Your gut check is most likey right

I correspond (email) with my elder son quite a lot about various business issues. I like testing my experience-based ideas against his MBA trained thinking.

Our last discussion was about the missing data in the reports about unemployment. I believe that underemployment is the one of the biggest components in the current economic crunch. I also believe that the economy has to generate about 250,000 new jobs every month just to accommodate the people entering the workforce for the first time. You can see my blog post Digging Out for details.

When I complained that the reports don’t deal with either element very well and that the popular press doesn't tell the readers that this is critical but missing information, his reply was that collecting the underemployment data was difficult and would, probably, be lost in the noise of the bigger out-of-work number anyway.

I think this misapplication of the idea “if it can’t be measured it ain’t science” completely that ignores the fact that just because you don’t know how to measure it doesn’t mean that it isn’t critical. I also think that not including it has caused too many decision makers to miss key elements that are creating unintended consequences and pushing up unemployment numbers dramatically.

Just as you can see the differences between my poor writing and real art, your individual judgment will spot trends and underlying information that cannot be measured, reduced to numbers, and plugged into the currently popular economic equation. As long as you are analyzing the available information and not trimming to fit your pet theory, conspiracy or otherwise, your “gut check” much more likely to be right than the folks starting with a theory and complex math.

An if you think the complex math is more likely to be right, remember that John Nash, who shared the 1994 Nobel prize in economic science, developed the mathematical theory that underlies the complex equations that allows the development of derivatives trading. The same derivatives that drove the market collapse because those Nobel Prize winning equations didn’t really capture all the critical elements.

Alan Greenspan, former Chairman of the Federal Reserve Bank is a pretty smart guy and Wikipedia has this quote from him: In Congressional testimony on October 23, 2008, Greenspan acknowledged that he was "partially" wrong in opposing regulation [..of financial derivatives..] and stated, "Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity — myself especially — are in a state of shocked disbelief." Referring to his free-market ideology, Greenspan said: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

The other quote that comes to mind is from Upton Sinclair: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”