Jack Welch: Washington's Emperor Has No Clothes

What virtue is this?

QUESTION AUTHORITY!!

Some may think Welch was more making a statement rather than posing a question. I would view that as a matter of semantics. 

Regardless of how one may view Welch's bombshell, the simple fact is it echoes the aforementioned slogan made famous in our nation decades ago.

Having seriously questioned the integrity and authority (or lack thereof) in so much that has emanated from Washington since launching this blog in early 2009, I appreciate Welch's raising a ruckus last Friday and further hammering the point in this morning's Wall Street Journal. Let's navigate as Welch asserts,

Imagine a country where challenging the ruling authorities—questioning, say, a piece of data released by central headquarters—would result in mobs of administration sympathizers claiming you should feel “embarrassed” and labeling you a fool, or worse.

Soviet Russia perhaps? Communist China? Nope, that would be the United States right now . . .

While Welch may be the most public individual to suspect that all may not be on the up and up when it comes to goings on in Washington, he is not alone on this front. Who joins him? Perhaps the single most respected economist in the world today, Kenneth Rogoff. Really? Let's step back and revisit my commentary earlier this year,

I am well aware that many others in the blogosphere share my cynicism but who else finds it easy to be cynical about our government? The esteemed Mr. Rogoff and his colleague Carmen Reinhart. As the FT attests,

Game theory is also helpful in understanding how governments are likely to behave during a debt crisis. The key, Rogoff argues, is to ignore everything that governments say and instead to concentrate on the incentives that drive their behaviour. “One of the reasons that Carmen Reinhart and I hit it off, is that we are both incredibly cynical about governments.” 

What do those along Pennsylvania Avenue and atop Capitol Hill have to say about that?

Welch provides greater detail and his own cynicism in writing,

The Obama campaign and its supporters, including bigwigs like David Axelrod and Robert Gibbs, along with several cable TV anchors, would like you to believe that BLS data are handled like the gold in Fort Knox, with gun-carrying guards watching their every move, and highly trained, white-gloved super-agents counting and recounting hourly.

Let's get real. The unemployment data reported each month are gathered over a one-week period by census workers, by phone in 70% of the cases, and the rest through home visits. In sum, they try to contact 60,000 households, asking a list of questions and recording the responses.

Some questions allow for unambiguous answers, but others less so. For instance, the range for part-time work falls between one hour and 34 hours a week. So, if an out-of-work accountant tells a census worker, “I got one baby-sitting job this week just to cover my kid's bus fare, but I haven't been able to find anything else,” that could be recorded as being employed part-time.

The possibility of subjectivity creeping into the process is so pervasive that the BLS's own “Handbook of Methods” has a full page explaining the limitations of its data, including how non-sampling errors get made, from “misinterpretation of the questions” to “errors made in the estimations of missing data.”

Bottom line: To suggest that the input to the BLS data-collection system is precise and bias-free is—well, let's just say, overstated.

Apologists for Uncle Sam would like us to dismiss Welch's rants as pure political bile. Would these same apologists be equally dismissive of the very legitimate questioning of authority in the following cases:

1. Allegations of front running/insider trading within Wall Street's self-regulatory authority?

2. Allegations of lying in a proxy statement by current head of the SEC and her former colleagues at FINRA?

3. Seemingly perpetual major revisions to prior economic reports? I would especially like to highlight highly suspect developments surrounding the November 2010 report.

4. What about the crocks of $hit put forth in the midst of projections by the Federal Reserve?

Need I go on?

In summary, what did Welch say last Friday and what is he further stating today? What we have all come to learn over the last few years!!

THE EMPEROR IN WASHINGTON HAS NO CLOTHES!!

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.