Transcript: Claudia Sahm


The transcript from this week’s, MiB: Claudia Sahm, CEA & Federal Reserve Economist, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Overcast, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.



VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have a special guest. Her name I s Claudia Sahm and if that name sounds vaguely familiar, she is the person who invented the Sahm rule, which essentially is a way to identify when you are in a recession in real time.

Traditionally, we wait for the official NBER proclamation. Usually, it’s a year or so later. In 2020, they were surprised and really quick to declare recession and it was either March or April.

The Sahm rule essentially gives you a way by using unemployment data to figure out in real time when you’re in a recession and it’s really tremendously helpful. I know Claudia from a number of economic dinners and events I’ve attended. I always thought she was kind of interesting and wanted to have her on the show.

And I just needed an excuse to get her on and then last month, she wrote this fiery blog post, “Economics is a disgrace.” So, I’ll link to it on the blog. And she specifically calls out people by name. She calls out institutions. She talks about sexism. She talks about racism. She talks about misogynist. She talks about bullying.

She does not hesitate to name names and really, it was just a blistering blog post. I don’t say that very often. For someone within an industry, within a respected institution to say, hey, this is an utter mess, we better get our acts together soon and by the way, physician, heal thyself.

It was really something that caught my eye. Economics isn’t the only industry that has these sorts of issues between the MeToo movement and what we’ve been seeing with Black Lives Matter. It’s pretty clear that this is endemic in a lot of institutions and a lot of professions. But it’s kind of rare to see somebody who’s within that institution calling it out.

We also talked — walked out about stimulus checks and recessions and macroeconomic policy and what’s being done correctly this time and what should have been run right in ’08, ’09. It’s good wonky fun. I saved all the grievances for the last segment.

So, if that’s not floating your boat, you don’t have to listen to that. But she does an excellent job explaining what the profession is getting wrong and what it needs to fix and this includes both policy and research and publication as well as hiring practices and other things.

So, I think you’ll find this very interesting. With no further ado, my conversation with Claudia Sahm.

VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My special guest this week is Claudia Sahm. She is the director of macroeconomic policy at the Washington Center for Equitable Growth. She was previously a senior economist at the Council of Economic Advisers for the Obama Administration in 2015 and 2016.

From 2007 to 2019, she was a researcher and section chief at the Board of Governors of the Federal Reserve where she specialized in macroeconomics and household finance. She is also the creator of the Sahm rule, which determines if a recession is occurring in real time.

Claudia Sahm, welcome to Bloomberg.


RITHOLTZ: Tell us about how you found your way to the Council of Economic Advisers for the Obama Administration?

SAHM: Yes. So, by the time I went to the Council of Economic Advisers, which was in the summer of 2015, I had been at the board for several years. So, I went as the macroeconomic senior economist. I covered at the White House all of domestic macro and housing policy.

So, when I arrived, I saw, wow, there are like 100 economists or more at the board that cover these two topics. And by the time I went there, I was trained to be able to do that.

I started in 2007 as an expert on consumer spending. Over time, I got to manage and oversee the staff’s forecast. I had been able to do a lot of briefings and writings. So, by the time I went to CEA, and that is true of everyone that they sent over there, I had the experience to step into that role and for me it was really refreshing because I was like, I am a generalist. I spent most of my time doing business investment. As I said, no one could have asked me what I thought about business investment.

And though it was a really rewarding experience, Jason Furman was the Chair at that time, he is excellent, he worked so hard in a good way. Jay Campbell was the member that I worked with really closely and, I mean, really everyone that I worked with from members to senior economists to junior economists, to interns and they were just fabulous.

My last day at the Council of Economic Advisers was Brexit. And so, I’m really good at picking good times, right? My first forecast to the Fed was the start of the Great Recession. My last day at CEA was Brexit. I worked all through the weekend.

What was funny is when I got back to the board on Monday, it was cricket like nobody was going to come to ask me what I thought about Brexit. We have a whole team of international economists.

So, it was a really interesting experience. I’m glad I did it. It really focused my mind on what economic policy could be and frankly, should be. And I’ll end this piece with just funny story in how like the journey to the CEA started back in undergraduate.

So, I went to Denison University, a liberal arts college, and in my intermediate macro class, Dick Lucier taught the class, and part of the class was us being like we were economist at the Council of Economic Advisers. We had to cut things out of the newspaper and do analysis and then he role played being the president and we had to do presentations.

I got to when he — when I was at the Council of Economic Advisers, he came to visit in D.C. and I got to take him on a tour of the Oval Office. To me, it was just this really special connection from how I fell in love with economics as an undergraduate and then when I got to contribute as an economist to the policy world.

RITHOLTZ: Quite interesting. You are also a section chief the Division of Consumer and Community Affairs at the Fed. What does that mean exactly? What is the role of a section chief?

SAHM: Right. So, in my last two years at the Federal Reserve, I was a section chief for a research section in the Division of Consumer and Community Affairs.

There were a lot of things unique about that because I had moved at that point out of, quote-unquote. “economics division.” So, the team that I managed, we’re the only economists doing economic research in that whole division.

So, to me, it was very eye-opening. I worked with attorneys. I worked with policy analysts and they were all really impressive. The Division focuses on low and moderate-income families and communities. So, they were, from the very beginning, ahead of the game in terms of thinking about diversity and inclusion and racial injustice and educational disparities and rural versus urban.

So, that was a really good experience for me back to what it means to be a section chief. So, it is widely known that the section chief is the worst job or the hardest job and the only one that comes close is being a division director, right? That’s a very top of the house and the section chief is the first manager job.

The board now – it didn’t when I joined the board. But the board now has a very intensive management training for section chief or anyone who’s starting with group manager, which is like one level down. So, anyone who’s supervising goes to a manager boot camp.

It was like three months, every other week, three hours and that was really good. They brought out — brought in external consultants. I learned a lot from that. I learned a lot from my team especially the research assistants in how to be a good manager.

Now, it won’t surprise me — and this isn’t just with the board. You get promoted because you’re good at doing the job you started with. Like I was — I made section chief because I’m a very good economist and I had to lead my team on their economic policy works.

That didn’t mean I knew anything about being a manager because they don’t teach us that in the PhD or doctoral program. But often, they teach us what not to do as a manager. So, that was a really hard year. That was like my imposter syndrome year. On car with that year in 2008 when I was like, my gosh, I’m supposed to forecast U.S. economy in crisis?

So, it was a very different time and I handled it way better than 2008. But it’s a tricky job and it’s one where the board helps us do a good job now. But if you don’t do a good job, you can not only have a team that’s not effective at doing policy work, you can really damage people and we don’t want to do that because that doesn’t help anybody.

RITHOLTZ: Yes. We’re going to talk more about that and how the field, especially the academic programs, not only do they not teach management, they really don’t teach writing, they don’t teach a lot of skills that would be helpful. But we’ll come back to that.

SAHM: Yes.

RITHOLTZ: What also makes you a little unusual as an economist is you are pretty active on Twitter and you maintain an active blog, as do I. Why are you using these platforms? Tell us what an economist gets out of participating in social media.

SAHM: So, I joined the platforms Twitter, the blogging came later. My gateway, quote-unquote, “drug” to economic social media was commenting on economic blogs like Marginal Revolution, Money Illusion. That was really how I dipped my toe in the water there.

Twitter, I spent time on it. The reason I went to Twitter was because after I had some difficult periods at the board and also was trying to figure out how were all these smart, caring colleagues like how are we missing it that the recovery from the Great Recession is going to be really slow.

And like our staff forecast was consistently too strong and I, and there were others, were consistently saying, what are you thinking? There is no way — we have families that are absolutely decimated from this recession. And so, for me, that moment and then reflecting back, remember, I showed up in the summer of 2007, reflecting back, I was like, how did we miss this, right?

Like there’s all these people and that was a moment where I said, OK, maybe it’s because we don’t have enough diverse voices. We’re not connected enough to reality.
And well, Twitter got a lot of diverse voices, right? So, went on to economic Twitter. I like to — it would be apparent to anyone who knows me, I like to talk to people. I like people. I like people that are a little prickly. I mean, I’m a macro economist, right?

So, I went there to hear from people who don’t — they’re not inside the building and frankly, it’s probably a good idea. Like some of them would be absolutely horrible macro forecasters at the board. But that was, for me, very important.

Now, that was my upside. No one at the board saw that is an upside, right, and I was a walking downside risk within a very short time of being on Twitter. It feels very good about — I don’t talk about monetary policy but I would link to things on the board’s website. Like Bernanke gave a speech and da-da-da-da.

So, I got found out by public affairs because I was driving traffic to the board’s website and …

RITHOLTZ: You don’t want that.

SAHM: Yes. And it was bad and I got called to an offsite (inaudible) like what is wrong with you. You are the only staff economist talking about economics on Twitter.

And the reward to that is I had all of public — not all, I had Michelle Smith and several other public affairs people following on Twitter. When I would do something that they felt was a misstep, even — I’m never broke like a federal — yes, I never talked about information that wasn’t public like forecast information.

But I would get within a half an hour of call from my division director or via my boss saying, you got — you can’t do that, you got to delete. And so, there was this aspect of surveillance, which I guess like Michelle Smith, public affairs of the board, has such a hard job and every once in a while, I step in their lane, I never meant to, like partly …

RITHOLTZ: How dare you promote something that we’ve hidden in public view on our publicly accessible website?

SAHM: Yes. No. And when my last year at the Fed, and I really thought because Powell like loves Twitter, right? When he was a brand-new governor, I was in his office with another economist. He wanted to understand like labor markets, superstar effect. We went and talk to him.

At the end of the meeting, he looked at me and he’s like, Claudia, you had a really big day. And I’m like, well, I’m here briefing a governor. And he’s like Noah Smith re-tweeted you on Twitter. I almost fell over. I don’t Noah and I was like, you’re on Twitter and you follow Noah and you are on Twitter during the day, right? So, I was just blown away.

RITHOLTZ: That’s hilarious.

SAHM: So, when he became Chair, I said, Twitter is going to be OK. Yes, that was wrong. So, I got in trouble two more times because Powell read one of my tweets and asked about it and he shouldn’t be learning anything from my tweets, so, I was told. And twice I got in trouble for linking to the distributional financial accounts on the board’s website because I didn’t want attention drawn to it.

And I was like …


SAHM: The board’s website is the best place to put information you don’t want anyone to see. But I will …

RITHOLTZ: That’s hilarious. I love the board. I understand much better than I did in the beginning why what I was doing could be problematic and I never, never wanted to be the person who brought down the fed, right, or caused immense stress.


SAHM: I was just having fun and like I said, I was trying to learn from people who weren’t like anybody else that was in the building.

RITHOLTZ: That’s so funny. By the way, bringing down the Fed is Judy Shelton’s job. It’s not Claudia Sahm’s job. So, we can leave that to her.

SAHM: Yes. I’m not commenting on that one.

RITHOLTZ: No. I know that’s why I’m sticking my two bits in. And by the way, my economics gateway drug was Brad DeLong.

SAHM: Yes.

RITHOLTZ: The economist from Berkeley and he was one of the earliest academic bloggers just musing in public on a blog and discussing economic data and it was so refreshing compared to the sort of stayed releases from BLS. And even back then, the Wall Street economists were very, very tame and to have someone come out and just like, boom, what’s wrong with the data analysis was really a refreshing change of pace.

SAHM: Yes. And I want to say there are two things that I really like about Brad DeLong on Twitter. Like I like them off Twitter. I’ve learned a lot from him. One, he’s an economic — well, he has a good grounding in economic history. That’s not the only thing he works on. He does a lot of macro space.

Two, his blog, I mean, he was like live tweeting World War II. I mean, like it would have — it showed a side of him that was like not like an — like you wouldn’t have seen this in an economic seminar.

The other thing that Brad does on Twitter, which is very rare, is that he engages with people. Like he will reply to tweets. I have — I looked once in Paul Krugman’s Twitter feed and I — Paul like does so much in terms of communicating economics and pushing us to think and pushing a broader audience. He never replied to tweets, like never.

So, I like Brad. He engages. Like I like to engage. So, that to me is like economic Twitter can be a special place but it’s hard if it’s a lecture and not a conversation.

RITHOLTZ: Quite fascinating. So, let’s talk a little bit about fiscal stimulus. When we look back at the financial crisis of ’08, ’09, the vast majority of that response seemed to be coming from the Federal Reserve and a monetarist’s response, not a fiscal stimulus compared to this one. How would you do a side-by-side comparison between 2008 and 2020 on a fiscal basis?

SAHM: So, I have done a lot of work thinking about how 2020 compared to 2008 and the reason for that is I had a very unique experience at the board in terms of understanding what happened in 2008 and the years after that.

And it may be counterintuitive. So, I covered consumer spending at the Federal Reserve. I did advise on monetary policy. What my job was to do — was say, OK, what’s going to happen — what is happening for families and their spending in the economy to do that during the crisis and during recovery.

I had to understand and have an opinion, expert opinion on what is physical relief doing or physical stimulus doing in the economy. Because then the board in the monetary policy, they work around the edges and they need to know what we think is happening in the economy and part of that is what is Congress doing.

And so, not only did I follow the data in real time, I would update my forecast as the data came in. This is a very unique expertise and experience for a macroeconomist to have. Academics do not do this, right? People on the board do and I learned very well.

So, in addition to that, I started a research program with Matthew Shapiro, who is my advisor at Michigan, and Joel Slemrod, who’s also professor there. They had a prior research program studying the 1992 changes in tax withholding the 2001 rebate. They hadn’t (ph) joined this research program of theirs in 2008.

We did research and ran surveys on the 2008 tax rebate, the 2009 and ’10 Making Work Pay tax credit and the 2011 and 2012 payroll tax cut. Fast forward to last year, I contributed to a volume called Recession Ready that the Hamilton Project at the Brookings and Equitable Growth, where I now work, oversaw the volume.

I had a chapter on individual payment that would happen automatically in a recession. I — from my expertise said, it got to be big direct payments to household. This little divvy changing withholding, this is not a good way to fight a recession. It doesn’t help families fast enough and they don’t even know it happened, like stealth stimulus.

Like I don’t know much about politics but I know enough to know that probably won’t help you a lot in terms of saying Congress — the president saying, we help the American people. So, I took my forecasting expertise, my research knowledge and the research knowledge from a lot of other people who work in this space.

One of the things with the board is you don’t put your forecast together. You don’t walk into the board room and say, I think this is the right thing to do or this is the right way to think about the economy and here’s my research paper, right?

Like you come in with here’s my paper, here’s three other papers, here’s how they agree, here’s how they disagree. And so, these were, again, skills that a lot of economists don’t have but that’s what I put into my chapter. And in addition, I said, we know the 2008 in particular worked really well, like that’s the way to do it.

And then the add-on with me thinking about how we do that automatically and the reason that I had it automatic and I had also my proposal in a severe recession, not every recession, in severe, but in a severe recession, those payments would happen automatically on a repeated basis until the unemployment rate came down.

And that was born out of a very painful experience because I have a very emotional reaction to the macroeconomy. It came from a painful experience in 2012 when the payroll tax cut stopped and there wasn’t anything else that went to a large number of families and the unemployment rate was still high.

So, I knew from fiscal policy that they stepped away. I mean, they’re the politicians, I’m not but they made a decision that it was time to stop the physical relief and in fact, they cut back on government spending that had a lot of damage to the economy. Our last recovery was very long but that’s actually a bad time in some ways because it took us so long to get the unemployment rate down.

And that was the fiscal policy stepped away and frankly, monetary policy did not step up enough in the recovery. Like they didn’t save Main Street. They saved Wall Street. There were political existential risks to the Fed that are widely justified at least internally or in my impression. Like not going all in on Main Street but it hurt people, right.

So, I knew like the Fed really can’t do this. In some ways, they really shouldn’t. But the Congress not only can but they have to. And that is what has been so hard right now. Like last week, when the extra $600 a week to the unemployed expired, that is going to hurt so many families this year and that program should have been and could have been on autopilot and it was …

RITHOLTZ: So, let’s talk …


SAHM: … the fallout.

RITHOLTZ: So, let’s talk about that program. When Congress passed the CARES Act, they sent $1,200 check to everybody making, I think it was less than $99,000 if memory serves, plus $500 per dependent and then a $600, was that a weekly or monthly unemployment bonus?

SAHM: It’s weekly.

RITHOLTZ: How much — weekly?

SAHM: It’s weekly.

RITHOLTZ: And that’s based roughly on the median income across the country. So, that’s quite a substantial fiscal stimulus or is it not? What do you think of those 600 plus extending unemployment plus 500 per dependent on a one-time check plus 1,200 on one-part check?

How would you rate that fiscal stimulus and what was the impact in the economy in a period where I think, at its worst, the Atlanta GDP now — their now casting tool, had GDP contracting at 52 percent not on an annual basis but when they happen to take that snapshot at the worst part of the economic contraction, the economy was effectively cut in half.

SAHM: So, I did not sleep the night of the vote in the Senate until they passed it, which I think then I stayed up until like 1 a.m. or something the next day. And the reason is by the time it got to the Senate, I knew this was really good for families and the unemployed.

I mean, frankly, I was shocked that the $600 a week made it through and it almost didn’t. Like the Senate Republicans, there was a group that woke up and they’re like, that is a lot of money, right, and so, especially given what the base benefits to the unemployed would be.

Now, as a macroeconomist, so, setting aside how I feel about families and the unemployed, as a macroeconomist, this was huge because they passed it in March. I mean, it took Congress later — longer than the Fed. My goodness, for Congress, they really moved, right?


SAHM: So, they moved fast the rebates. I mean, honestly, the rebates were better than what I had proposed in my chapter because I didn’t think it was possible. They are huge, they are twice and I think they should be. I’m not saying this was a bad thing.

The benefits, the relief that went out in these direct payments is like twice in generosity what happened in 2008 and in addition, the eligibility is expanded. Basically, anybody with a Social Security number has a claim on those checks.

And the Treasury did things that sped up the delivery relative to 2008 and, I mean, they set up a website where you can go and put your payment information in if you hadn’t filed taxes.

Now, it was not perfect. Some people got checks but didn’t need them. I mean, honestly, a over — well over 80 percent of the U.S. population, they’re not even adults, but the population got some money from those rebates. That is just …


SAHM: It’s like wow. Anyways, and the thing is that they got it out fast. Like the rebates were – in my opinion, the rebates were the best administered piece of the entire CARES Act. I mean, I think they’re the most important.

Like the aids that went to the most hurt like the unemployed, that was — that’s really — like we have to help the people who are hurting the most. The thing is in March, we didn’t know who is all going to get hurt.

RITHOLTZ: Right. Right.

SAHM: And the American people are really scared. So, it helped — and one last thing about the $600, there’s been a lot of discussions that that extra money is holding people back from going back to work.

I know small business owners, even in my own family who have had a difficult time rehiring workers to do work in like service industry job because they’re like, why should I go back, I’m getting more every week than I would doing your job. And that is legitimate and yet for many, many workers, the problem is their employers don’t need them back because nobody’s in the store or not enough.

And so, like that extra money, the unemployed are spending it, right? And so, it is …


SAHM: … ramping demand in the economy that needs it and this is going away.

RITHOLTZ: What do you make of the Yale study that said when we look at people who are receiving the $600 benefit and those who are not, they are both returning back to the workforce in the same numbers?

SAHM: Though at this point, there are various research studies and this is coming from academics, this is coming from policy analyst. I have done work in the space also that that money, that support is mattering and it is not holding back the economy.

Now, there will be a point, in my expert opinion, as the unemployment rate comes down and jobs become more plentiful that we should think hard about, are we paying — not paying, are we giving people more money than they normally would have gotten.


SAHM: It’s a very important piece out of the study I saw yesterday. I’m sorry, I’m not going to attribute it correctly. But they showed that in past recessions, what enhanced benefits, and in that case was the extended duration is being able to stay longer than 26 weeks, it showed that it allowed people the time to go get a job again that was commensurate with their skills.

And that was particularly important for people in disadvantaged groups. So, people of color, the less educated and women. So, we don’t want people to go back too fast because they’re getting jobs that aren’t the right jobs for them, and right now, my goodness, a lot of these jobs are not safe.

So, we want to make sure that we don’t kill people, righ? So, this $600 right now makes a lot of sense. Reasonable people when we get five years into this and that unemployment rate is six percent, then let’s talk about it. And I’m in the group that thinks we should face it down automatically as the unemployment rate comes down.

RITHOLTZ: I like the idea of using a metric to make that determination and taking it out of the political realm. Last question on unemployment and this fiscal stimulus and these checks, we’re recording this in the first week of August. There is no deal yet for the CARES Act renewal. What do you think would be appropriate for Congress to pass relative to unemployment and another one-off check or not?

SAHM: I want Congress to pass a new relief package that is between four and $6 trillion. I am not expecting to get that. I truly believe in my expert opinion that they need to go big again and they need to do what work.

So, I just — I want Treasury to just push the button again and send out those checks. We would have — the people who have direct deposits, they would have that money within a week of Congress approving it because the heavy lifting of putting together a file of who gets the check, where is their bank account, that file exists.

So, if you do it exactly like you did last time, it goes really fast. So, yay, that is good. I want to see the unemployment benefits continued — just like I said, tied into the economy, keep somewhere they are right now especially — the $600 is just so big because when the CARES Act was passed, we were in a pandemic.


SAHM: We did not expect to be in a pandemic now but we are. Now, I know from having — I’ve been doing a lot of work with a lot of different offices and members in Congress. This is why left the Fed. I couldn’t do that when I was there.

I spent Mother’s Day weekend putting together a cost estimate for the unemployment insurance, the enhanced benefits tying (ph) to the unemployment rate, doing forecast — I mean, this is something I learned how to do at the Fed. They are not a lot of people that know how to do this and I came out with an estimate that was about — it was a little over two trillion and the expensive part of that is Congressional Budget Office and a lot of forecasters think this is going to take a long time, right?

So, the phase down of those benefits is going to happen slowly and that was the big price tag on. Now, the CBO — the Congressional Budget Office doesn’t do the feedback effects. I think in the end, it would really cost the — it costs taxpayers less than two trillion because we get the economy going faster.


SAHM: But at the end of the day, that’s one reason it’s big ticket. One more I’ll say that I think is really important is …

RITHOLTZ: Wait, before you move past that point …

SAHM: Sorry.

RITHOLTZ: … I just have to say you’re describing the sort of supply side unemployment benefit where it’s cheaper than it looks because its own economic activity is going to help pay for itself. Is that what you’re saying?

SAHM: That’s right. We’re in a wonky world. They call this dynamic scoring where …


SAHM: … Congressional Budget Office would take into account the feedback and in this case, relief had positive feedback effect. Definitely that’s positive.

RITHOLTZ: For sure.

SAHM: Right now, the Congressional Budget Office can only do that kind of analysis for changes in taxes. This is just something Congress decided. So, we run this through and expect to get back a smaller score. I have to make the argument and others have that we know it will help the economy and if we help the economy right now, it is a down payment on the next few years being a lot better than they look like they’re headed to be.

RITHOLTZ: So, let’s talk about the Sahm rule a bit. When the three-month moving average of unemployment moves above its previous low, you say we’re in recession. Tell us why that is.

SAHM: So, it’s just — it’s an empirical regularity, right? I spent a lot of time with the spreadsheet over weekends. Again, this was in part to do my proposal of automatic payments to people. But you got to know when to send out hundreds of billions of dollars, right? You don’t particularly want to mess that up.

And I knew — and this is a principle that Federal Reserve economists know, people on Wall Street know that a small increase in the unemployment rate is a bad time. Now, I wanted to really understand when it’s accurate and when it’s in a recession.

The Federal Reserve has a rule of thumb, which I did check after they called this the Sahm rule, I asked one of my former bosses, I’m like, did I scoop the board’s rule. Like I do not want to — because we’ll rename it with the Fed rule, right?

And he said, no. The internal rule of Fed was the 3/10 increase in the unemployment rate and that happens ahead of reduction. And I know one time in 2003, because I tried everything under the sun when I came up with my rule, that it triggered and it was a false positive, right, because that small increase happened in that jobless recovery, it didn’t end up being considered a recession.

So, 3/10 with the rule, it makes sense for the Fed because monetary policy wants to get ahead of the game. If it can because it often is believe that it acts with a lag if you’re lowering interest rates and frankly, if they cut a quarter point and is actually recession, like they’ll pat themselves on the back and it’s not like taxpayers have just lost $300 billion of their “money,” quote-unquote.

So, I had a different goal because mine was about what Congress does. And so, I found a rule that’s always triggered within the first few months of a recession and I also believe that the indicator I use is such a good one because it is the reason that we hate recessions and we fight back.

It is people losing their jobs. Those people, especially in a recession, especially if it takes a while to get a new job, they will pay for that in terms of their careers and their families will pay for it for a very long time.

So, to me, it’s a widely followed statistic. It makes a lot of sense. At the Federal Reserve, they also use things called regime switching factor models. I am not taking that to Congress. Like this is not what you want to have money.

But at the Federal Reserve, I mean, you ought to use everything under the sun to understand the macroeconomy. You have to have a simple rule if you want to put fiscal policy on autopilot.

So, to me, it was a great rule. In my chapter, it’s called a recession indicator when I showed up at the launch event for the book and they started calling the Sahm rule. I was very uncomfortable and to the point that after the event, I went to talk to Christie Romer, I wanted to talk to her about some physical stimulus, she was one of the main panelists, and I said, I’m so uncomfortable with the Sahm rule think, and she looked at me and she’s like, Claudia, you have got to own this. Any man would.

And I was like, OK. Christie is my hero. I will listen to Christie. What I learned since then and I’ve joked a little bit about this and ribbed some people online like Bill Dudley that owning it actually meant I had to defend it, right, because again there’s principles there and it was great and it was important for me to understand like the intellectual history of it but like I already did.

Anyways, so, I am thrilled and I always tell the people, they’re like, we knew this and da-da-da, and I was like, but if everybody in the world knew it, it wouldn’t be in the Bloomberg terminals, in Haver, in FRED with my name.

So, maybe I wasn’t like the person who thought the big thought. I did not think the big thought and yet, I got it out to the world and to me, that’s important and I spent a lot of time with Congress trying to help them understand why this is such a good thing to do.

RITHOLTZ: So, let me push back on your false modesty I’ll call it. There was “Wall Street Journal” article. I love this headline, quote, “Are We in a Recession? Experts Agree: Ask Claudia Sahm.”

So, that is quite an accolade in the journal. I would have that on my wall in my office. What sort of pushback did you get to that article and I’m curious, was it intellectual pushback to the idea or was it pushback to who really owns authorship of it?

SAHM: So, when I saw that article and I was thrilled, like Kate Davidson has been such a booster of my career. So, the response to that — well, even my response when I saw the headline is I was like, if you ask Federal Reserve’s staff economists, I would not be the name that they would bring out, right?


SAHM: And I knew that and I knew it because months before is when the Sahm rule was born and there had been some attention to it. Like I just had people that were really clear and not in like mean ways but there’s — I don’t know, the board is a very interesting place.

There are times — and the summer was an example of many, the things that I know about the macroeconomy, I learned at the Fed. Like it’s the board, right, where this kind of brings like passes along macro.

Now, that meant — when I spoke out, and this had happened on Twitter so I knew this was an issue, it’s like, well, it’s not fair you get the credit because you’re speaking out and you learned it from everybody. And I tried always be cognizant of that and give credit where credit is due. Part of where credit is due is with me. Like I’m the one that spent weekends with this spreadsheet.

I had someone contact me after — a friend at the Fed contact me afterwards and he was like, so, this spreadsheet, she said it was a massive spreadsheet, seriously, this rule is so simple. And I looked at him and I said, well, I pulled all the real-time data, which means that I looked at all the data as people saw it at that time …


SAHM: … which is more complicated and frankly, this man who I truly think is an amazing economist, he works on the financial side of the Fed, I work on the real side. If I had asked him do the real-time analysis, it would have taken him a long time, right?

But they’re the kind of like, this is so simple and it wasn’t saying that I didn’t deserve it so much as we all deserved it, like the whole staff and like the staff from years before. And like as with Twitter, I take the risk of speaking out.

So, I don’t know, but I was used to this and I wasn’t surprised and honestly, if I hadn’t been a Fed forecaster, if I hadn’t spent a year at CEA where frankly, early in 2016, things were wobbly, right?

RITHOLTZ: Right. I recall.

SAHM: And I actually, at the event, tried to give the credit up to Jason Furman who then said, this is more like Doug Elmendorf, and then Christie was like, you have to stop, like this is you. Anyway, so, it’s an interesting experience. I’m not really upset like it’s just a pure linearity of the Fed and what bothers me the most about it is we knew. Like the Fed knew for a long time and what happened is when I shared it with the world, the world didn’t know.

RITHOLTZ: That’s quite — that’s quite interesting. If — let me ask you this question as an author and I’ll get off of the Sahm rule after this. Was anyone in the Fed using the rule of thumb three-month average jobless rate rising half a percent from a previous 12-month low? Was that anywhere on any Fed sheets before you publicized it, and in that format and with that conclusion?

SAHM: No. The rule of thumb …

RITHOLTZ: So, then you get the authorship.

SAHM: Yes. Yes. I know.

RITHOLTZ: I hereby deemed …

SAHM: That the principle is — the principle …

RITHOLTZ: No. There’s no principle. There’s no principle. The principle is you wrote it, you created it. I’m — listen, I’m going to say this, I also say it on the record instead of saying off the record, when I first started blogging in the ’90s and then in the early 2000s, I was aghast how frequently I would write something on a blog and then weeks later or days later see it show up in a mainstream paper with no credit, no link, no citation just, you like that idea

What do you think? I’m your writing staff. I’m on punching up your script. You just stole this. I mean, sometimes it was word for word. So, I think if you create something that has not been created before, even if other people contribute to it, hey, we are all standing on the shoulders of giants, you are entitled to the authorship credit.

Now, I hereby deem the Sahm rule officially yours. I have that authority because I’m on the radio.

Let’s talk about a fiery blog post you wrote a couple of weeks ago titled, “Economics is a disgrace” and I’m going to suggest listeners go to macromom and find that blog post. And it — you make a number of really interesting allegations.

The first of which, is economics research replicable? Sixty published papers from thirteen journals say usually not.” These various research papers were only able to replicate about a third of previous research that was published in various economic journals. What’s wrong with the state of economic research today?

SAHM: It says a lot of thing about this field of research. One that I didn’t touch on in my blog post is it shows that we don’t have a culture of going back and checking each other’s work, right?

And there was pushback, and I’ll come back to this, about the paper because it wasn’t like they went and did like a new study. Like I work in consumer spending, I have written so many papers showing falsification of a basic principle of consumer spending models as is like hundreds of other people, right?

So, it’s not like someone’s checking my work where I’m not checking Jonathan Parker’s work. We’re just doing different studies. With this paper by Andrew Chang and Philip Li did — as I said, OK, go to the top journals and let’s just see if we can get their main result. They weren’t even trying to replicate all the results. They just wanted the main takeaway empirical result, the finding.

And they did this in a way — Andrew Chang was a colleague of mine for years at the Federal Reserve. He is an absolutely industrious person, not inspired as me like he’s more soft-spoken. He completely rolled up his sleeves. He had an army, practically research assistants who’s also in the macro forecasting section with me, and they spent hundreds of hours on this project.

They were so careful. Like there were no cutting corners. There was no playing fast and loose. They wanted to be able to replicate. They put a lot of time into it.

And it should have been a finding that we, as a profession, took really seriously and instead, from very elite members of the profession, they were received with derision. I mean, they were outright criticized, put down in public. The paper was desk rejected.

In addition, where I talked about the blog post, Andrew shared with me a correspondence that he received from a very senior person in the profession because he knew I had had problems with this person and I was furious. But I told Andrew this man does this but it is absolutely unacceptable.

The paper was rejected at all the top journals. It did finally find a home and adding injury to insult, in one of those top journals, another researcher, much more prominent, published a paper later saying we should do more replication.

I mean, it was just — it was astounding to me on so many different levels of this elitism in the profession pushing back on uncomfortable conversation. And then like we actually need a culture of replication. Like I know that is a policy analyst. I never took a result — a piece of advice into the boardroom that was one paper especially if it was some paper that was like totally different than every other paper written on the topic.

Academia is a reward novel, surprising findings. Those are the ones that we absolutely should be checking them out, right because I’m not saying they’re all wrong but, I mean, Andrew and Phillip’s research showed, yes, you should really do more of this, and we don’t in economics. And frankly, his paper, their paper was ignored.

RITHOLTZ: Let me push back a little bit against your argument with a quote from famous physicist Max Planck basically saying what the old guard believes doesn’t go away until the old guard is dead. So, how is economics any different from physics or other fields where you have this entrenched calcified belief system that literally takes a generation to get past?

SAHM: So, when I hear that quote now and I heard it in the past and I agree with it and I think the direction you’re going. But a few weeks ago, Emmanuel Farhi, who is a 41-year-old brilliant macroeconomist, really pushing the boundaries of the field in a very good way and a kind man and a mentor to many, he killed himself.

And in the last four years, Martin Weitzman killed himself and Alan Krueger and Bill Sandholm and these are people who are creative, they were trying to change this field both in the way we treat people and then the things that we think and explore and the questions and the findings.

And to me, that shows the opposite of progress. I mean, those were funerals the nobody should have had to go to. So, yes to the quote. And honestly, when Emmanuel’s death happened, that was when I took what has been a private reflection that I sent to Janet Yellen and Ben Bernanke because they were heads of the American Economic Association to say, we have a problem. And when Emmanuel killed himself, I said, I need to tell more people because this has to stop.

RITHOLTZ: So, let’s get into some specifics. Some of the things you mentioned in your post involved misogyny and sexism and racism and other things. Let’s start with the “New York Times” quote from June of this year, “Economics, Dominated by White Men, is Roiled by Black Lives Matter. So, is economics dominated by men and is economics mostly white and what should we be doing about that?

SAHM: Yes. There’s absolutely a domination in the sense that the elite members of the profession, the ones you see on TV, the ones who are in the White House, in the top position, many of them are white men. I like to joke and I’ve been to so many seminars especially these online virtual seminars about COVID with macroeconomists, so many of them, it is just a sea of whiteness and maleness and I like to joke that the diversity here is the degree of hair loss, right?

Like, I mean, this is — and I’m kind of a pain in general. But this is serious. This isn’t a joke about it. But that means that you are not bringing the lived experiences. White men do not experience misogyny. Like, I mean, they can experience something from women being degraded by other men colleagues.

But white men also just like I, a white woman, do not experience racism. Like I can be empathetic but I will never walk in those shoes, right? So, you can — as a researcher like I can write about rates. I can think about rates.

But particularly during Black Lives Matter, I still figured out my voice is not what we hear — need to hear right now but I can amplify the voices particularly of black scholars because I can re-tweet. I have a platform on Twitter that a lot of them don’t and to me, I wanted the world and I needed to see their voices because there are economists, there are scholars who think very hard, have thought very hard for decades about structural racism and injustice in the U.S. economy and the global economy.

They exist. They have been marginalized. They are told their research is not economic. They are rejected from top journals. I saw someone talking about it like they put racial injustice in a paper and the referee (ph) said that’s inflammatory and I’m like no, that’s like the real world for these people.

So, that’s this culture and then in addition, we had white men jumping into the conversation of Black Lives Matter in a very problematic and frankly racist way.

RITHOLTZ: So, let’s talk a little bit about the research aspect of this. A month after that “Times” piece was out, there was a “Wall Street Journal” piece, quote, Economic Journals Faulted for Neglecting Studies on Race and Discrimination” that was in July of this year to which you responded economics has a race problem. So, how do you recognize the race problem and what can you do to solve the race problem?

Because in your blog post, it’s apparent it’s not just that the big institutions and government or Wall Street or corporate America, it starts at freshman academia and goes the whole way from when you first decide to become an economist and follows your entire career. So, what can economics do about its race problem?

SAHM: It has to do so much. Like there is no magic wand. There is no silver bullet. The thing that economics has fallen down on and race is frankly a much more serious conversation that we need to have than gender.

I mean, it’s just deplorable and what surprised me about my blog post on many different dimensions is I didn’t think it was newsworthy because everything I said we already knew. Now, the economic profession has this amazing ability to explain away its problems.

I’ve done a lot of work speaking on gender and economics. I don’t do research in this area but, again, I want to amplify the research and I have a presentation where I go through and debunk every single one of the criticisms. One of them is women can’t do math. This is not true. Plenty of women are math majors.

Another one is, well, women just don’t want to do economics and it’s like, well, why do you think that’s the case, right? Like if they show up and you say sexually explicit jokes in class, they might not feel really comfortable or the curriculum doesn’t even talk about it, right?

Like in the — so, it just shows a lot of economists either are completely ignorant of race or in some cases, they are openly hostile to race and many of these people — not everyone. I know there could people in economics, right, but too often in too many cases, we have gatekeepers of the profession who are not being inclusive. They’re doing the opposite. They’re pushing people away.

And if that is the case, then you have a big problem and frankly, like how do I know it, I’d say, look around like I — there was one black woman economist out of over 400 that I worked with at the Federal Reserve. Over time, there’s like two other black people that I know that have worked and have since left.

Like, seriously? Don’t you think maybe? And so – and you can see this in top journals. There’s luck (ph) finding a black person, Latina, Asian, like there’s just — there’s so many layers of pushing people away that we need because they bring something in an authentic way that most of us can’t.

RITHOLTZ: Quite interesting. And our last question on economics problems, this is a quote from your blog post, quote, “economics hurt people outside economics with bad policy advice.” Explain.

SAHM: So, this goes back to my soul searching in the very worst time of the recovery from the Great Recession when I was like how did we miss this at the Federal Reserve, the crisis, the housing crisis, how did we miss it now in the Great Recession the recovery.

And I got to this point of saying, it’s because we do not have diversity. Diversity comes in a lot of dimensions and the thing that really nailed it for me is I went — again, I was really trying to understand this like I was so puzzled and I’m one of those people that love to read Fed transcripts from the Federal Open Market Committee meeting.

So, I started pouring through the transcripts prior to the financial crisis and I found the meeting and I go back in my low points of being at the Fed or just doing economic policy and I reread this one transcript, it was in 2005, Josh Gallin, who is now a very senior economist at the board, he was a junior economist then, he briefed the FOMC, he argued the house prices were overvalued, this is in 2005.

The whole — I mean, like everybody else, there’s some exception but basically, everyone else at this meeting, especially the ones that were very prominent like Greenspan, totally shut him down. Now, years later, I’ve always told Josh I like — he’s a hero, he spoke out, like I tried to speak up. You get like smothered when you try to speak up.

But if you’re persistent, I mean, persistent person, you can move the needle. It’s a very slow-moving needle but it does move. And recently, I saw him and he knows like I told you you’re my hero and he’s like, but, Claudia, I never forgave myself because he said, after they came down, after they explained it away, I couldn’t keep pushing loudly and I didn’t.

And I thought to me that was a really important lesson and I have been not with the consensus since this crisis started. I have very loudly said, we have the mother of all demand shock. Like, yes, the pandemic is causing what we — a supply shock but this is a big one.

And I spent a lot of time and I was told by people who I very much respect in economic policy circles, Claudia, you need to tone it down because you’re going to look bad at the other side of this. And I was like, I won’t, right, and I didn’t back down on the blog post because I know people that are hurt and are continued to be hurt, like I’m fine, those are nine years ago. When they come in my office, I’m like, yes, go away.

But I know people that have been hurt, are being hurt not just of the Fed but all over and the undergrads that I hear from where the people had been pushed out of the profession, I mean, they make me angry. You read the post, I sound angry, I am. Like this is completely unfair and so many of them would have been great economists. I know it.

Some of them, I saw their research getting going. I was so excited and they walked away and I said, you know what, we don’t deserve you. We need you but we don’t deserve you. And like that has to change because until it changes, we are going to continue to give advice that is not aware of, well, how did people of color, how did the less educated, how did people on the margins of the economy experience a recession?

Let’s talk about that. Let’s do research on that. And it has been ignored and the Federal Reserve has done so much to improve that research but like where was it in 2008? Like how is that possible because it was out in the world, out in academia, out in other policy circles. This conversation was happening, this research was happening and we just totally ignored it.

RITHOLTZ: Wow. Quite fascinating. I am almost out of time. I know we have you for an hour. So, let’s jump to our speed round. These are our favorite questions we ask all our guests. They’re 60 seconds each and that’s how we wrap up the show each week. So, let’s jump right into this.

Tell us what you’re streaming these days. Give us your favorite either Netflix or Amazon shows or any podcast you’re listening to.

SAHM: So, I have become an avid podcast listener, right? I didn’t think I would because for a long time — I like to read, I love econ blogs but they just — they aren’t what they used to be in terms of just not as many voices.

So, I was like, OK, I’m going to listen to this podcast. One of my coping mechanisms in this crisis has been going for a long walk every day and podcasts make a great soundtrack to my long walks.

I listen to a very wide range of podcast. I listen to The Indicator. I listen to various podcasts on Bloomberg. I love Joe Weisenthal and Tracy Alloway’s podcast. I just — it’s so informative and they’re fun, right?

And I listen to the Bruenigs, right, Matt and Elizabeth Bruenigs. I mean, these are very different perspectives. I don’t always agree with them. It’s very interesting. And I listen to podcast that are not about economics.

A friend pointed me — Kate Bahn pointed me to Forever35. It’s about facial products and like what to wear in the pandemic from these two women and it’s like I need to take a break from economic sometimes, right? And so, to me, it’s been a great way just to hear people other voices and I’ve been really privileged like today to actually be part of those conversations.

I can never listen to the ones that I’m on later. But I love the fact that …

RITHOLTZ: It’s a difficult skill to learn to listen to yourself without cringing. Trust me, I know from where I come.

SAHM: Yes.

RITHOLTZ: Second question, who are your mentors who helped shape your career?

SAHM: So, I have a lot of them. Sohrab Behdad was my first economics professor at Dennison. He was my senior thesis advisor. I wouldn’t be an economist if he hadn’t like really pushed me. I learned economic history from him. Like I never saw that again, history of economic taught.

At University of Michigan, Matthew Shapiro was my advisor. I continue to come to him and especially recently with advice. I do research with him. I’d — he’s just really important. You have to have allies and I need an ally that understood economics.

Well, my parents are awesome but they’re like, listen to Matthew. He cares and he understands your world. We do not understand your world.

And I will say a big mentor and ally to me, David Lebow was my first section chief at the board and he is someone who I always felt I could go to. He was when I went to when I just completely melted down in 2011 and it’s really special to have people who you know you can go to. They care about you and they will not judge you because I was a total mess.

And he helped me get better, he gave me the space. He made sure they didn’t fire me. And I tried to do that as a mentor. The thing that I learned and I pushed out this post is I learned that like helping people get better and that’s the absolute first thing to do is important.

But if you don’t go back and try and figure out how to shut down the harasser, it doesn’t stop. And that’s a very recent lesson for me and that’s a tough lesson for all of the allies I’ve had because they just want to help me and I get — and that’s what I needed most. But I also — there’s just a systemic problem and we got to fix it and there will be the allies that do it but we got to do it.

RITHOLTZ: All right. Our favorite question, this is the one that everybody was asked about, tell us what you’re reading — what are you reading currently and what are some of your all-time favorite books?

SAHM: This one is tough. Like I read a lot and frankly, I read a lot at Twitter, right? Like I just — I am what Tyler Cowen refers to as an infovore like I just love all this stuff flying by me. And that, unfortunately, means that like that’s what I spend a lot of time doing because can’t read two things at once.

RITHOLTZ: I’m going to send you a tweet showing you …

SAHM: It would be hard for me to kick one book.

RITHOLTZ: I’m going to send you a tweet showing you my biggest fear during the pandemic is not reading any books and only reading Twitter.

SAHM: Yes. And I read a lot of journal articles. I mean, economics did not have a culture of writing books.

RITHOLTZ: Quite interesting.

SAHM: Though our paper drafts 80 pages. So, it’s kind of like a little mini book.

RITHOLTZ: What sort of advice would you give to a recent college graduate just beginning their career in economics?

SAHM: It’s not your fault, right? As a new person — no, I’m serious. And actually right now, like in putting it in the context of this recession, people who are early in their career, people who are graduating college, people who are finishing up their PhDs this year, they are going to have a very rough time.


SAHM: And there’s research that shows that you have a rough time for a whole career. Like these poor millennials, we totally slammed them because they came out in the job market in the early days of the Great Recession and its recovery and, my gosh, they finally have enough money to buy a house and we’re doing this to them again, right?

So, I just — it’s important in like the context of the world that you’re in like it’s not their fault. Matthew Shapiro reminds me that the macroeconomy is not my fault. Like as a good forecaster, I can’t fix this and so I have to like chill out a little bit.

But in terms of — and if it’s not your fault it’s also important. When you get into this profession of economic, you’re going to see things differently than the more senior people. Like we forget what it’s like to be new. We forget like how problematic some of our norms are.

So, you have your eyes open and it’s really hard to like balance this. This doesn’t feel OK but I feel like I got to do it to fit in. And when something bad happens, too often I see young economists, and I did this, too, blaming themselves.

And it’s not about them, it’s — it’s not about the person who’s hurt, it’s about the person who’s hurting them. But like that’s a tricky thing and that’s like pro tip of like working through a career, right? This is not just economic. But if you haven’t leaned (ph) it, how would you possibly know how to react to it?

RITHOLTZ: Quite interesting. And our final speed round question, what do you know about the world of economics today that you wish you knew 20 years ago or so when you were first getting out of school?

SAHM: I became an economist because I believe that economics could do good in the world. And in particular, I became a macro economist because I believe economic policy like the big stuff could do good, like it was there to do good.

And something I have grappled with in my career as an economic policy adviser is we don’t always do good. Now, I am totally a glass half-full, if not, overflowing. I have a lot of energy. I did not give up.

And I think we can do this and we definitely do in some cases. But as — like economics, we got to do more good in the world. And I think for me, that was — I’m a nice person and I love people and I think everyone else should. But like there are racists and misogynists and people who are totally closeminded and will protect their elite positions and it’s like, yes, we got to change that because like that is not helping us do good in the world.

RITHOLTZ: Thanks so much, Claudia, for being so generous with your time. We have been speaking with Claudia Sahm. She is a former senior economist in the Council of Economic Advisers for the Obama Administration as well as being a researcher and section chief for the Board of Governors for the Federal Reserve.

If you enjoy this conversation, well, be sure and look up an inch or down an inch on Apple iTunes and you could see any of the previous 300 plus conversations we’ve done over the past, wow, six years. That’s a long time.

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I would be remiss if I did not thank the crack staff that helps put this conversation together each week, Michael Boyle is my producer, Maruful is our audio engineer, Michael Batnick is my head of research, Atika Valbrun is our project manager, I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.


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