Following up the links in Jeff Bell’s last post I came upon the following passage in John Hussman’s weekly comment:
The way you spot a thoughtful economist, in my view, is to listen for an understanding of both data analysis and equilibrium. In our experience, most economists and Wall Street analysts seem to analyze the economy as what I’d call a “flow of anecdotes”—weekly unemployment claims did this, retail sales did that, we got a positive surprise here, and so forth, without putting that information into any real structure and without knowing which data points actually matter or in what combination. In contrast, good economists think about the economy as a system—where multiple sectors interact. We tend to use words like “equilibrium” and “syndrome” when we talk about economic data—emphasizing that the best signals involve a whole conformation of evidence, not one or two indicators, where the data—in combination—captures a particular signature of recession or recovery.
That seems reasonable to me, but I’m no expert. Two questions: (i) is it indeed the practice of “good economists” to look for “signatures” in some sort of combination of indicators? (ii) if so, is it then the case that the news cycle, with its demand for a constant flow of events, is actively functioning to misinform the public about the likelihood of recession or recovery? And won’t that itself feed into the events that the indicators reported on are supposed to summarize? Some feedback loops are beneficial, but others will drive a system to its extremes…
Recent Comments