Nobody knows anything

Yes, as a direct quote that’s William Goldman talking about the movie business but we can take that as a shorthand for Hayek’s point about macroeconomic management. We can only ever have the merest pretence at detailed knowledge of what is going on out there in something as vast, complex and chaotic as the economy.

To take a point of interest in the US currently, unemployment. Some say there should be lots more “stimulus” to boost employment and the economy more generally. Some say there should be a modicum. There might be a few extremists shouting don’t bother (among which we’d include ourselves). But the real point here is, well, how many actually are there either employed or unemployed?

American statistics give what is known as the U-3 rate, the one generally looked at. Roughly, those actively looking for a job. But there are other measures with ever wider definitions. U-6 is more like those who would work if a job landed in their laps. These are different from jobless claims, the number actually claiming unemployment benefit.

Or we’ve private sector statistics, the ADP report which is about employment, not unemployment. A payroll processing company they look at their own business then scale that up to the entire economy. Recently significantly different from the official numbers, half a million jobs created in August when the Dept of Labor was thinking up to a million a week going back to work. One reason being that again the counting is different. ADP counts a new employee as someone newly entered into the system. The government numbers an extant payroll entry revitalised - so, those coming back after being temporarily laid off, furloughed etc.

Absolutely no one at all is counting those working illegally, off the books, of course.

It does get worse. There’s the Pandemic Unemployment Assistance system, largely for the self-employed. California currently thinks that some 5 million of the 7 million claims in that state shouldn’t be there. Minnesota thinks that only 60,000 of the 600,000 claims in that state are truly valid.

So, some folks would like to do some economic management. To, you know, reduce unemployment and increase employment. A fair goal - now, how many unemployed are there? How much action needs to be taken to get to the desired level? We don’t have even the first clue - well, beyond “lots” - of how many we’re trying to deal with. So it’s really rather difficult to fine tune any policy response.

Which is as Hayek said of course. Nobody knows anything. Something of a stumbling block for macroeconomic management.