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The Biggest Flaw in Economic Analysis


There's a huge difference between improving economic data and improving mood/sentiment about our economic circumstances.

MINYANVILLE ORIGINAL It's that time of year again: the holiday shopping season. And this year, much like the past several, you should expect to see and hear a lot of shouting about one simple question: Is the country any closer to getting back on track (whatever that means)? It has been five years since the start of the recession and three years since that recession ended, after all.

Or has it ended at all? By any standard econometric measure, it has. But by some others, it hasn't. Let me give you some examples of what I mean.

First, consider Greece. This post by LOL GREECE on poverty is an example of what I am talking about. The popular metric, poverty, is actually a rather complicated one. Meanwhile, other measures like the ability to heat your home or feed your family/household are whistled past. But as Manos pointed out, "'poverty' is a word that makes headlines while 'material deprivation' is hard to translate and sounds rather technical."

And with the current unemployment rate in Greece above 25% along with a rising suicide rate, the troika's devotion to the debt-to-GDP metric takes on something more than just bureaucrats wanting to tick off a check box or manage to a metric. It's almost cult-like zealotry in punishing the country to pay its debt back. Forget about cutting off your nose to spite your face. This is cutting off your nose, removing your cheek bones, and removing your eye sockets as well.

My point in drawing on this example from Greece is that economics is, first and foremost, a social science. If you're not focusing your analysis of markets, prices, and policies on people, you're doing it completely and horribly wrong. It has been three years since Greece suffered its first sovereign downgrade which foreshadowed the situation we find ourselves in. Maybe it's time the troika stopped focusing on saving Greek bondholders and started focusing on saving Greece, the actual country.

But we even have our own examples of this kind of thinking here in the US. Consider the irony behind Black Friday, for starters:

But beyond the pictures of unrepentant, ungrateful shoppers willing to push their own grandmothers into oncoming traffic to get a bargain buster deal on a 60" TV, only to turn around and complain about it 30 minutes later, this is a country that really wrings its hands over retail sales data. Because while we all know that consumer spending makes up about 70% of the economy, we never stopped to ask ourselves if that was the kind of economy we wanted to build for ourselves. But since that's the data point du jour, let's look at retail sales.

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