03/26/2020
Some Thoughts on Today's Unemployment Claims and Economic Indicators in General
The number of new unemployment claims was released today, and it is terrible. Nearly 3.3 million Americans filed last week, which is nearly five times more than the previous single week record set in 1982. And these economic indicators are going to keep rolling out, and they are going to continue to be unprecedentedly awful. GDP contraction of 20%? Maybe. Unemployment around 15-20%? Not at all a crazy estimate. Industrial production index in the 20s (with above 50 optimistic, 50 being no change, below 50 pessimistic)? Likely. We are staring down months and possibly years of indicators that make the Great Recession last decade look like a minuscule market correction. But all of these numbers are indicators. They are measures of how we are doing…not absolute judgments.
When times are good and economic indicators are favorable, some gripe about the Gini coefficient, which seeks to measure economic inequality. Zero means absolute equality, one is absolute inequality. I always respond that while certainly economic equality is a very important measure of long-term economic health and generally desired by everyone except for those at the top, a low Gini coefficient is not a goal in and of itself. It is a measure. An absolute dictator could cut the Gini coefficient to dang near zero; but you probably wouldn’t want to live in that country. But if you want to use the Gini coefficient to measure how society is progressing towards the goal of more economic equality if it has chosen that policy goal, that is great.
Similarly, GDP, unemployment, the S&P 500, industrial production, etc. are indicators of the health of our economy. Why do we need a healthy economy? First, to provide an opportunity for citizens to obtain the basics: food, shelter, education, health care, and the ability to enjoy life. Second, to provide an opportunity and incentivize figuring out ways to make those basics better: tastier and healthier food, nicer homes, better education, more innovative and efficient health care, and more enjoyable leisure pursuits. A successful economy allows us to live a healthier and more enjoyable life. That’s it. When we are measuring economic indicators, at the most basic level, we are just measuring how well we are delivering the basics and how much better we are getting at making life more efficient and enjoyable. If we want to use them as a tool to measure progress, wonderful! But none are by themselves the goal. There is no prize for everyone if a certain number is hit. They are only indicators.
So as these indicators are released, and all discussion surrounding them is gloom and despair, please realize that while the indicators are bad, life goes on and it’ll be OK. It always is. And while the news and politicians would have you believe we’re heading back to some economic stone age, we live in an amazing time where basics are not an issue for most (often delivered right to your porch!), and you have the opportunity and incentive to figure out how to make life better and more efficient for yourself and those around you. Don’t let a few indicators convince you not to do what you can to help yourself, your family, and your community. Because if you do what you can, and your neighbor does what they can, the indicators will improve. At that point, however, we’ll all have a better understanding that they are just measures, not goals.
