemployment number called U-6.

Moreover, Austan Goolsbee, the President’s former chief economic advisor, made similar points in a 2003 New York Times article about the reported number called U-3 being problematic during the Bush Administration. Goolsbee even said “the government has cooked the books.” That sounds very, very partisan if you asked me. Equally, Jack Welch, a Mitt Romney supporter, sounds partisan today.

What I am hearing is cognitive dissonance. Discounting US economic data as fabricated or fake when it doesn’t fit your own narrative is the epitome of cognitive dissonance. And dealing with ‘unacceptable’ data by ignoring it or dismissing it leads to incomplete analyses that lead to poor decision-making.

I think what Jack Welch should have said is this:

The US is still experiencing serious economic dislocation from the economic crisis. Fed Chairman Ben Bernanke tells us this every time he opens his mouth. He has even relied on this fact to start another round of quantitative easing, arguing that more easing will help reduce unemployment. The fact is more needs to be done about employment in this country. And I don’t believe for one second that the unemployment numbers accurately reflect the economic distress in the US economy. There are a number of reasons why these numbers don’t work for me, none of which has to do with manipulating data from month-to-month for political reasons. But clearly, as I am a Romney supporter, I’m saying this because I believe the Obama Administration must take the blame.

I know that’s way over the 140-character limit for Twitter, but that would have been an honest and thoughtful way of talking. What Welch has done in tweeting his partisan accusation of fraud – and then concocting entirely different reasons for why he questioned the numbers – is bring shame upon himself and everything associated with him.

I will file this post under the tag ‘Banana Republic’.

Source: WSJ

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

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