As most economists who follow the unemployment statistics released by the Bureau of Labor Statistics probably know, President Trump broke with a strong tradition by tweeting, over an hour before the official release date, a hint about what the statistics would be. He tweeted:
Looking forward to seeing the employment numbers at 8:30 this morning.
Many economists were fit to be tied. How dare he do that!
My initial reaction was highly negative also. When there’s a tradition of not beating the BLS to the punch, a gut conservatism takes hold: why break with tradition when there’s no good reason to do so? Trump introduced a wild card into the system. Now, if some month he doesn’t tweet about looking forward to the unemployment report, will that mean that it’s bad news? It may. But it may not.
Baseball star Pete Rose famously said that although he sometimes bet on his own team, he never bet against them, so what’s the big deal? The big deal is that when he doesn’t bet at all, it might mean he knows something about the next game that will make his team more likely to lose and then that messes up the playing field for other bettors who don’t happen to know that he didn’t bet: they face a disadvantage against bettors who do know that he didn’t bet.
There’s a huge difference, of course. Donald Trump is unlikely to be betting: it would be too easy for him to be caught.
It’s not just a gut conservatism that takes hold. I am, after all, an economist. What is the economics of what Trump did? That’s less clear.
Betsey Stevenson, a former member of the Council of Economic Advisers under former President Obama, thinks it’s quite clear. She tweeted:
There is a big question about who he privately leaks data to and that should be investigated.
Privately leaking this information makes money for those who get it. Where does the money they “make” come from? People who don’t have the information.
But notice that her tweet is not about Donald Trump’s tweeting to over 50 million people at once. Her upset, rather, is about the possibility that Trump privately leaked this information before tweeting.
That’s a reasonable upset. If he did that, that is bad. It’s not bad because someone is helped; it’s bad because it’s a breach of trust. Period.
And one can understand why Professor Stevenson fears that Trump did this. He doesn’t exactly hold things close to the vest.
There are two issues: (1) the tweet and (2) the possibility that Trump leaked to insiders. Both are interesting.
The tweet
By tweeting 69 minutes before the BLS official announcement, Trump gave information to over 50 million people at once. People trading on the BLS information, of whom there are likely thousands, probably know by now that Donald Trump has a big mouth and that they should follow not just official government announcements but also Trump tweets. So if revealing the information at 8:30 a.m. is right, how is it wrong to reveal it at 7:21 a.m.? It’s hard to see.
You could argue that this gives an advantage to people who follow his tweets. But as I said above, there are probably thousands of people who both follow his tweets and trade on that information. So they are bidding against each other and the sellers make their money 69 minutes earlier than otherwise.
So again, while the little bit of conservatism I have in me says that Trump was wrong to do this, it seems to be a slight sin, not a major sin. It does not, for example, rise to the level of having a “kill list” of people whom the U.S. government has decided to kill, on slim evidence, around the world.
Leaking Information to Insiders
If Trump leaked information to insiders, as Professor Stevenson fears, that is simply wrong. It’s wrong to make information that one gets by virtue of one’s position in government into a profit-making opportunity for one’s buddies.
We have no evidence that Trump did this, but, of course, evidence would be hard to get. As former Defense Secretary Donald Rumsfeld famously said (although he was not the first to say it), “Absence of evidence is not evidence of absence.”
This is one of those rare analyses where I don’t have a strong view. I started writing this with the thought that Betsey Stevenson was wrong. I ended up noticing the huge difference between tweeting to 50 million followers and leaking private information to friends and associates.
I would add one thing: Unless Donald Trump is really stupid about really basic things–and I know that many people think he is (I don’t)–he would be unlikely to tweet early in a case where he even earlier gave information to friends. If we should be suspicious of Trump’s leaking that information to friends this time, we should have been even more suspicious of that in the 16 prior cases where he didn’t tweet in advance.
Postscript:
For an excellent analysis of the economics of a related issue, insider trading, see Charles L. Hooper, “Who Is Harmed by Insider Trading?“, Econlib Feature Article, March 2, 2015 and the excellent discussion when I posted about it.
READER COMMENTS
Scott Sumner
Jun 3 2018 at 8:41pm
I have to disagree with this post. The rules on the release of this sort of information are there for a reason. (A government worker who did this would be fired.) The goal is to reduce corruption, and also reduce the waste associated with people trying to ferret out this sort of information before it is publicly announced.
I’d guess that less than a million people were following Trump’s twitter feed at precisely 7:21am, EST on Friday. Lots of people who work in the financial district were on their way to work, and lots of people in California (like me) were sleeping. Lots of Democrats have no interest in his twitter feed, except perhaps those tweets that are newsworthy enough to later be covered in the mass media. Someone in the bond market never would have imagined that they had to follow Trump’s twitter feed to insure they get payroll report information in a timely fashion—nor would I want them to have to waste their valuable time doing so. It’s much more efficient and fair to have the information released to everyone at the same time: 8:30am on Friday. It is certainly not true that everyone had equal access to this important information at exactly the same time–it’s quite plausible that less than 1% of Americans did.
If this were an isolated incident it might not be that big a deal, but it’s part of a pattern—Trump showing a contempt for the importance of the rule of law. (His recent moves on trade are another example, one of many.)
I am also not willing to assume the best when considering the possibility of Trump engaging in corrupt actions for personal benefit. We know his business practices were often shady, we know that he never fulfilled his promise to release his tax returns, and we know that he lied when asked why. So I’m not willing to give him the benefit of the doubt, even though I certainly doubt that he himself engaged in bond sales in this instance.
In a normal situation, a President with conflicts of interest would put their holdings into a blind trust. But Trump is not normal, and hence we get cases like this:
https://www.nytimes.com/2018/05/17/opinion/trump-china-bribe-national-security.html
I have no idea what happened in the case described by Krugman, but Trump’s behavior gives one no reason to afford him the benefit of the doubt. This latest incident is part of a pattern.
BC
Jun 3 2018 at 9:06pm
I think the biggest problem with Trump’s tweet was that he didn’t really have a good reason to do it. So, he released confidential information without good reason, and this doesn’t seem to be the first time. I recall there was an incident early in his presidency when he casually let slip highly classified information to the Russian foreign minister and ambassador during a White House meeting. Both of those incidents indicate excessive carelessness.
Trump may not be really stupid about really basic things, but he is less than smart enough about Presidential-level things.
Michael Byrnes
Jun 3 2018 at 9:27pm
I think BC makes a great point: there’s a difference between stupid and careless, and Trump at least appears to be the latter.
Scott also makes a great point, on a couple of levels.
1. The president ought not be doing something like this if it would get a subordinate who did the same thing fired.
2. If this leads people to read the tea leaves of Trump’s tweet vs lack of tweet on jobs day to inform their trading decisions, how can that possibly be good?
David Boaz
Jun 3 2018 at 9:31pm
Scott Sumner:
You left out, We know he casually discloses confidential information – to the Russian ambassador, to fundraising receptions, etc. Which means there’s no good reason to think he would not disclose this information to someone he was chatting on his cell phone with.
Robert EV
Jun 3 2018 at 9:36pm
How do we know that Trump sent that tweet and not a subordinate using his account?
David R Henderson
Jun 3 2018 at 10:35pm
@Scott Sumner,
I have to disagree with this post.
That’s a strong statement, given that I made multiple claims in this post. But I’ll go through the relevant parts of your comment below to see where we agree and/or disagree.
The goal is to reduce corruption, and also reduce the waste associated with people trying to ferret out this sort of information before it is publicly announced.
True.
I’d guess that less than a million people were following Trump’s twitter feed at precisely 7:21am, EST on Friday.
You could well be right. And that’s consistent with my statement above: “People trading on the BLS information, of whom there are likely thousands, probably know by now that Donald Trump has a big mouth and that they should follow not just official government announcements but also Trump tweets.” Thousands are fewer than 1 million.
Someone in the bond market never would have imagined that they had to follow Trump’s twitter feed to insure they get payroll report information in a timely fashion—nor would I want them to have to waste their valuable time doing so.
True. But they probably will now. You do make a good point, though, about the waste of resources.
It is certainly not true that everyone had equal access to this important information at exactly the same time–it’s quite plausible that less than 1% of Americans did.
True. But I don’t think you need close to 1% of Americans getting the information for the sellers to get the gain. So, as I said above, they got the gain 69 minutes earlier.
Trump showing a contempt for the importance of the rule of law.
I agree that Trump shows contempt for the rule of law, as pretty much all presidents since and including FDR have. I’m not sure this is a clear instance. Can you point me to the law he disrespected in this case, Scott? I do agree with you, though, if you mean he acted inconsistent with the spirit of the rule of law.
His recent moves on trade are another example, one of many.
You and I agree that his moves on trade are awful, as I noted in my BBC interview. I think he’s acting consistent with a bad law. But if you can make case, I’m willing to look at it. You just haven’t yet.
I am also not willing to assume the best when considering the possibility of Trump engaging in corrupt actions for personal benefit.
Nor am I, as I said in my post. So you don’t totally disagree with my post.
We know his business practices were often shady,
True.
we know that he never fulfilled his promise to release his tax returns
True. I’m not clear that this is evidence of corruption, though, unless you define corruption to include not keeping campaign promises. By that standard, Mr. Read My Lips, No New Taxes George H. W. Bush was incredibly corrupt because that particular broken promise was huge.
we know that he lied when asked why
True, I think.
So I’m not willing to give him the benefit of the doubt, even though I certainly doubt that he himself engaged in bond sales in this instance.
Again, we agree. This is more evidence that you don’t totally disagree with my post, Scott.
In a normal situation, a President with conflicts of interest would put their holdings into a blind trust.
I agree.
Trump’s behavior gives one no reason to afford him the benefit of the doubt.
I agree.
David R. Henderson
Jun 3 2018 at 10:42pm
@Michael Byrnes,
1. The president ought not be doing something like this if it would get a subordinate who did the same thing fired.
Presidents do lots of things that a subordinate would get fired for doing. I mentioned Obama’s kill list above. A White House aide who put together his own kill list and then directed the CIA or the Pentagon to carry it out would be in deep trouble. But that didn’t stop Obama.
E. Harding
Jun 3 2018 at 11:06pm
“A government worker who did this would be fired.”
No, he wouldn’t be. The tweet told us precisely no information about what was in the jobs report (which is why the market reaction resulting from the tweet was small). I find the often hypocritical brouhaha about the tweet utterly bizarre. Even if the President had released detailed data on what was in the jobs report prematurely (which would, indeed, get an ordinary government worker fired), it is his right to do so, due to the President’s right to declassify any information he sees fit. The President is not only a government worker; he is the chief executive and the tribune of the American people. And he did absolutely nothing of the kind. So the fuss is not substantiated by anything.
E. Harding
Jun 3 2018 at 11:14pm
In fact, the tweet on its face suggests that the President had not seen the employment numbers at the time the tweet was posted. So the fuss is even more asinine than it first appears.
David R Henderson
Jun 4 2018 at 12:10am
@E. Harding,
The tweet told us precisely no information about what was in the jobs report (which is why the market reaction resulting from the tweet was small).
I don’t think that’s true. There’s no way, given his makeup, that he would have been excited about the jobs report if it showed that the unemployment rate had risen or stayed the same.
Richard Ober Hammer
Jun 4 2018 at 3:35am
Fancying myself to be libertarian, and having questioned what might be the distribution of reputation in a free nation, I notice the reputation of the BLS would be shored up by the pre-announcement-time silence endorsed by many in this discussion.
In a free market of information, which I suppose libertarians would want, I guess there would not be many identifiable lumps of valuable information, as the market process must work continuously to homogenize those lumps. Right?
Michael Byrnes
Jun 4 2018 at 6:23am
David Henderson wrote:
That feels like a different issue, but fair enough.
Thaomas
Jun 4 2018 at 7:19am
OK leaking information to 50 million people is not a bad as leaking it to 2 or 3. What is bad is to have a President that does not understand (or does not care if he does understand) that a President ought not leak at all.
Note, E Harding, the reason that a President ought not leak this kind of information is the same as the reason no one else who possesses the information ought not leak it. That it would be illegal for others but not the President is irrelevant to the “ought not.”
As for the small market reaction that could be that there are few enough traders among the 50 million that their acting on the inside information was not enough to move the market much.
EB
Jun 4 2018 at 8:32am
The mendacity and hypocrisy of politicians provide a lot of entertainment to those of us that acknowledge they have strong incentives to abuse power. I hope, however, critics of any politician apply the same standards to all politicians (I didn’t expect Betsey Stevenson, an Obama’s employee, to be fair with Trump because I don’t remember that she had criticized any of Obama’s many cases of abuse of power).
David, you tried to look at the problem from too many angles, but my only angle was the content of Trump’s tweet. When I read it, I laughed at Trump’s enemies, but I didn’t bet on it because there was no information (yes, I know it depends on how we define information). BTW, have you ever bet on anything announced by a President or any government official close to a President? I’m too cynical to do it.
Mike Davis
Jun 4 2018 at 9:06am
Betsey Stevenson’s reaction is more interesting than Trump’s tweet.
(But before I explain why I think so, I should state for the record that I also think (1) that Trump’s tweet was a huge and pointless violation of norms that makes him seem like a fool—and even if you don’t like your President, you shouldn’t want him to be regarded as a fool; (2) Betsey Stevenson is a terrific economist and policy analyst.)
With that out of the way, we should note that Ms Stevenson was formerly Chief Economist at the Department of Labor and (sorry, David) on the CEA. That makes her prone to—what shall we call it?—the I know really important stuff that you don’t bias. Lots of government economists suffer this sort of error in cognition. They think that the stuff they know needs to be carefully packaged and released in a very public way. (One can’t help but note, by the way, that the theatrical revelation of that information also tends to draw attention to these same members of the Economic Priesthood.) They claim, of course, that they need to maintain the sanctity of this process because their special knowledge can “move marketsâ€.
It might be true, that the revelation of the information will move markets for a very short period but I know of no credible evidence or theory to support the idea that a “leak†of this sort of information has a long term impact—would the S&P be at a different place today if The Donald had kept his mouth shut? There is also the very real danger that in carefully packaging and releasing information, the government’s information gatekeepers will make mistakes that make it harder for the market participants to settle on correct prices. Remember, for example, the employment numbers are based on a survey that must be carefully administered and interpreted. They get it wrong all the time and have to revise those numbers.
I don’t know enough about the day-to-day workings of the BLS to know exactly how they should go about telling people what they know but it seems like what they do now isn’t particularly helpful. Keeping secret all the raw data that goes into the report and then coming out with the grand reveal on a Friday draws too much attention to the wrong numbers and makes the BLS too important. (BTW, I also think the Federal Open Market Committee should be required to hold all meetings in a bar during Friday afternoon happy hour.)
Jon Murphy
Jun 4 2018 at 9:14am
I’ve not really been paying attention to his issue, so forgive the question but:
Why the fuss about this tweet? I understand the point about insider trading, but I’ll argue I think the tweet is being misinterpreted.
The plain meaning of the tweet doesn’t appear to give out any information. It seems rather generic to me. By way of metaphor, if I say “I’m really looking forward to Game 7 of the Eastern Conference Championship,” does that imply I know the Celtics would win (indeed, they did not)?
What if this tweet just looks like he was giving out info just because the subsequent job numbers were positive?
Andrew_FL
Jun 4 2018 at 9:32am
Sumner’s argument that Democrats don’t pay attention to Trump’s tweets except maybe newsworthy ones is an odd one, in that I am certain it is not true, but if it is true, it’s self defeating in this case: This was a newsworthy tweet that drew immediate and massive attention.
mike davis
Jun 4 2018 at 9:35am
Scott Sumner’s position seems to be that information should be revealed in a predictable and orderly way in order (1) to avoid corruption or the appearance of corruption and (2) to prevent traders from over-investing in the advantage that comes from having information before others.
The first is a clear concern, corruption is bad. I’m not sure about his second concern. Almost all information eventually makes it to the market. Trading is all about discovering information earlier than the other guys. If the competition among investors to get information is a waste, it should be waste for any type of information.
I’m curious, BTW, about Scott’s take on how the Fed should go about their business. (And, sorry Scott, you’ve probably already talked about this and I just don’t know your views.) As I understand it the FOMC meets in a secure room, people are sworn to secrecy and their analysis is released in a very controlled manner. Is Scott ok with that system or would he prefer my plan, which is to have them meet in a bar?
Andrew_FL
Jun 4 2018 at 9:39am
Something I meant to add, but forgot to: You don’t mention that if Trump did leak this information to insiders, we have no real reason to discount that any other, or even all past Presidents with access to the same information, have done the same thing. We don’t know if they did, or did not, any more than we know if Trump did, or did not. But the mere possibility should tell you that if there’s a problem here, it’s not a “Trump is uniquely awful” issue, it’s a “the President shouldn’t have access to this information before everyone else” issue. Making it about Trump is just a partisan sideshow that will prevent any meaningful reform.
jc
Jun 4 2018 at 12:08pm
(1) Yeah, I’m sure many have “leaked” this info informally, e.g., telling someone they’re golfing with when asked about their good mood, “numbers are gonna look good tomorrow”. It’s not leaked as an investing tip. It’s just as a part of normal talking. I don’t think non-economists view data like this as sacrosanct.
(2) If it was an investing tip, who can and cannot legally trade on inside information these days? Is it just Congress that has that privilege? (Wasn’t the bill to repeal that killed?)
(3) He leaked it to everyone. At the same time. Via public tweet. From a finance standpoint, someone should do an Event Study to see how this or that asset moves.
Scott Sumner
Jun 4 2018 at 12:15pm
David, You said:
“True. But they probably will now.”
I agree, but I was talking about this specific case. Going forward the primary problem is inefficiency, not unfairness, as you suggest. I’d add that if this is OK, and is now “normalized”, traders would also have to follow VP Pence’s tweets, and Secretary of the Treasury Mnuchin’s tweets, etc.
Once we start down this road, the inefficiency increases, as does the risk of corruption.
You asked: “Can you point me to the law he disrespected in this case,”
I was using the term “law” loosely, to include regulations. As I said, government employees are fired for this sort of behavior. I don’t know if that’s a statute, but it’s clearly a legally binding rule or else people would not be getting fired. Trump often acts as if rules don’t apply to him. The head of the Richmond Fed was recently dismissed for (accidentally) revealing market sensitive information. Why should Trump be treated differently?
I’d say the same about international trade law, another area where Trump is dismissive of rules. We signed a free trade agreement with Canada, and the recent steel tariffs are in violation of that agreement. Of course one can always plead “national security”, but no one seriously thinks Canada is a national security threat to the US. If I shoot an unarmed person I can plead self defense, but that doesn’t mean I did not violate the law.
The corruption charge was reference to his career in business, which leads me to believe he cannot be trusted with sensitive economic information. As far as corrupt behavior as President, we’ll have to wait for the Mueller report. Some would argue that firing the FBI director and then citing the Russia investigation as the reason is a case of obstruction of justice. That was certainly the widespread perception, even among Republicans, when Nixon did something similar.
Scott Sumner
Jun 4 2018 at 12:57pm
Jon, Yes, it would look generic if we assume that Trump did not have the information, but he did. Would David say he was looking forward to a Warriors game if he had learned (via a time machine) that they would lose?
Andrew, You said:
“This was a newsworthy tweet that drew immediate and massive attention.”
Can you link to a news story on the tweet, which was posted before 7:23am Friday?
Mike, Some types of information search are socially productive and some are not. If you sent a spy into the BLS, for instance, that sort of research would not be socially productive.
David R Henderson
Jun 4 2018 at 2:13pm
@Jon Murphy,
The plain meaning of the tweet doesn’t appear to give out any information. It seems rather generic to me. By way of metaphor, if I say “I’m really looking forward to Game 7 of the Eastern Conference Championship,” does that imply I know the Celtics would win (indeed, they did not)?
My response is similar to Scott’s. We know enough about Trump to know that he is looking forward to the announcement because it’s a good announcement.
@Scott Sumner,
Going forward the primary problem is inefficiency, not unfairness, as you suggest. I’d add that if this is OK, and is now “normalized”, traders would also have to follow VP Pence’s tweets, and Secretary of the Treasury Mnuchin’s tweets, etc.
I agree.
Once we start down this road, the inefficiency increases, as does the risk of corruption.
I agree.
I was using the term “law” loosely, to include regulations. As I said, government employees are fired for this sort of behavior. I don’t know if that’s a statute, but it’s clearly a legally binding rule or else people would not be getting fired. Trump often acts as if rules don’t apply to him.
I think he acts that way, in this case at least, because this rule does not apply to him. I would be very surprised if some formal rule is binding on him; I think, as I said in my post, that he broke with a strong tradition. I don’t think, though, that he broke a formal rule.
We signed a free trade agreement with Canada, and the recent steel tariffs are in violation of that agreement. Of course one can always plead “national security”, but no one seriously thinks Canada is a national security threat to the US.
Good point. I don’t know enough about the legalities but you may well be right.
As far as corrupt behavior as President, we’ll have to wait for the Mueller report.
Yes, and then we’ll have to read the Mueller report and not just the Mueller report but the various responses to it. And we can’t necessarily trust Mueller to play it straight. As Alan Dershowitz pointed out, “”He’s the guy who kept four innocent people in prison for many years in order to protect the cover of Whitey Bulger as an FBI informer.” My guess is that you know that, having been in Massachusetts at the time. A boy scout Mueller is not.
Also, though, my understanding, unless Mueller has widened his scope, is that he is not looking into Trump’s acts as president but, rather, at Trump’s behavior during the campaign.
Andrew_Fl
Jun 4 2018 at 2:28pm
“media” and “print media” even electronic print media, are not the same thing.
Lawrence D'Anna
Jun 4 2018 at 7:31pm
I don’t even think it’s clear from the tweet that he did disclose any information. What does it mean that he’s “looking forward” to seeing the numbers? The most straightforward reading is the literal one, that he hasn’t seen the numbers and is looking forward to seeing them. An alternate reading, that he’s got some inside information indicating that the numbers will be good is also plausible, but no more so than the literal reading.
E. Harding
Jun 4 2018 at 8:00pm
“There’s no way, given his makeup, that he would have been excited about the jobs report if it showed that the unemployment rate had risen or stayed the same.”
Politicians (especially the one we’re speaking of, Donald Trump) aren’t exactly unknown for advertising objectively unimpressive performances as major and historic wins. Or just blatantly lying. Which is why Trump’s tweet told us almost nothing about what the jobs report would look like, and the market interpreted it likewise. We have no clue if he saw the (exceptionally good) jobs report before it appeared, and what he would have said had the jobs report been more typical.
“Yes, it would look generic if we assume that Trump did not have the information, but he did.”
The wording of the tweet implies he didn’t.
E. Harding
Jun 4 2018 at 8:10pm
In fact, I see every reason to think that many people’s evaluation of Trump’s relevant tweet are tainted by hindsight bias. They would have been saying something entirely different had Trump done everything the same, but the jobs report have been different.
Viking
Jun 4 2018 at 8:49pm
Could Obama keep his mouth shut? Not always:
http://adam.curry.com/enc/1528055771.35_obamatelegraphsjobsreport.mp3
EB
Jun 5 2018 at 4:34am
Thanks, Viking. At a high level of abstraction, nothing has changed (politicians and their partisans are still liars and hypocrites). At a low level, identity matters, so everything has changed (my enemies are now in charge).
Jon Murphy
Jun 5 2018 at 8:17am
@Scott Sumner and David Henderson
Thank you for replying to me. I understand your points much clearer now.
Viking
Jun 5 2018 at 2:35pm
EB:
Over at themoneyillusion, the date of the Obama jobs report leak is documented:
http://www.themoneyillusion.com/the-fine-line-between-corruption-and-stupidity/#comment-3712798
TMC
Jun 5 2018 at 3:31pm
I agree with your points about the tweet, but Betsey Stevenson was wrong to suggest there was a leak to cash in on. No evidence given or even any reason to be suspicious. How about we accuse her of the same, with the same evidence? Not fair either. If you want to looks at Trump’s record, he seems to like the attention far more than the money.
EB
Jun 5 2018 at 4:13pm
Viking:
Thanks for the reference. Hope Scott doesn’t cross the line to speculate about Melania’s whereabouts.
Comments are closed.