Empiricism is the belief that knowledge comes from things that can be measured. Do you remember my caution that the recent rosy job figures might be an artifact of unmeasured adjustments in the figures? A regular commenter pointed out this post at Zerohedge that suggests that was precisely the case:
Here’s a newsflash that CNBC didn’t mention. According to the BLS, the US economy generated a miniscule 11,000 jobs in the month of December.
Yet notwithstanding the fact that almost nobody works outside any more, the BLS fiction writers added 281,000 to their headline number to cover the “seasonal adjustment.†This is done on the apparent truism that December is generally colder than November and that workers get holiday vacations.
Of course, this December was much warmer, not colder, than average. And that’s not the only deviation from normal seasonal trends.
The Christmas selling season this year, for example, was absolutely not comparable to the ghosts of Christmas past. Bricks and mortar retail is in turmoil and in secular decline due to Amazon and its e-commerce ilk, and this trend is accelerating by the year.
So too, energy and export based sectors have been thrown for a loop in the last few months by a surging dollar and collapsing commodity prices. Likewise, construction activity has been so weak in this cycle—-and for the good reason that both commercial and residential stock is vastly overbuilt owing to two decades of cheap credit—–that its not remotely comparable to historic patterns.
Never mind. The BLS always adds the same big dollop of jobs to the December establishment survey come hell or high water. In fact, the seasonal adjustment has averaged 320,000 for the last 12 years!
For crying out loud, folks, every December is different—–and not just because of the vagaries of the weather. Capitalism is about incessant change and reallocation of economic activity and resources. And now the globalized ebbs and flows of economic activity have only accentuated the rate and intensity of these adjustments.
Read the whole thing. It includes some very interesting graphs.
The way that people behave is based on what they experience. Keynes’s famous “animal spirits” derives partly from what people have heard is happening rather than what they’re actually experiencing in their own lives but over time what they actually experience will figure more prominently.
We’re not the only ones who goose our numbers based on unmeasured phantoms. The Chinese government continues to claim 7% annual GDP growth when things that can actually be measured like electricity use and containers loaded or unloaded from ships suggest it’s more like 4%. Look at what people are doing, how they’re behaving. If they’re not behaving as though the economy were booming, it probably isn’t.
Jobs growth isn’t the only area in which abandoning empiricism may mislead. Even the hard sciences are falling victim.
The Phillips Curve, a hypothetical relationship between employment and inflation, which was taught as gospel when I tool economics, has fallen on empirical hard times, as this remark from Larry Kudlow illustrates:
More people working does not cause inflation. And the chief goal of the Fed should be price stability, or near-zero inflation. That’s what we have now.
The Fed’s Phillips curve model isn’t working anyway. The unemployment rate has come down to 5 percent and the inflation rate is near zero. According the Fed, inflation ought to be 4 or 5 percent. It’s not.
and String Theory, which has been taught for 30 years, is sadly lacking in empirical evidence, as pointed out by this Scientific American article:
Is string theory science? Physicists and cosmologists have been debating the question for the past decade. Now the community is looking to philosophy for help.
Earlier this month, some of the feuding physicists met with philosophers of science at an unusual workshop aimed at addressing the accusation that branches of theoretical physics have become detached from the realities of experimental science. At stake is the integrity of the scientific method, as well as the reputation of science among the general public, say the workshop’s organizers.
More here on String Theory as science. The failure of wages to rise may not be a mystery. It may be because the job growth that the BLS has been reporting faithfully month after month has been illusory. The figures released every month by the Bureau of Labor Statistics inform the views of otherwise uninformed op-ed and editorial writers and, what’s worse, naive or agenda-driven policymakers. Rationalism isn’t enough. Policymakers need to know what works.
I will wonder again why the BLS doesn’t use regular data from the IRS & SSA to calculate their numbers.
I believe they’re prevented by law from doing so.
That is a law that could be changed. Scrubbing data to remove obvious identifiers is already done by medically self-insured corporations to study their insurance claims of covered individuals (I.e., employees & covered relatives) yet still satisfy HIPAA. Shouldn’t be too hard to do the same at BLS. At the least it could be used to verify models, not to mention to possibility of very finely tuned data sets.
The fact that it isn’t done is another sign of no effort at actual good governance.
Yes, we ought to have better numbers showing what the economy is up to and hpw the money flows about. That would take some research and zillions of economists cranking out papers and screaming at each other, and maybe in a few years we’d reach some concensus and have those better numbers, and better guidance for those parts of government which tinker with the economy. But Congress has been very reluctant to consider funding that kind of research, so it isn’t happening.
Tough.