Why Economists are Baffled by the Data

By Shlomo Maital  

     What in the world is going on with the US economy?   Economists are …well, out to lunch. 

      Why?   Labor data is down.  GDP growth is way up in the last quarter.  Hmmm…

      This is what Jason Furman, former head of the White House Council of Economic Advisors, writes in his New York Times Op-Ed piece?

     “Economic data never tells a perfectly clear story, but lately the contradictions have been especially jarring. Just a week apart, the government delivered two sharply conflicting messages. One report showed job growth stalling and unemployment rising. Another showed the economy expanding at a blistering 4.3 percent annual rate — more than double the pace of the first half of the year.”

        Unemployment is significantly higher than in previous periods.  Job growth is small or maybe even negative.  But GDP is growing at 4.3 per cent, double the rate earlier.  Furman asks:   Are we sliding toward recession or entering a new boom?

         GDP growth without labor growth?

         Could this be the result of AI replacing human labor?   Probably not – Not enough companies are dumping people because their work is redundant and done by AI. 

         Wrong data?  Job data is often wrong and updated – that brought a Trump tantrum the last time it was revised down.  GDP data too is often updated.

         It reminds me of the lovely sad Beatles song, with the repeated line “nothing’s going to change my world.”   We economists analyze data with the insights and models and tools of the past.  But…our world has changed.  And so has the economy. And how people behave, spend, invest, save….

          Disclosure: I have unofficially resigned from the army of professional economists. A profession that pitched unbridled capitalism, yet failed to anticipate why, say, a Board of Directors giving Elon Musk a trillion dollars in compensation might be obscene and needed fixing or forestalling – there is no hope.

         I wonder what will be said to Economists when they reach the Gates of Heaven – and admit they are economists.  I have a hunch.