How to avoid making an economist's mistake

A recent Economist magazine has a wonderful throwaway note that illustrates all that is wrong with economists in general. (How much of a throwaway quote? Enough so that it doesn’t make it into the website…)

It notes that consumer spending in the UK was up 3.5% in May, largely due to the need to buy new clothes during the recent warm spell. They take this to imply that consumers are more resilient than typically expected.

That statement demonstrates the basic simplicity – and problematic nature – of economic models. We could argue all day about the rationality (or lack thereof) of economic actors, but this is a more fundamental flaw. It presumes that people do not change with changing economic conditions.

I do not mean to discount stories of hoarders who grew up during the Depression. They are actually fundamental to my argument. People change and are shaped by both the current environment and the environment they experienced during their so-called “formative” years. This inherently calls the universality of economic studies into question.

There is no universal “economic person”; there is not even a typical economic person for any single age. Currently, we have economic actors (discounting children) of several generations in the US. Presuming we can speak broadly about the habits of those generations (which is a dangerous presumption in itself), any aggregate measurement of consumer confidence *right now* is looking at the effects of Millenials through the remainders of the “Greatest Generation”. Making generalizations about “consumers” in the US blurs the historicity of each group.

It is worse when one tries to make economic “rules” about real people. Then you are not only dealing with historical people, but almost certainly data from *past* periods of history. While Ricardo, Smith, and other Enlightenment economists could safely presume that earlier generations were raised in conditions much like the ones before, this has not been the case for nearly two centuries, and is obvious for the last 100 years.

It is well past time to remember the historicity of economic data, to recombine all our social sciences, so that each one does not have to rediscover the flaws and findings of the others.