Why Did One Simple Jobs Tweet Arouse the Ire of Economists Everywhere?
So here’s a tweet that seems fairly uncontroversial on the surface…
…and yet by the time I got up this morning (I’m a late riser, don’t judge me), basically every economist I know had worked themselves into a tizzy on the matter. I get that we can be a cranky bunch in general, but this seemed unusual, so what gives?
Here’s how it works: the Bureau of Labor Statistics releases its Employment Situation Summary (i.e. “jobs report”) on the first Friday of every month at 8:30 a.m. This might sound overly specific, but the regularity is pretty important since the information tends to move stock markets and the like, especially when the jobs report differs significantly from analyst predictions. For these reasons, those who are privy to the jobs report data are barred from commenting on the numbers until an hour after their release. Last time, I checked, however, 7:21am was less than an hour after 8:30am.
I completely understand if you still think this is some sort of inconsequential technicality, but hear me out…generally speaking, the president gets told the jobs numbers the day before (as Larry Kudlow confirmed that he had in this case). If he’s fine telling Twitter at 7:21am, there’s reason to wonder whether he’s also fine telling his buddies even earlier- now we’re potentially in insider trading territory. In my experience, it seems like people know in an abstract sense that insider trading is wrong (i.e. usually illegal) and that is can be harmful (though some argue the opposite, at least in the aggregate), but let’s walk through the logistics in this case to understand where our outrage should fall on a scale of 1 to “why are there peas in my guacamole”…
Let’s say on Thursday night a particular stock is trading at $100 per share, and a good jobs report would increase its value to $105 per share. If I knew ahead of time that the jobs report was going to be good, I could buy the stock at $100 and then sell it at $105 once the jobs numbers came out, making $5 in profit. Unfortunately, my insider profits aren’t just vexing on principle, they’re also likely taking away from your stock market returns. This is because there’s some poor sap out there who sold the share of stock worth $105 for $100 because he didn’t have the insider information…and what if that sap manages your pension, or your mutual fund? (not to mention what if that sap is you playing with your online brokerage account) The point is that insider trading is not a victimless crime- stock markets are a zero-sum game, at least in a transactional sense, so the insider profits are fully at the expense of the non-insiders. And it gets worse when you think about the problem in a more long-term sense:
Is he tweeting about the dumb thing in order to avoid talking about the jobs report? Did he just forget about the jobs report? Did he oversleep? This is a level of overthinking that I would not wish on anyone involved in financial markets.
Historically, government employees and officials have been very good at keeping such information under wraps, either not talking at all about the jobs numbers ahead of time or only quoting what analysts have publicly predicted. And yes, people do get prosecuted for leaking this sort of information.. For example:
Have I convinced you that this is worth your time thinking about yet? Because I can keep going…in general, a level playing field in terms of information access is crucial for markets to function properly- in other words, if you knew there were insiders in a market but didn’t know who the insiders were, you would likely (and reasonably) be hesitant to buy and sell stuff in that market due to the suspicion of getting ripped off. This, of course, has important consequences for companies who want issue stock as a way to expand, which has consequences for economic growth…not so inconsequential or uncontroversial when you work it all through.