If we subtract out the theatrical, “show and blame” elements, the lasting damage of the government shutdown was fairly modest. There were some industries that were severely affected, though, and one of the hardest hit was the economics biz.
Without the steady stream of government data to dissect and interpret, countless numbers of economists were left with nothing to say: silent suits, shuffling aimlessly through the 16 endless days of withdrawal.
This year’s Nobel prize in economics honored three economists who made extensive use of data to investigate how financial markets function. It didn’t seem to matter to the selection committee that the economists looked at the data and came to opposing conclusions. What was important was the use of real data, and lots of it, to test assumptions and formulate theories, for that is the way a science advances. It is not an accident, for example, that more Nobel economics prizes have been awarded for work in national economic policy than in any other area of economics.
Much of today’s economists’ enthusiasm for data and math began with John Maynard Keynes and the post-Depression efforts to mitigate economic slowdowns and combat unemployment. With the growth of the government sector in developed economies, economic policies have become even more significant and they attract more economic research.
Governments collect data. It is in their nature, and the process is as old as recorded history. The word “statistics” originally meant data collected about the condition of the state, that is, the government and its domain. The only thing different about today’s governments is that they publish so much of the data they collect — enough to overwhelm thought.
Economists are analyzing all this government data and feeding the results to financial markets, news media and professional journals, but significant things happening in our economy that are being ignored because there is no government data series on them.
The dustup involving New York Yankees third baseman Alex Rodriguez provides one example of an economic activity previously ignored. Major League Baseball has accused Rodriguez of taking performance enhancing drugs and imposed a suspension of 211 games. Rodriguez has repeatedly denied the charge and is contesting his suspension. The case has gone to arbitration and hearings, recessed for the playoffs, will resume on Nov. 18.
What was uncovered during the initial hearings was that the Major League Baseball folks had paid over $100,000 for “evidence” from Biogenics, the now-defunct Florida clinic and alleged source of the drugs. One New York newspaper has published reports accusing Rodriguez of paying more than $300,000 for “evidence” from the same source, but he denies this.
Who knew that buying and selling evidence was such a thriving market and, apparently a growing industry? It’s common knowledge that cops routinely pay informants, but in the movie and TV versions, at least, only small amounts are involved. For $100,000 or so, my guess is that you could buy evidence and corroborating testimony that the Yankees management had obtained samples of Rodriguez’s DNA and was attempting to clone him — to play under a different name next season, presumably “B-rod.”
Equally unexplored for its economic consequences is the JPMorgan Chase proposed settlement of its dispute with federal regulators. At this point it is very much a tentative settlement since key issues such as potential criminal charges are still unresolved, but the amount, reportedly near $13 billion, is eye-catching.
The proposed settlement is interesting for several reasons, not least of which is that the disposition of the money once it reaches federal hands is somewhere between vague and unclear. Another reason is that it reminds us that fines and penalties have become big business for the federal government, providing a source of funds that is not controlled by that pesky Congress.
This economic sector is growing rapidly, and has effects on our economy that go far beyond the billions of dollars involved. It is changing the way business is done in our economy as well as the relationship between the federal government and both the business community and the public. We know little about it, though, in large part because there is no “big data” on it to support research papers.
Another area of economic interest should be the rapidly growing theft of customer credit card information and other company secrets from commercial web sites. This implies a market for this information, with buyers, sellers, and prices. It is a market, though, about which we know next to nothing. But we should.
The shutdown-induced drought of government data should teach us a lesson. Economics has to stop staring at its data and take a look a look at the world around us. It’s more important and more interesting, too.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.