Gary Cohn’s fun fact

I thought this piece by Justin Fox at Bloomberg was interesting and good.  The money bit is hard to distill further, so I will just cite him at length:

Cohn was speaking at the Jack Welch College of Business at Sacred Heart University in Connecticut. Welch, the former General Electric Co. chief executive officer, is the fellow who made the infamous — and unsubstantiated — accusation in 2012 that “the Chicago guys” were messing with the unemployment numbers to help Barack Obama get re-elected. Cohn was suggesting something less sinister — that the unemployment rate was “only that low because the participation rate has gone downward.” Only those who are actively looking for jobs count as unemployed; labor-force dropouts don’t. Explained Cohn:

The participation rate really measures people out in the U.S. population that are looking for jobs. There are so many people who are frustrated looking for jobs that they’ve just stopped. If the participation rate normalized — this is a fun fact — if it normalized to Day 1 of the Obama administration, we’d still be at an 11 percent plus unemployment rate.

I tried replicating that calculation using the most recent employment numbers that would have been available when Cohn spoke, those of March 2015, and came up with a 9.7 percent unemployment rate (it would be 9 percent now). The adjusted rate had last been above 11 percent in October 2013. So Cohn’s number was out of date, although not wildly far off.

I have a few thoughts on this, and sorry I am going to start by criticizing the journamalism part of an otherwise pretty good article.  The contrast between 11% and 9.7% is not marginal, especially when Cohn literally interrupts his train of thought to introduce this “fact.”

Cohn is the incoming NEC chair, so you would think he would be able to master simple arithmetic.  But apparently that is too high a standard for our “liberal” media to hold a rich guy to. After all, Cohn has done well.  Getting the first digit right is not for big picture guys like him, even when it comes to “facts.”

Could you imagine Bob Rubin or Larry Summers making a similar mistake? I can imagine Summers rolling his eyes, blustering, and using misleading metaphors to destroy anyone who dared disagree with him on anything. But making shit up? Not so much.


As for the figures Fox calculates, I got the same ones (using today’s data), so I guess this is not rocket science. If it was, to Cohn, then he could have just asked his chief economist, Jan Hatzius. Jan is numerate, and I think he may have published a hundred pieces addressing the participation rate in this cycle.

Secondly, why is Gary Cohn slagging Obama at a speaking engagement at Sacred Heart? Was his point that the labor market had not really improved?  Does he really believe that Obama picks the labor force participation rate?  He sounds like a member of the Failure Caucus, which missed the tripling, although I am not sure he was or did.

Finally, those counterfactual calculations are pretty silly, especially coming from a Republican* who is supposed to understand the supply side.  If Obama had just fixed the participation rate at Gary Cohn’s preferred level, then the labor force would have been larger, the unemployment rate would – all else equal — have been higher and the resulting additional surplus of employable workers would have resulted in faster employment growth.  If America had Canada’s population, then all else equal the unemployment rate would be -900%. Who cares?


Source: Tim Duy at Economist’s View.

The way to control for that issue is to look at – well – the published unemployment rate, which is probably the single best indicator of the cyclical position of the economy.  Certainly, it would be a rather odd thing to toss out. For example, the Fed continued to err on the side of providing what stimulus it could so long as the unemployment rate was well above 5%. And then as it got close to 5%, the Fed very predictably shifted gears and for good reason. I don’t see the point of making shit up so that you can be wrong about this fairly simple and yet quite important issue.


Anyhow, meet your new NEC chair!  Apparently, he is a great manager of a brokerage. And he seems to have mastered Trump’s post-reality world.

By the way, all these Administration guys are going to be quite a bit more important under Trump than under Obama.  Obama was checked by a generally Republican or timid-Democratic Congress, so his economics team was mostly in charge of care taking, particularly after Obamacare went through.  This Administration is actually going to do something, which I do not mean in a good way. So the personalities here should matter more, I think.

* Oh, I am sure he is a fake centrist who gives to both sides, including Tom Cotton. By “Republican” I mean somebody serving in the Trump Administration who makes shit up to make Obama look bad.

Social capital

This quick note by Josh Marshall on how easily lying about big things comes to the Trumpistas got me thinking about social capital.


An example of casual lies about hugely important things. 

It is pretty widely accepted that the United States has run down its physical public capital stock and that a major infrastructure spending program would be a good idea. So far, it is not clear if Trump is proposing a major program or a public-private boondoggle that will just make things worse. On that, I await more information.

But I fearlessly forecast that social capital is also going to become a major issue in the next few to several years.  I am not well informed on this issue, to say the least.  My only effort at understanding has been to read Francis Fukuyama’s * Trust, which argues that high-trust societies like the United States tend to have a major advantage over low-trust societies in achieving economic development. It is about simple stuff, like not needing an extensive legal contract to ensure people do the basic things they say they will do — or to have to rely on family members.

As I understand it, social capital extends well beyond trust, although that is one important element.  I suppose the rule of law and a widely shared premise that the system is fundamentally fair would also fit into social capital.  Maybe it is something I will bone up on.

Anyhow, public officials telling whopper lies about everything seems likely over time to do some serious damage to social capital. I am not sure if physical capital and social capital are close enough substitutes for an infrastructure spending program to dominate to dominate the loss of social capital. At this point, that is beyond my pay grade. But I bet it will become a thing.

* Yes, this same guy made the somewhat unfortunate claim that history had ended with the fall of the Berlin Wall. Oops. His later effort was better, IMHO, even though he positioned it as a follow up to his wrong-footed end of history thesis.

Little trump endorser has serious concerns


And yet ExxonMobil budges not. How can it be?