Tragedy and statistics

“The death of one company is a tragedy; the death of one million is a statistic.”

Originally said of catastrophic human events, so it is too with “The Economy”.  It’s too easy to get lost in the quantified abstractions of the aggregate, and thereby lose focus on the realities that drive individual business enterprises.

If “The Economy” exists in any sense as an economic reality that can be acted on, it’s only in centrally-planned top-down economies.  On the other hand, in a free-market, unplanned economy, “the economy” is the sum of the activity of individual firms.  Firms in turn are the sum of individual businesses or products.  Product markets are aggregations of individual customers.  Customers are aggregations of individual transactions.  Up to that point, it’s like fractal geometry—there’s always another level deeper you can go.

So while it’s sometimes a useful shorthand to say the economy is expanding, contracting, or WHATEVER—it’s really a gross oversimplification.  As such it blurs the actual reality, and causes unintended consequences—for example, lulling us into a sense that all is hopeless until “the economy comes back.”   It’s almost as if we ascribe supernatural powers to this abstraction.

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