Eckonomix

I do not own a working crystal ball. As far as I can tell, no one else does either. This includes economists—maybe especially economists.

In the absence of crystal balls, the belief is that if someone puts enough complicated equations and graphs on a PowerPoint presentation, whatever they say must be correct.

Therefore, to declare my bona fides, here is a complicated equation:

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Description automatically generated with medium confidence

I’m more than a little skeptical of the science art craft trade of economics. When I was in college, economics was a required course for my bachelor’s degree. Later—about ten years later—when I was studying for my master’s degree it was also required. I found that what I had learned before was of no use because many of the theories from my undergraduate days had changed 180 degrees.

If you do a web search for statistics about the accuracy of economic forecasts, don’t expect too much. Most of the sources are not current, many dating back decades. However, no source comes out and claims that economists predict the future with great accuracy. Instead, the general gist among the experts is that economic forecasts are not very accurate.

Why?

First, let’s give the economists a break. Any prediction about the future is a guess. In the very best of cases, it is an educated guess. Even with computers, it’s a guess. However, people place great credence on such expert guesses. For example, in September 2021, jobs increased by 194,000. Apparently, this was only about 75 percent of the growth guessed, so news readers were wringing their hands in anguish.

[A moment for a brief aside. Newsreaders all wear makeup so they look good on television. There are very high intensity studio lights, so the newsreaders sweat. During commercials they use rolls of toilet paper as blotters. Are you putting too much trust in someone who blots their face with Charmin?]

From what I’ve heard, the 194,000 new jobs were 75 percent of the economists’ guesses.

Three thoughts:

  1. We added jobs to the economy. Adding jobs is good.
  2. As I wrote earlier, after every plague, pandemic, or other event that suddenly reduces the number of workers, the gap between the wealthy and the middle classes narrows just a bit. This has been the case, time after time, for centuries. Workers can be choosier as to which job to take—and historically, this has held true even without government unemployment benefits.
  3. IF, and I emphasize IF the number of jobs was ~75 percent of the experts guesses, that fits closely to the Pareto curve, which states that it takes 20 percent of the resources to accomplish 80 percent of the results. It then takes 80 percent of the resources to achieve the final 20 percent of the results.

All things considered, the current job growth indicates that we’re headed in the right direction, and based on history, we are most likely to see some adjustment in the pay of the middle class.

So, if you’re among the uber elite—you may have to wait an extra month or two to purchase your fourth 500-foot custom-built yacht.

Sorry about that.

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