Newscasters fill the airwaves with dramatic statements about “The Economy.”

“The Economy’s doing great.” People suffer because of “Inflation.” “The Fed will raise interest rates.” And much more…

The Magnitude of the System

I do not believe that the people who make these statements realize the magnitude of the system about which they speak.

When I say, “There is no market (or economy), I mean there is no single market to which they can point. “The Economy” also does not exist as a single, monolithic entity that someone can weigh or measure using any meaningful units.

The population of the U.S. consists of about 333,300,000 individuals spread across 3,800,000 square miles and 50 states. That area includes a variety of terrains and climate conditions.

Good luck finding an estimate of the number of different products available to all these people. If we use Amazon as a proxy for the “market,” one source estimates that Amazon sells products in over 25,000 sub-categories. If each sub-category contained an average of 100 products, that’s 2,500,000 different products (a SWAG.)

How can a person refer to 333.3 Million people spread over 3.8 million square miles shopping for 2.5 million items as “a market.”

So, let’s take a look at examples of how macro-economists “measure” “the economy.”

Examples

The primary error that macro-economists make consists of using money-dollar prices to measure everything. That implies that the prices of an iPad and a bicycle can some how be summed to give a meaningful economic measure, even when they have the same unit prices.

Performance – GDP

I think I have shown elsewhere the problems of the mathematical calculation of GDP. But, does selling $1 million more iPads and bicycles improve the lives of all citizens?

Inflation –CPI

Economists use the CPI to measure price changes (price inflation/deflation). If the price of steak increases 25% and the price of a Cadillac does not increase, how much price inflation has your family suffered?

Interest Rates

Many debt instruments trade on national markets, yet the interest rate for a home loan varies from a credit card and a government bond. How can we say anything useful about “interest rates?”

The Market –Stock Market

“The stock market is at an all-time high.” What’s the meaning of such a statement? Most comments about “The Stock Market” refer to some index or another. Indexes include several different specific stocks, each having a different weight (depending on the index), based on trade prices between relatively few buyers and sellers.

Unemployment Rate

If the primary employer in your small town closes and fires a quarter of the population of your town, does a national unemployment rate of 3% give you much comfort?

Looking into the details of how they calculate the unemployment rate will give a thinking statistician a crisis of conscience.

Conclusion

An old management saying goes, “If you can measure it, you can manage it.” I think this gives a justification for most macro-economists. Individuals who really make the economic decisions in this country do not hire economists, large corporations and governments do.

What harm do you think individuals suffer because people in power make poor decisions based on flawed (and generally meaningless aggregations of) data?