Don't Be Too Certain

There's a fascinating graphic from Catherine Rampell that's been making the rounds on the economics blogs:

So what's the biggest problem facing business right now? Paul Krugman points out that it's insufficient demand, and

[...] the best thing government could do to help business would be to spend more, increasing demand. The fact that it's not going to happen doesn't change the fact that it's the simple truth.

Unsurprisingly, Brad DeLong agrees with Krugman, and adds that anyone who disagrees is clearly incompetent.

Tyler Cowen, however, doesn't see it as that clear-cut:

I didn't read this graph the same way. I saw poor sales as a "biggest problem" for fifteen percent (or so) of small businesses in periods of full or near-full employment. I also see "poor sales" as a "biggest problem" for about thirty percent of small businesses today. That change -- about fifteen percent of the total -- struck me as relatively small and indeed puzzlingly small, if indeed we are in a liquidity trap and weak AD is the overwhelmingly dominant problem. [...] I do think weak AD is an important problem to be addressed, I just don't think the absolute levels here imply "end of story."

Russ Roberts adds (like the good Austrian economist that he is) that if taxes plus regulation were a single category, it would take over the top spot from poor sales. Finally, the award for best additional information goes, as it often does, to James Hamilton:

The statement that businesses aren't hiring is simply false. According to the Bureau of Labor Statistics' Job Openings and Labor Turnover Survey, the U.S. private sector hired 3.9 million new workers every month, on average, over the first 7 months of 2010.

But if that's true, then why isn't total employment booming? The answer is that, according to the same JOLTS data, some 3.8 million workers quit or lost their jobs each month on average during Jan-July. [...] the fact that small changes in net employment figures mask a dynamic economy in which there are huge gross changes in employment status for individuals and firms is quite indisputable.

Firms are firing a lot of people, probably because of poor sales. Firms are also hiring a lot of people, just not enough to mask the firings.

So what's the take-away point of all this?

I have to go back to Chris's fascinating post on the rhetoric of the "third way." Although I hate to contend with someone who quotes Lewis, this sort of thing is precisely why we should be reluctant to pick one side to fight for: reality involves a lot more dimensions than partisans can allow themselves to consider. In particular, once we've identified the "most important problem" that needs fixing, we tend to act far more certain in our own conclusions than the evidence allows. We should this pitfall whenever we find it in ourselves.

I know I'll get some flak for this, but I would contend avoiding certainty (in this sense) even extends to spiritual matters, if only because we need to avoid placing our confidence in a favorite interpretation of Scripture rather than in Christ himself. Humility requires that we be willing to let go of a firmly held position and accept "middle things" if we learn we're wrong. If that's true even in matter's of God's Word, how much more true is it for empirical matters like economic and political arguments.

Holding a view like this basically insures I'll never get a job with the CEA or NEC, but then who wants to be Larry Summers, anyway?

This man is always right. Right?