Searching for a One-Armed Economist

Given the mixed economic picture we’ve been staring at for months, I keep thinking of Harry Truman’s wish for a one-armed economist. He was sick of economic advisers telling him, “On the one hand this, on the other hand that.”

This week we needed one more than ever. The nation’s chief economist, Fed chair Janet Yellen, said that on the one hand the housing market had “shown some improvement.” On the other hand, “exports and investments by businesses have been soft.”

One the one hand, the Fed said, the unemployment rate isn’t so hot. On the other hand, energy prices seem to have stabilized. A couple months ago the economy seemed to be picking up steam. Now, the Fed says, it seems to be stalling.

It occurred to me that instead of parsing economic data, it’s sometimes good to ignore the experts and seek the wisdom of crowds. And I remembered that one year ago I bookmarked a survey by CNNMoney that measured American’s thoughts on the recovery. In June 2014, 61% of us didn’t think the economy would fully recover until 2017.

 Normally I don’t put much stock in surveys, given surveys show more than a third of Americans believe alien spacecraft exist and one-in-ten think they’ve seen one, according to a National Geographic poll.

But there’s a difference between a crowd predicting something about which they have no evidence, and predicting something about which they have direct evidence. This was underscored in 1906 when Francis Galton, an English Victorian scientist and explorer, was visiting a livestock fair in which villagers were asked to guess the weight of a certain ox after it was slaughtered and dressed.

No one guessed the answer correctly: 1,198 pounds. But Galton figured that the mean of the guesses was just a pound off. Given the right challenge, crowds can be smart, and collectively can be smarter than any of us individually.

The CNN Money survey also said:

— 16% of us believe the economy will never recover.
— 27% said they thought the economy is still in a downturn.
— 69% said a downturn such as the 2008 crisis was “very” or “somewhat” likely to occur.

I don’t think another crisis is coming, and I think predicting a future calamity like that verges on predicting the existence of aliens. But I do believe that pessimism about the economy is chock full of collective wisdom that comes from people struggling to pay bills, afford college tuition, not seeing their wages and facing unemployment or underemployment.

And I saw that in January CNN Money did another poll that found 55% of Americans feel their incomes are falling behind the cost of living, while 37% think they’re staying even, and only 6% feel their incomes are going up faster than the cost of living.

As I’ve written about before, wages are not rising, and American consumers are not only the backbone of our economy, much of the world’s economy rests on our spending as well. So until demand for labor rises to the point that wages start being driven up, we are not going to be in a rising-tide-lifts-all-boats situation.

It is tempting to think that we’re out of the woods when one month the indicators seem to align positively. But the wisdom of crowds tells us we still have a long way to go.

We all look forward to the day when we can breathe a collective sigh of relief that our economy is firing on all cylinders. In the meantime, though, we’ll try to be your one-armed economist, and point you to profitable trends in a decidedly mixed bag of economic news.