Ludwig von Mises, one of the most influential contributors to Austrian economics, said that economics is really just a subset of praxeology. I know, I’ve just thrown around some big words there, so I’ll elaborate: Mises believed that economics is about studying a specific kind of human behavior, which is what praxeology is (the study of human behavior). In other words, economics is the study of the transactions that individuals make.
Given this simple concept, I have found myself fascinated by the attempts that are made by various groups, think tanks, and government agencies to find statistical measures. Even more laughable is how the entertainment-driven news media likes to spin all of these statistics and measurements to further their own goals. Oh, and don’t get me started with politicians.
Individuals of all political spectrums accept these statistics at face value and don’t ever question how they are measured or whether or not they have enough factors in place. For example, did you know that the Dow Jones Industrial Average is really just the stock market index of the top 30 companies? And that those 30 companies are a chosen elite but by no means represent the bulk of the economy. Considering that roughly 98% of the people who are employed in the United States work for a company that has less than 100 people, I doubt that when the Dow Jones loses a few hundred points, it directly affects everyone. Given the reactions of various media outlets, however, you’d think Jesus had come back and was eating everyone’s brains, due to an unfortunate misinterpretation of St. John’s visions.
It’s easy to determine economic outcomes when you limit your scope. In reality, this is what statistics does. It takes a small sample of larger population and runs mathematical calculations against the data. Ideally, the sample is random and the larger the sample, the more accurate your data, but in reality, samples are often skewed, intentionally or not (opinion polls are the worst, as I’ve already pointed out). Unfortunately, economics is not exempt from the shortcomings of statistics, especially when there is no sample size big enough to accurately reflect the reality of the situation.
While I am keenly interested in the subject of economics, I tend to not bother with the statistical analysis and focus instead on the relational aspects myself. That doesn’t make me an expert, but it certainly does beat predicting the nature of the animal spirits. Before the housing collapse, I saw how housing was increasing at a rapid rate and I realized that there was an upper limit before people stopped buying homes. There is only so much debt a person is willing to get into before they stop (usually those who don’t have some kind of mental illness or are just plain stupid). At that time, my parents told me about a condo that was for sale and that I could probably buy it if I wanted it. I declined and it looks like that decision was sensible from where I stand.
The truth is, the best indicator of the economic times is to observe what the trends are. Pay careful attention to what people are willing to into debt for and how people are handling their spending. Common sense, the most uncommon kind of sense in our postmodern age, can easily dictate the direction that things are going in. But it’s not an exact science, in fact it’s not really science at all, but merely educated guesses based on observational evidence.
And while it may not be ideal, it is probably just as accurate as mixing statistics with economics. The downside is that you won’t sound official because you won’t have fancy charts or flashy pictures to illustrate your points. But hey, if you spent your entire life trying to impress people, then you’d just be another worthless politician or blabbering blogger.