TrumponomicsWhat Happens When US Economic Data Can’t Be Trusted?
With President Donald Trump firing independent regulators and killing off advisory committees, David Wilcox, director of US economic research for Bloomberg Economics, and editor Molly Smith discuss why data on the world's largest economy may be next.
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Some of the presidents Alex advisors have suggested that you should resign.
If he asked you to leave, would you go? No?
Can you follow up on it?
Do you think that legally you're not required to leave?
No.
I'm Stephanie Flanders, head of Government and Economics at Bloomberg. Welcome to Trumpanomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy and what on earth is going to happen next? And it's that what's going to happen next part that we're focusing on this week. There's so many presidents being broken in Washington these days, it's easy to miss a few. Last week, well, most were focused on deportation, court orders, flights to El Salvador. Something happened that we at Trumpanomics think should have got more attention. Two commissioners on the Federal Trade Commission got fired for being Democrats. Now you might say, so, what, who isn't being fired in the nation's capital these days? Except it's not really supposed to happen at an independent agency like the FTC. And if it can happen to officials there. It raises questions about whether folks at other independent agencies, even senior ones, could be fired too. Fed share J Powell, for example, who you heard voicing a rather different opinion at the start of the show. It also made us think about some other seemingly minor developments in other corners of DC that could raise red flags about the independence and oversight of not only the agencies that implement America's economic and regulatory policies, but even potentially the economic data on which every judgment about the US economy is based. Now, of course we might be overdoing it. I hope we're overdoing it. Some of these risks may well not materialize, but when it comes to the independence of monetary policy and economic statistics, well, we at Bloomberg get nervous fairly easily. David Wilcox has spent his entire career overseeing and analyzing US economic data and policy, first as Assistant Secretary for Economic Policy at the US Treasury under President Clinton. He was then many years until twenty eighteen, leading the Research and Statistics Division for the US Federal Reserve. Acted as a senior advisor to three Federal Reserve chairs, including Jay Powell happily for us, he's now reached the pinnacle of his career as the director of US economic research for Bloomberg Economics. David, thank you very much for joining us and for being the one really to sound the alarm about a lot of these things.
It's good to be here.
Well, I know you do have a lot of thoughts and concerns about this, based on your experience on the inside of these agencies and decisions. But I also wanted to get a bit of the reporter perspective from Molly Smith, who's a US economics editor for Bloomberg in New York and has been writing up quite a lot of what's been happening at the statistical agencies and other parts of DC that collate US economic data in recent months. Molly, welcome to Trumponomics.
Thanks for having me.
So, David, let's start with that first thing. I mentioned, the firing of two commissioners, which definitely did get a little bit lost in the enormous amount of other news that's happening on a daily basis in Washington. Why did you immediately pick up the phone to tell us this was something to worry about.
Well, the historical parallel is just echoes very loudly. Nearly one hundred years ago, President Franklin Dello and Or Roosevelt also tried to fire an FTC commissioner named William Humphrey. Humphrey initially had been appointed to the FTC by President Calvin Coolidge in nineteen twenty five, and was reappointed to a second term by President Herbert Hoover. When FDR came into office, he correctly identified Humphrey as somebody who held different policy views than FDR did, and so he asked Humphrey twice in letters to resign, but Humphrey refused, so FDR fired him. And that came despite the fact that there was language in the FTC Act saying that the President could fire members of the Commission only for inefficiency, neglected duty, or malfeasance in office, and Roosevelt didn't allege that any of those applied in the case of William Humphrey. Humphrey refused to go. He sued for back wages, the wages that he hadn't been paid after he'd been terminated. Then he suffered the misfortune of before the case found completion through the court system, which then as now the wheels of justice turned rather slowly, but Humphrey's executor, the executor of his estate, took up the legal cause and maintained the lawsuit, and ultimately, in nineteen thirty five, the Supreme Court ruled in Humphrey's favor and awarded those back wages to his estate. That the case is incredibly important today because it's that legal foundation, that nineteen thirty five Supreme Court decision on which rests the employment security such as it is that Federal Reserve governors also enjoy. The language in the Federal Reserve Act is a little different, but the legal principle is exactly the same.
And to be clear, the firings in this case were in a sense similar to the FDR ones because it was not based on bad behavior, and there was no claim it was based on bad behavior. It is the fact that they potentially disagreed with the administration the continued service on the FTC. The statement said, the explanation from the White House was is inconsistent with my administration's.
Priorities, exactly right. And I think what we're likely to see here can't say with certainty, but likely, I think is that this case involving the two FTC commissioners will work reasonably rapidly through the court system and will get a decision ultimately, probably from the Supreme Court. An extra reason for concern is that the Supreme Court has been chipping away at that nineteen thirty five decision Humphrey's Executor versus the United States. Twenty twenty, for example, they limited the reach of Humphrey's Executor so that it no longer applies to single headed agencies like the Consumer Financial Protection Bureau. They said it did still apply as of twenty twenty to multi head agencies like the Federal Reserve Board. But I think there's a lot of opinion in legal community among legal scholars that Humphrey's Executor hangs by a thread, and with it the independence of the Federal Reserve, its ability to set monetary policy without fear of being second guest by political authorities.
And it should be said it would put the administration in direct opposition to the way that j. Powell himself said he saw the situation. In the first press conference after the election, he was asked, can you be fired? Are you worried about being fired by the president, and said no, in a very kind of this is not a questioned way. Was that your understanding, David, when you were inside the FED that it was just there was just not an issue about whether or not the President could fire at FED chair.
Well, as in many things in the legal world, it's a little complicated. There are two positions that Jay Powell holds. One is that he's a member of the Board of Governors and they're The Federal Reserve Act language is quite clear the President may terminate members of the Federal Reserve Board for cause. The other position to which he also needs to be confirmed, is as Chair of the Federal Reserve Board, and there the drafting of the language, unfortunately was rather awkward and leaves ambiguous the question about whether the President can demote the chair from his elevated status to that of a mere member of the Board of Governors. That question has never been litigated. No president has ever tried to demote a Federal Reserve chair before. I think it's possible that we may see that question resolved here in the future.
But the broader concern which I mentioned at the start, was around something which one thinks of as even more of a kind of bedrock for US economic policy, and that's just economic data, Molly, what's happened in the last few weeks, as Doge and other parts of the administration have been sort of cutting a sway through Washington, what's happened that has raised concerns around statistics.
So the biggest thing that I could point to so far has been the administration terminating these statistical advisory committees. And this was part of a broader executive order aimed at reducing the scope of the federal government and eliminating these committees wherever they were deemed unnecessary. And the thing is about these committees, though at least for the statistical agencies, is that they're made up of all volunteers. David can speak to this also, he is chair of one of these committees, so he knows this all too well. They're all on a volunteer basis. They are not paid, they are not employees of the federal government. And they generally a lot of these committees met maybe two to four times a year. And since COVID, it's all been virtual for the most part, so they really had just about zero cost to the government. I think the biggest budget of any of them was maybe one hundred thousand dollars, so this is certainly not or does is going to be zeroing in on for the big for the big bucks in terms of savings here. And it's really, if anything, you know, these committees were there to advise the statistical agencies about a whole range of things, whether it was really how to keep up to date with our economy which is ever evolving, and to make sure that the data was commensurate with that and reflecting these new trends. And it was really just a huge benefit to them to have people on these committees that maybe were formerly on these agencies themselves that maybe now work in academia or our business economists work on Wall Street, in all different real corners of economics and providing this free advice. So if anything, now maybe you'd think, oh, well, not that the government is going to be spending money on this, but if they were to want a value of that back, it would be through hiring consultants. But these people did it for free. So committees. The committees that were terminated include one to the Bureau of Economic Analysis, that's the agency that pulls together the GDP report as well as the Fed's preferred inflation gauge, the personal consumptions expenditures price index. So the BA advisory committee was one. Another was the one that David shared, which advised across the BA as well as Bureau of Labor Statistics and Census. And I also just learned that in the past week two of the advisory committees to the BLS were also terminated, effective actually a month ago, but those people only just found out last week.
So just to tease this out, and it's just to demonstrate how all over this story, David Wilcox is you were personally, as Molly mentioned, you were personally running one of these committees. Briefly, in terms of the value of these organizations. I mean, it sounds like you were giving them advice on improvements in the data, but I guess there was also a little bit of an informal oversight by the academic and sort of stakeholder community of changes that were being considered by these bureaus.
Is that right, Yeah, that's right. It's important to note that for all of these committees, the word advisory was right in their title. We had no decision making power, but we were populated by people who were at the top of their fields with incredible expertise on the committee that I was privileged to serve as chair for. One of our members was Droona Jimoglu. You may have heard his name because he's a recent recipient of the Nobel Prize in economics. He was the only Nobel Prize winner. But the committee was chock full of members.
Who were free. As Molly has underlie, they were getting a value for money.
They were getting nothing in the way of an honorarium. They were serving for the purpose of advancing the public good. They came from a range of different areas of subspecialty. What they had in common were two things. One was a conviction that economic measurement is difficult, ever changing, and super important for decision makers across society. And secondly, they had the conviction that what they were doing had a risk of making a difference if they said something smart. The agency heads were in the room, the subject area experts were in the room, and there was a risk, just a risk, that the agency might change direction as a result of their advice.
So I guess you have to wonder a little bit why you wouldn't want a free and very well founded, deeply researched views by members of that broader community that uses economic statistics. But if you were making a change, for example, I don't know. We've heard the COMMA Secretary Howard Lutnik suggest take the government's share of the economy out of GDP. Would that be something that the Advisory Committee would have had views on?
Do you think, David, absolutely, we would have had views. Whether they would have come and asked us, I think that's open to question. It's such a basic question. It's been long settled. It was debated fifty sixty years ago when the whole concept of national income and product accounts was being invented. But that's been resolved literally for decades. It is now a matter of both national norms and international standards that government demand is included in the field of activity that's taken into account for purposes of tallying gross domestic product or what we all know as GDP.
And of course it's true. It makes reporters immediately think, oh my god, and economists think, how could you possibly start comparing countries if you suddenly had a totally new series.
You know, David and I have spoken about this extensively as well, and something that when I about this a couple of weeks ago, that really stood out to me that he said was there's this one idea of like maybe Lutnik was just floating the idea of how the data is presented, as in, maybe the government spending figure is still there in the GDP report, but they publish let's call it, like a maybe so called core GDP that excludes it, so that you can still see it. You can add it back in if that's how you choose to calculate it, which is the still standard way. That's one thing, not great, but you would still have the data there. It's not like it's been eliminated that you could calculate it yourself. The real concern, which I don't know that this is what Lutnik was implying, but certainly you could make this inference, was that what if the GDP report just did not publish government spending it all anymore? What if that data just simply was not collected anymore, and that calculation then could not be made the same way. That's more the concern when I talk to people who are at the statistical agencies in the let's call it the alumni community of the agencies, that they're really worried looking from the outside in and I know.
For various reasons, Molly, You've been sort of calling around, particularly in the last few weeks, people who work at these agencies insofar as you know them, and also people who've formerly worked there. I mean, how nervous are they specifically around this question of the statistical agencies? What are you picking up.
The thing that the biggest thing is to what extent can the government interfere with statistics? And I don't want to be here fear mongering, because I think that's you know, a lot of what has happened in the last two months is really, of course, as Trump is really pushing the boundaries of what the executive branch can do, and it's created a lot of questions of, oh, if he did X, can he do why? Or does X then apply to something else? And I certainly don't want to be out here raising concerns that are unfounded. But these are just questions that people have and are very much spoken about in this community of people who I talk to. So one of them is definitely seeing political interference in the numbers. And one of the reasons why US economic data is considered among the gold standard for the rest of the world is because it's largely impartial that the people who produce these numbers are mostly civil servants. They are not political appointees. Certainly the heads of the agencies are, but everyone is there with just a real commitment to producing a public good. And as David was saying, you know that the value of these numbers for making decisions across all levels of decision making and policy making, that's really what the core of the mission is all about. And you know, people have raised ideas of seeing how in other countries that have more authoritarian regimes, where the numbers can be politically influenced, like in Russia, like Argentina has had a past with this during the Greek debt crisis. There have been other examples where politicians have found the way to somehow insert themselves in the data to varying extents, and that seems to be the real concern here or something else that people raise too is especially now as we're starting to get a better idea of how tariffs would impact the economy, namely through slower growth and faster or at least more elevated inflation. The idea of what if Trump's he's a report that he doesn't like and could would the agencies just simply not report it that one. I don't know if that really has a material risk of happening.
Probably more than most places. We're very sort of hardwired for the time and date of the release of these numbers exactly all hell would break. Well, well, maybe we'll find out, but I mean we should say none of these things have happened yet. And I guess you know, one further thing to mention to you, Molly, is you know it's true you can talk about the Argentina examples and the Russia examples, but we know that governments are perfectly capable of sort of distorting and messing up economic statistics, not through any kind of ideological agenda, but just by not giving these agencies enough money and enough people. I noticed that. I mean, the UK has been getting itself into trouble recently on this, both on its labor statistics, which have been endlessly questioned, and they've had massive issues with the surveys. Just this week, I think they've announced that the main producer price index in the UK is going to be suspended for a few months because of nothing to do with the politics, but just because of concerns about the surveys. So you did a piece that rather sounded the alarm about this before any of this happened, before the inauguration, just looking at the long standing underfunding of these agencies, which I guess is what would make you a little bit more worried now is because they're not coming into this in fine fettle. They're actually already kind of being quite scrimped and tailed.
Yeah, but these agencies have been underfunded for quite some time, and.
That by administrations of both parties.
Yes, the topic that really got me looking into this issue more broadly was last year when the BLS said it was going to have to cut the sample size of one of the surveys in the Jobs Report, and this is the survey that produces the unemployment rate and the participation rate, among others, and that's still a concern. They were able to stave off that sample size cut temporarily through some short term funding last year, but still TBD going forward. And this is exactly something that was coming up in these Advisory Committee meetings that how can we get that survey to be conducted online versus in person, And that's something the BLS has been trying to do. But guess what it costs money, So you need at least an initial investment before these things will cost less in the long run.
Stephanie, I think our listener's list of concerns is probably not long enough, so can I add one more big one?
Always?
Last week, the IRS was reported to be close to reaching an agreement with Immigrations and Customs Enforcement, and under that agreement, that Customs Enforcement they agency known as ICE, would send names and addresses to the IRS, which is our tax collecting authority in the United States, and the IRS would verify the names and addresses. What on earth does that have to do with economic data. It strikes at the heart of the trust relationship between the government and respondents because when respondents agree to participate in a survey, they are assured in no uncertain terms that their responses will be used quote for statistical purposes only. That's exactly because respondents fear turning over valuable data to the United States government and having it potentially used for an enforcement purpose. They don't want to become criminally liable because they took the public spirited action of participating in an economic survey. So this IRS action risks setting a very damaging that could strike at the heart of the trust foundation of US economic data.
And actually to that note, there was a note from Goldman Sachs, I think in the past week saying that the response rate to the Job's Household Survey by foreign born workers has already declined. So I mean, I don't think it would have been because of this already, since the IRS development that David was just talking about only just happened in the past week, but certainly reason to think that foreign born people in this country would have certainly less incentive to reply to government surveys.
I mean, I guess we should say, Molly that the heads of these agencies have not been appointed or replaced by Donald Trump yet.
That's correct. So the heads of these agencies, those are roles that are politically appointed. The vast majority of people who work in these agencies are civil servants, but the leads are political appointees. And right now there is actually one vacancy the Census direct Rob Santos. He's resigned from his role shortly after Trump was inaugurated, so Trump will have the chance to fill that role. I haven't heard anything yet about where the progress on that stands. But Census is really interesting because that was seems like in his first term, that was the agency that Trump seemed to square in on the most. Trump certainly has done that a lot, has said the jobs numbers are phony and fake. But when he's gone after census, it really has had to deal more with a question about citizenship and whether that should be included in the decential count. And this was an issue that went all the way up to the Supreme Court in his first term, and this is probably something that Trump will want to revisit this time around. The reason why it's so important is because people who respond to the census, this is used to then divvy up federal funding and congressional seats. So he has an interest then to say, if you know, if you're not a citizen, then you should not be included in the census, and then your district then should be not receiving appropriations and congressional seats as a result. So this is probably something that he would have a vested interest in taking on in this term.
I'm just trying to step back a little bit as we kind of near the end of this there's a lot of things that people are worried about. Some would say, you know, hysterical about with regard to some of the things that this administration is doing, the kind of concerns that we've been talking about, And I mean, you're correct me, David, but it feels like there's kind of two different things. There's the extent of executive power, which definitely arises in this question around the firing of the commissioners and potentially officials other independent agencies, which as you pointed out, will be litigated, has already been chipped away by the Supreme Court, and they may yet decide that actually the president has a right to pire and fire people at these agencies that are to some extent already implement the administration's policies. That seems to be one set of things which is about the nature of executive power, and you can disagree about that. But there's a whole other set of things that I think relate more to these this question of the statistics and the independence of the statistics, which is around whether there's oversight over the quality of these statistics and whether there could be lasting problems arising from things that administration has done which may not even be intentional. Just on those second set of things, how much do you David see the scope for distorting data or just having it be kind of fundamentally undermined by things that are happening.
Well, the tradition in the United States is very strong. The agencies have coded in their DNA that they resist political interference. The most notorious example of this in history occurred in the administration when President Nixon was caught on tape from the Oval Office expressing really venomous views about how he felt that the Bureau of Labor Statistics, the agency that, as Molly mentioned, generates the unemployment rate and other key data, how they were out quote unquote to get him, and he was determined to undermine them.
You know what's brilliant is that is not the thing that most people remember about President Nixon, that he was out to undermine the of Labor Stistics, and I did not know it until now. So I think that thank you for that.
Absolutely. A through line for both of the issues that you described, Stephanie, is the question of trust, And as in many areas of life, trust in these areas that you were describing is very difficult to accumulate. Building it up is the work of years, decades, if not generations. Destroying trust can happen, and in a jiffy it can trust can be devastated through a single action, and that damage is extremely difficult to repair. So that in this there are a lot of things that keep me up at night in this area, that's the one that keeps me up at night most.
I think we decided that if it keeps David Wilcox up at night, given his many years of experience at things that matter very deeply to Trump and Nomics, that was worth an episode. Thank you very much, David, Thank you, Molly.
Thank you, Thank you for having us on to discuss these important issues.
Thanks for listening to Trump Andomics from Bloomberg. It was hosted by Me Stephanie Flanders. I was joined by David Wilcox and Molly Smith. Trump and Nomics is produced by Samasadi and Moses and with help from Chris Martlu and Amy Keene and sound designed by Blake Maple's Brendan Francis Newnham is our executive producer and to help others find the show, please rate it and review it highly wherever you listen to podcasts
