It’s an article of faith among politicians that business leaders know what’s going on in the economy. Journalists, too, lend CEOs credence when they trumpet quotes from the C-suite.
The broader public might have political differences with some executives, but at least we can assume they know whereof they speak.
But maybe we shouldn’t. Take this email, recently shared by Wall Street Journal reporter Kate Davidson, from an individual she identifies as a “bank CEO.”
In a charitable reading, there are at least eight things factually wrong with those nine sentences. Let’s start at the top: “The Fed Reserve’s FOMC is still using the jobless numbers to forecast inflation.”
But the Fed doesn’t use the “jobless numbers” alone to forecast inflation. The Cleveland Fed’s inflation model, for instance, uses “Treasury yields, inflation data, inflation swaps, and survey-based measures of inflation” to make inflation predictions.
And if anyone’s aware of labor slack not captured by the headline unemployment figure, it’s the Fed. Despite the official unemployment rate sinking below what many assume to be the natural rate of unemployment, around 5 percent, the Fed has continued to argue that there are pockets of slack in the economy.
As Yellen said last year, when the official or U-3 unemployment rate was at 4.9 percent: “This traditional metric of resource utilization almost certainly understates the actual amount of slack that currently exists.”
Yellen went on to note that the labor force participation rate, which is apparently this executive’s preferred measure, gave better insight into the amount of slack in the American workforce. “An unusually large number of people are working part time but would prefer full-time employment,” she said at the time.
In the banker’s garbled explanation of “Labor Participation Rate,” he or she seems to be referring instead to the U-6 unemployment rate, which includes those who have given up the job search. Even though conspiracy-minded observers like to assume unemployment rates can’t be trusted because the media tends to focus on the more flattering U-3 number, the Bureau of Labor Statistics publishes both numbers (and hundreds of others!) every month.
True to form, the banker uses one statistic produced by the BLS to debunk another statistic produced by the BLS. Trump does the same when he claims that 93 million people are out of work—a number derived erroneously from BLS data—and in the next sentence complains the BLS unemployment numbers are bunk. That's a tough pull considering that the data all come from the same survey. And there’s no way the Fed could “cook” it, as our friend suggests, since the Fed doesn’t compile the data.
We’re not even done with the first paragraph. The CEO then says the Labor Participation Rate, which we’ll assume to be the LFPR, is “getting worse.”
Over the last 15 years that number has fallen consistently, including for the years after the recession. But since around this time last year, labor participation has been on an upswing, a development cheered by economists as a sign that slack is finally really drying up.
The statement “The economy is not expanding” is wrong. It is expanding, if slowly, at 1.4 percent annually as of the second quarter.
The second paragraph goes into some of your more orthodox, AEI-style supply-side economics, which we don’t need to litigate here. Suffice to say—since it’s worth being persnickety with a person whose job it is to manage others peoples' money—“federal regulation of business and banks” does not fall under the heading of “Fiscal Policy” but rather “things that bank CEOs would dig.”
That latter category really explains the whole feverish muddle of a letter. Though the reporter didn’t identify the CEO, she tweeted the source was a “teeny tiny midwestern bank.” This wasn’t Jamie Dimon, thankfully.
So it’s not hard to imagine this regional banker (whose livelihood rests almost entirely on net interest margin) raging at the faceless bureaucrats in Washington who have set interest rates near zero for the past eight years and stifling returns on new loans. And we can’t expect every single chief of every single Podunk lender to have a masterful grasp of monetary policy.
But the effortless transition of this letter from statistical nonsense to Chamber of Commerce talking points about lower taxes and reduced federal spending doesn’t reflect too well on the latter. Maybe we should be concerned that the same sort of self-serving credulity that would have one doubt BLS stats evidently makes supply-side economics enticing.
Then again, maybe we should just try not to cast bank CEOs as paragons of economic wisdom.