This is an edition of the Revolving Door Project’s “Hack Watch” newsletter. Subscribe to the Revolving Door Project on Substack.
Welcome to Hack Watch from the Revolving Door Project. This (hopefully) weekly newsletter will document the conflicts of interest, perverse incentives, and just flat-out wrong analyses endemic to the 90’s types whom the mainstream media turns to for quotes about the economy far too frequently.
“More of a Comment…”
Here’s a thought experiment for you: if a labor leader paid $16 million to settle an alleged kickback scheme with the third-largest pension fund in the country, would the media give them free airtime? If they did get airtime, would the host let them go the whole segment without asking about the self-dealing and rumors?
Of course not. Reporters and producers would rightly view a labor leader who allegedly engaged in high-flying fraud as untrustworthy. It’s hard enough for a voice of the working class to get on TV at all, but airing someone dogged by personal scandal without question or scrutiny would be considered a stain on any network’s reputation.
Enter Steven Rattner. Rattner is the opposite of a union man. He is Michael Bloomberg’s personal money manager — his job title is Chairman and CEO of investment firm Willett Advisors, but Willett’s only client is Bloomberg, and its website directly states that it “manages the philanthropic assets of Michael R. Bloomberg, including the assets of Bloomberg Philanthropies.”
Rattner has managed Bloomberg’s money since 2008, when Bloomberg flirted with a presidential run and chose Rattner’s private equity firm at the time, Quadrangle Group, to park his assets. Bloomberg’s billions would be put in a vehicle, according to The New York Times, “somewhat like a blind trust, though [Bloomberg] will have control of and access to certain investment decisions.” A blind trust whose beneficiaries control its investment decisions is, by definition, not a blind trust. It was an early scandal in the Trump administration when Donald Trump set up a similar sleazy arrangement for his own wealth.
In 2009, one year after Bloomberg began trusting Rattner with his money, Rattner entered the Obama Treasury Department. He was in charge of bailing out the auto industry during the financial crisis. By July, he’d led General Motors through a hasty bankruptcy proceeding, and was reportedly in line for a promotion in the administration.
Then the pay-to-play allegations came out.
The Securities and Exchange Commission (SEC) and New York Attorney General’s office had been looking into Quadrangle’s relationship with one of its most prestigious clients, the New York State pension board. In exchange for immunity, Rattner provided the State AG’s office with emails supposedly proving he knew nothing about anything shady going on.
But this wasn’t the case: according to the SEC, Rattner allegedly did a bunch of pricey favors for New York State financial officials in exchange for them upping the pension fund’s investment with Quadrangle and sending big fees to Rattner personally. The favors ranged from donating to the state Comptroller’s re-election campaign to distributing a low-budget movie made by the pension fund CIO and his brothers. (The movie is called “Chooch,” and it’s an R-rated comedy with a whopping 0 percent on Rotten Tomatoes. According to Vanity Fair, it’s “not spectacularly bad, or so bad-it’s-entertaining bad; it’s just bad.”)
In July 2009, just days after shepherding General Motors’ hasty bankruptcy, Rattner abruptly resigned from the administration, supposedly to write a memoir about the auto bailout which was still going on. A year and a half later, in November 2010, Rattner paid $6.2 million to the SEC to settle allegations that he’d had corrupt dealings with the New York pension board.
Rattner settled the SEC case on the same day that General Motors went public again and Wall Street sang his praises. Moments after Rattner settled with the feds, then-New York State Attorney General Andrew Cuomo sued Rattner over the alleged corruption. Cuomo and Rattner traded very public barbs in the press for a month (Cuomo was upset that Rattner misled him with the earlier emails-for-immunity deal), then quickly settled the case for $10 million. A few days later, Cuomo became the Governor of New York, where he’d stay in office for 10 years and sexually harass dozens of people.
You would think someone with Rattner’s reputation wouldn’t be considered trustworthy on financial matters. He was too sketchy for the President to keep him in the inner circle, after all. Yet Rattner has ridden his seven months in the Obama White House to an extremely influential punditry career, in addition to the millions he rakes in as Bloomberg’s money manager.
Every few weeks, MSNBC’s “Morning Joe” — one of the most influential morning news programs in Democratic politics — has this alleged pay-to-play schemer on as a “Morning Joe Economic Analyst” to discuss macroeconomic trends. He typically puts some graphs on the screen and argues for centrist policies. Then Joe Scarborough furrows his brow and does his brash truth-teller shtick, to which Rattner plays the foil as a nerdy poindexter. If Rattner’s life and history outside of MSNBC is mentioned at all, he’s introduced as a “former Obama treasury official” — a position which, again, he held for seven months and resigned from amidst scandal.
Rattner also has a semi-regular column in The New York Times, where he was a reporter before moving into investment banking. The Times at least discloses his position at Willett Advisors, but does not explain that it is Bloomberg’s personal wealth firm. Neither media outlet ever comments on the fraud allegations.
So I ask again: if a labor leader, or other sort of progressive reformer, were dogged by the allegations surrounding Rattner — or Michael Milken, or any other successful reputation launderer — would the media give them uncritical air time?
This is not to say that the media should allow more alleged white-collar criminals on the air if they just have leftier politics. It is to say that the rules of who counts as a source with integrity change depending how wealthy, well-connected, and consensus-oriented you are. The evidence is on your TV screen and in your newspaper. Or rather, it’s evident in what the people on your TV screen or the pundits in your newspaper don’t have to tell you about themselves.
He’s Not A Fed Chair, He Just Plays One On TV
Larry Summers seems to spend a lot more time in front of television cameras than he does in front of Harvard students. In one of his many regular “Bloomberg TV” appearances last week, he pooh-poohed the good news that the economy grew plenty of jobs last month, saying “my estimate would be that the NAIRU is now near five percent. […] to start bringing down inflation, we’re going to need to get above the NAIRU. That’s probably somewhere in the five percent range, and I do think we have to achieve some meaningful amount of disinflation. I’ve said that I’d be surprised if we get to the two percent inflation target without an unemployment rate that approaches or exceeds six percent.”
This is a perfect example of the kind of statistical jargon economists often spout on TV that makes the average viewer’s eyes glaze over, but which actually represents potentially radical shifts in people’s lives.
The NAIRU [pronounced “NIY-ru”] is short for the “Non-Accelerating Inflation Rate of Unemployment,” a theoretical concept in macroeconomics that evolved out of Milton Friedman’s work. The idea is that if too many people have jobs and are earning money, their increased wages will drive up inflation and have a net negative effect for consumers. Summers is essentially proposing that to get prices down, the Fed has to throw people out of work until unemployment sits at above five percent.
Let’s put a human face on that number. The Bureau of Labor Statistics finds that we’ve had an average unemployment rate of about 3.6 percent for the last several months, with a total civilian workforce of around 164 million people. So to get from 3.6 percent unemployment up to 5 percent, we would need roughly 2.3 million people to lose their jobs. That’s a little bit less than the total population of Chicago in 2020. If these would-be unemployed people were a state, it would be the 36th most populous, with a larger population than 15 existing states.
And this is actually a more moderate proposal than Summers has offered in the past. At one point, Summers argued that the Fed should raise rates until unemployment sat at six percent for five years, or 10 percent for one. Getting to six percent unemployment rather than five would mean nearly 4 million more jobless people, while climbing to 10 percent would require around 10.5 million. That’s a bit more than the entire 2020 populations of New York City, Seattle, and Denver combined, all thrown out of work for a year in order to bring prices down.
Interestingly, (actual) Fed Chair Jerome Powell’s former private equity boss, David Rubenstein, also cited the six percent figure last week when asked what level of unemployment Powell likely wants. As Rubenstein put it, Powell “can’t come out and say, ‘I hope the unemployment rate goes up to six percent.’ That doesn’t sound politically very attractive to say that.” So if he keeps up these rate hikes, Powell, doing his best Summers impression, will be aiming to throw millions of Americans out of work while talking around that fact with percents and jargon and euphemisms like “whatever it takes.”
It can sound like so much academic chest-puffing to hear Summers argue about five percent or six percent unemployment, because these do not intuitively feel like very large numbers. Responsible economic journalists should contextualize this — these lifeless-seeming percentages represent real people with families, hopes, and debts like anyone else.
Joblessness for those of us not lucky enough to be born into the gilded elite is not just a number. Not having a job means serious physical, emotional, and social harm. Without income and benefits, people may not be able to seek healthcare or attend to all of the needs of themselves or their families. Searching for jobs and getting rejected is dispiriting and can foster feelings of inadequacy and self-doubt. And all of this impacts peoples’ relationships with others. And those millions of newly unemployed people are not the only ones who will have harder lives. So, too, will millions more who depended on them.
Of course, this raises the question of whether there is any alternative treatment for inflation besides the economic pain Summers prescribes. My CEPR colleague Dean Baker has argued for over a year now that the root causes of our inflation spike — supply chain chaos exacerbated by the Ukraine war — isn’t treatable with decreasing the money supply, and if we can wait out the chaos, inflation will fall. This is also the opinion of the nonpartisan Congressional Budget Office. Excellent investigative journalism about the supply chain malfunctions also bears this out.
In a fantastic interview with Vox’s Emily Stewart, Modern Money Network Research Director Nathan Tankus reiterated his argument for regulators across the government to coordinate policy to regulate for price changes. This is a natural extension of the observation that traditional interest rate-based monetary policy is an extremely imprecise tool for managing inflation. It’s sometimes compared to doing surgery with a chainsaw instead of a scalpel: it’ll get the job done, but it will not be pretty.
Lest we forget who our financial system is set up to serve, it’s worth remembering that while inflation hurts everyone, unemployment only hurts working people. The wealthy don’t suffer when unemployment goes up – it just makes exploiting others’ labor cheaper! While it is true that inflation also hits the most vulnerable hardest, using that as grounds to make it harder for them to get good paying jobs is pretty sadistic. Given the choice between dealing with rising prices while having a job and a strong labor market or having no job at all, most of us would probably choose the former.
The Fed has a dual mandate to maintain stable prices and full employment, but for almost all of the dual mandate’s existence, that second bit has generally gotten lost in the noise of economic discourse. It also can get overshadowed when the media constantly turns to wealthy establishmentarian economists like Summers who spoon-feed the talking points of capital-holders to reporters. The reason that inflation is being talked about as if it is a bigger threat than unemployment is that inflation impacts capital as well as labor.
In reality, while inflation certainly is an issue, the hard pivot into conscripting millions into a Marxian reserve army of labor can easily do a lot of harm to workers. Businesses like stable outlooks. People like stable jobs. The Fed has decided to care more about outlooks.