Be Careful of the Goals You Seek with Bad Data
“Well, I’m not the princess you seek, but we can still have a really good time!”
Last Friday’s Non-Farm Payroll report came out with a massive 517,000 new jobs created in January. It blew expectations completely out of the water and forced onto global markets a different view of the US economy than the one it held just two days earlier when the FOMC announced another 0.25% hike to the Fed Funds rate.
Of course, this number was likely ‘goal-seeked’ as Zerohedge put it in their initial article. I don’t disagree with Zerohedge’s conclusion.
In fact, it’s this idea of ‘goalseeking’ that I want to expound on. That observation is telling, not because there isn’t a nugget of truth in it, but because we are living in a world so awash in narratives supported by ‘data’ that it is a Herculean task to make any sense of what’s really going on.
That being said, if you look at the initial article from Investing.com they go over the other data released as well: hourly wages (beat expectations), hours worked (beat expectations and rising to 34.7 hours), and the overall U-3 Unemployment Rate falling to 3.4%, which is suspect due to new calculations and end of the year ‘book squaring’ of last year’s data.
The relentless criticism of the financial space, both normie and dissident, of the Federal Reserve here is the thing that is so noteworthy.
No matter what the Fed does it is and will be criticized.
The normie press want a return to the zero-bound to fund excessive leverage and the real wealth harvesting operation of the global oligarch class.
Y’all know who they are, The Davos Crowd.
“You Must Goalseek the Treasure“
The dissident press, centered around Zerohedge, wants to be proven right that they are good at Austrian economics, when they clearly aren’t. They are routinely frustrated that the world they have ‘goalseeked’ through the single-variable analysis of ‘the money supply’ keeps failing to materialize.
They can see bits and pieces of the moving picture and can easily identify the lies, statistical fudging, and desperate policies but they cannot ascribe any other motivation to them than incompetence.
I have come to the conclusion that this is the weakness of so many other commentators in this space. There is a stunning amount of hubris out there thanks to a lot of people having read a book by Rothbard or Mises and thinking they have the Rosetta Stone for global-macro economic analysis.
The problem with that is, as I routinely point out and emphasize, there is no ‘macro-economics.’ There is only a trillion little ‘micro-economic’ decisions taken by billions of people in real time that in a very rough sense create a more macro picture.
There is no ‘economy’ folks.
There is just you, me, and the 7+ billion other schleps on this planet trying to dodge bullets everyday. And in a world awash with this much leverage, credit money masquerading as real money, most of those bullets are coming from our own governments and those who hold their strings.
The fundamental fallacy to much of the analysis is that there are ‘free capital markets’ acting independently of the political milieu which circumscribe those ‘markets’ every day. This is one of my basic criticisms of both Bitcoin Maxis, who’ve never seen BTC operate outside the context of central banks intentionally debasing their own currencies, and Jeff Snider’s “Eurodollar” analysis which grew up in the context of a globalist putsch to use the dollar as a whip to punish the unwashed.
That would be you and me.
This isn’t to say in any way I’ve given up my fervent belief in the power of the individual to act according to their best interest and overcome/adapt to the diktats of the Wesley Mauchs of this world (Atlas Shrugged reference). Quite the opposite.
I’m more convinced than ever of this power. The problem is identifying what it looks like today when we project that power forcing a clash with the entrenched power structures and their likely range of decisions to counter our decisions.
Electrons Over Profits
This is the hard part. This is where people act like electrons; forever unwilling to be nailed down to a particular course of action. What do I mean by this? Remember, I’m very well versed in quantum mechanics and the lessons of Heisenberg’s Uncertainty Principle.
The TL;DR for the layman is the following. In any system greater than a single hydrogen atom floating in a box (pretty much the entire Universe) knowing both the position (x) and the momentum (p) of any electron is unknowable precisely using vector-based math to solve for the forces acting on a multi-electron system.
I’ll honestly never forget the moment I first had this derivation proven to me on the third floor of Leigh Hall at 8:30 in the morning desperately clinging to my coffee cup, nursing a bit of a hangover.
It fundamentally changed the way I view not just the Universe, but also pretty much all of human endeavor.
Because of this mathematical fact when we fix either of these variables, x or p, position or momentum, the electron’s behavior is modified by adding the observer to the system.
The mere act of observing the elements of a system alter the system itself.
In short you can know where it is (x) or how fast it’s traveling (p) but you can’t know both.
The best we can do is create probability fields of these two variables. And thus the entirety of molecular orbital theory was born.
The philosophical takeaway of this is, like I said, people are like electrons. They alter their behavior when they know they are being watched. Their behavior is unpredictable precisely because we are wired to avoid detection since detection equals threat to our survival.
Our brains are wired with very acute threat detection systems. In fact we devote most of one half of our brains to this basic instinct. So, it makes sense that if you have a group of people hellbent on fixing your behavior in time and space another group of people will react to counter that.
What does this have to do with labor statistics?
Ideological Slider Bars
Well, everything Measuring this behavior in a macro sense to create mathematical models based on such flawed data is a fool’s errand, even taking into consideration advances in ‘chaos math’ and advanced statistical models.
Those models are, at best, gross approximations with assumptions of the range of our predicted behavior. They have error in them, and those errors multiply very quickly the more data you add and the farther out a person’s decision tree you get.
At this point a reading of Borges’ The Garden of Forking Paths is called for.
So, using this data to fit to the model in their head (the half-trained Austrians) or their spreadsheets (the Econometrists at the Fed & BLS) is nothing more than begging the hypothesis and creating data and projections of that data which are detailed, tautological, and wrong.
With erroneous models firmly in hand, predicated on false premises, we’re inundated with conclusions about the future that conform to what Dexter White calls the “Excel Slider Bar” problem.
Everyone puts their numbers into Excel, isolates a single variable to solve for, and then drags the slider bar on their model ‘all the way to the right’ and makes some grand prediction.
In a recent Gold Goats ‘n Guns Podcast, Alex Krainer and I talk about a chart put out by the US Treasury Dept (tweeted by Lyn Alden) which is the perfect example of this kind of insanity.
Does this not look like Mann’s Hockey Stick of future temperatures? Where in god’s name did they get that curve? How could anyone seriously publish this as some rational projection of the future of the US’s debt to GDP ratio?
What should first come to mind is what’s implied here and why do they want us to believe this nonsense, because it’s clearly propaganda?
That said, this graph is the essence of why Thomas Malthus was wrong. Even if Malthus’ worry was based on something rational — can food production keep up with population expansion — the idea that this single-variable, linear food production, is something humans will not respond to is observably wrong.
I can forgive Malthus for not understanding the biology, but The Davos Crowd or anyone listening to their apocalyptic religious bullshit?
If food is scarce and women are skinny, they don’t ovulate or bear healthy children if they manage to get pregnant. Malthusian model broken by basic biology.
And those most susceptible to this thinking are people who will look you straight in the eye and tell you that they ‘know things’ and that they are ‘intelligent.’
It is this single-variable isolation, this abuse of algebra, that plagues modern society.
… and all in the name of “ScienceTM”
But, more broadly, it is why all “Malthusian” thinking is wrong. It assumes people do not respond to incentives and alter their behavior. And it’s why those half-trained Austrians decrying Powell and “Printer go brrr!” need to realize they carrying water for the globalists who are crafting policy based on equally moronic analysis.
Because every time they are wrong they help invalidate the underlying arguments having used bad models and worse logic.
There are no single-independent variables in these models.
They are all interconnected in ways that are not knowable. Period.
So, everyone runs around (including me) with the pretense of knowledge, as Hayek put it, and tries to make sense of the data without the cognitive discipline or intellectual humility to sift out the signal from the noise.
No, they just grep some data, torture the rules of algebra to isolate a variable by making assumptions that are not valid, produce an equation based on this, and then ‘slide the bar all the way to the right.”
Et Voila! Instant propaganda.
Just add Doompr0n.
And since there is comfort in presenting graphs, charts, and numbers — because numbers give the imprimatur of solidity to this pure windbaggery — too many people rely on them to beg their hypothesis and end up with the worst kind of tautology, one that confirms their bias.
We’re all guilty of it, including me.
All I try to do is keep reminding myself of this possibility, and look at things from as many angles as possible while giving the players at the table the benefit of the doubt that they aren’t slavering morons.
The Humble Pie Equation
In watching the market gyrations since Wednesday’s FOMC I can tell you that I’m really not surprised by the market’s memetic collapse on Friday in response to the ‘shocking’ and ‘goalseeked’ Labor data.
Gold down $100+
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