The Failure of Economics Statistics

There is the reality all around us—restaurants struggling to survive, bills eating household income, jobs ever less secure, costs soaring for all enterprise, even the local dollar stores hitting hard times—and there are the macroeconomic statistics reported daily by the media. They seem to have ever less connection to each other.

Why do we have macroeconomic statistics? We all want to know more about the world outside of our direct experience. That is especially true for those whose livelihoods are bound up with knowing. For economics, that includes academics, investors, and just regular business people who are trying to make plans and would like to make sense of their prospects in a different market.

Starting about a century ago, a new market for data opened up. It was for government planners to exercise newly granted powers to plan the economy better than markets. The idea was that with better data, they could do a better job in adjusting outcomes in a way that would be more socially optimal.

The data collection industry was born. And it grew and grew, taking a huge leap in the 1930s during which time governments and central banks embarked upon a grand plan to tame business and trade cycles. They imagined themselves to have various levers in control rooms, with handles and names like “fiscal policy” and “monetary policy.” They would pull and push these levers to smooth out the recklessness of markets.

If you head to Washington, D.C. today and go to the Federal Trade Commision, you will see an impressive statue from the 1930s called “Man Controlling Trade.” It’s a muscular man representing government and a wild horse representing the market economy. The man is successfully keeping the market in check. That’s how it was imagined to work back then and still today. […]

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