Physics Envy

Recently we have all witnessed the odd spectacle of civilian employment falling for three straight months—and overall employment falling for two months—while, at the same time, the unemployment rate actually improved. Now, it would seem rather odd that both employment and unemployment could both fall at the same time. Yet in the alchemy that is economics, this is precisely what happens: employment can get worse and unemployment better. Clearly, economist do not mean by their numbers the same things that the uninitiated might mean.

Economists like to think of themselves as pure scientists dealing with pure numbers. As one wag put it, they suffer from physics envy. As one of the founders of modern economics, W. S. Jevons put it, the lack of a “perfect system of statistics … is the only … obstacle in the way of making economics an exact science”; once the statistics have been gathered, the generalization of laws from them “will render economics a science as exact as many of the physical sciences.” Well, it has been more than a century since Jevons' day, and we have been gathering “statistics” in excruciating detail, yet economics seems no more “scientific” now than it was then. Indeed, the best minds in the “science” seem to miss the most obvious events. For example, we were told that the sub-prime mortgages would be a boon to the economy, and when they began to fail, we were told that the damage would be contained, and then we were told that they would not lead to a recession, and now we are told that the recession, if it comes, will be mild. It would seem that such a “science” has little value for either predictive or for policy purposes.

Economists do deal with numbers, but the question is, “Do the numbers mean anything?” The problem is illustrated by the history of the unemployment numbers. Where did they begin, and what do they mean? Let us begin at the beginning. David Leonhardt recounts the story in the New York Times:

In 1878, Carroll D. Wright set out to do something that nobody in the United States had apparently ever done before. He tried to count the number of unemployed.

As is the case today, the 1870s were a time of economic anxiety, with a financial crisis — the panic of 1873 — having spread into the broader economy. But Wright, then the chief of the Massachusetts Bureau of the Statistics of Labor, thought there weren’t nearly as many people out of work as commonly believed. He lamented the “industrial hypochondria” then making the rounds, and to combat it, he created the first survey of unemployment.

The survey asked town assessors to estimate the number of local people out of work. Wright, however, added a crucial qualification. He wanted the assessors to count only adult men who “really want employment,” according to the historian Alexander Keyssar. By doing this, Wright said he understood that he was excluding a large number of men who would have liked to work if they could have found a job that paid as much as they had been earning before.

Just as Wright hoped, his results were encouraging. Officially, there were only 22,000 unemployed in Massachusetts, less than one-tenth as many as one widely circulated (and patently wrong) guess had suggested. Wright announced that his “intelligent canvas” had proven the “croakers” wrong.

From Massachusetts, he went to Washington, where he served as the inaugural director of the federal government’s Bureau of Labor Statistics and later as the head of the United States Census. His method for counting — and not counting — the unemployed became the basis for Census tallies of the jobless and, eventually, for the monthly employment report put out by the Bureau of Labor Statistics. Wright is the father of the modern unemployment rate.

In other words, from the very beginning, the “numbers” served a political purpose, and the inventor of these numbers received a political reward. What the “unemployment” rate really represents is the government's judgment of the number of people who “want” a job but don't have one. The government bases its judgment on whether an unemployed person has applied for a job in the last four weeks. Alas, I have some experience of this. Back when the telecommunications companies where deregulated and were frantically downsizing, I was laid off from my job, and remained unemployed for two years. At no time did I not want a job, but after the first 300 or so resumes, there was little more to be done. There were periods when I could not find another place to apply, and hence was judged to be not in the workforce. Dr. Wright—and Dr. Greenspan—would not have counted me; in the eyes of the govmint, my unemployment did not count.

The govmint's numbers also misrepresent underemployment:workers who have been moved from, say, good-paying manufacturing jobs to serving sandwiches and fries at Chick-fil-a. The Clueless John McCain has actually proposed this as the solution to Ohio's unemployment problem: have the community college retrain the outsourced factory workers as fast-food workers.

Of course, economics cannot have numbers in the same way the physics has. This is because economics is not a physical science, but an humane one. Numbers in physics represent the measurement of a phenomena against some law of nature, such as the law of gravity. The “law” serves as a rule or measure of forces that move all physical objects, and move them in strict concord with the rules. But men are not moved in this way; humans have the ability to move themselves to ends they themselves select. It is not so much that numbers are not useful, but they cannot mean, in the humane sciences, precisely what they mean in the physical sciences. In the humane sciences, numbers will always represent a set of judgments. For example, in measuring unemployment, the economist must…

…first start by making the decision that it needs theoretical explanation and second [he] must define what unemployment is, both of which are blatantly value-laden (and political) activities. Furthermore, the choice of what methods to use to investigate this phenomenon also involves value judgments, as does selection of the critical criteria about what will be accepted as the “final term” in the analysis, the bases of what arguments will or will not be accepted. However, values and value judgments enter into theory construction on the ground floor by giving the theorist the “vision” of the reality s(he) is attempting to explain. This “vision” is pre-analytical in the sense that it exists before theoretical activity takes place. (Charles M. A. Clark)

In other words, numbers in economics cannot mean what they mean in physics. By trying to root itself in the physical sciences, economists cut themselves off from the only source that could make their discipline “scientific.” Instead of a science, what we actually get is a series of contending ideologies with little relation to the real world, and of little value for the purposes of business, government, or even of the understanding of human relations. Indeed, by trying to look like astronomers, they look more and more like astrologers. Recall that astrologers take precise measurements, use precise numbers, and draw bewilderingly complex charts, just as economists do. But they cannot be real scientists, because their starting premise, that the stars control all our actions, is not rooted in any higher science; it is a free-standing assumption, neither provable nor falsifiable. In the same way, economists make assumptions about human action not rooted in psychology, assumptions about human society not rooted in sociology, and assumptions about justice not rooted in any rational philosophy or theology. Without rooting themselves in the higher humane sciences, they cannot—ever—be scientific.

The administration is taking credit for lowering the unemployment rate. And the Cheney/Bush administration deserves the "credit." But all this means is that they have made jobs so scarce or so unrewarding, that fewer people want them. This is a dubious accomplishment.