Edward Lotterman The new year of 2025 had dawned. As in 1861 or 1939, the feeling that we face a tumultuous year grips many. Events already underway, even before the presidential inauguration, have jumped in the saddle and seized the reins. They will ride themselves out whether we like it or not. So our time is fraught with tension and the specter of loss. No single reader will change the course of unfolding history. But the more we citizens understand key issues, the better off we will be, at least marginally. So here is a short lesson for those who want to understand events. It has two parts. First come four common failures in critical thinking. Then there are three crucial measures of our economy to follow and understand. Start with key these fallacies in logic to detect when listening to assertions of politicians, journalists or pundits: • Lead off with the “post hoc” fallacy. Its full Latin name is “post hoc ergo propter hoc,” meaning, “after this, therefore because of this.” This falsely asserts causation where often none exists; it is the most basic and overwhelmingly the most common error in critical thinking. Unfortunately, it runs rampant in contemporary journalism. Probably 95% of the assertions made in the last presidential campaign, whether by candidates themselves, their followers or sundry pundits were post hoc arguments: “Immigrants here illegally are criminals, therefore, if we deport them, crime will go down.” Maybe. But still not cause-and-effect on any level. “Reducing to absurdity” is the best way to expose this fallacy. For example: “Everyone who ate pickles in 1888 is now dead, therefore, pickles cause people to die.” This is utter nonsense, but you can find dozens of similar silly assertions everyday in many news stories and opinion pieces. • The “fallacy of composition” is the second dangerous error. This assumes that what is true for an individual is necessarily true for a group. For example, “if I stand up at the basketball game, I can see the action better. So if everyone stood up, everybody could see better.” Wrong! With many thousands of farms going bankrupt in the 1980s, a student told me his family prospered raising asparagus for a freezing plant. If more farmers would just raise asparagus, he thought, they all would do fine. I was glad he never asked for a letter of recommendation. Similarly, the assertion that, “I can’t just go deeper and deeper into debt, so the government can’t either” is common. Well yes, there are myriad reasons why chronic deficits that balloon national debts are bad. But people die and their household affairs are settled. Nations seldom die. When they do, their public debts are the least of problems faced. Households tabulate assets as well as debts, but we never do that for nations. So yes, let’s act to end deficits, as we did in the 1990s, but for the right reasons. • Also avoid “false dichotomies,” the erroneous assumption that reduces possible outcomes to two unrelated options. “Is Ed Lotterman going to die or will he be shoveling concrete next spring?” Maybe he will just be plugging along post-COVID, neither dead nor vigorous. “Will the economy have a soft landing, or will the Fed raise rates?” Well, the Fed may raise rates, but the economy might still land softly. Or rates may be cut, yet the economy slump badly. There is no rigid link between interest rates and economic growth. It is not an either-or question. “Sweeping generalizations” are a subset of false dichotomies. These are mistakenly asserting something that is largely true applies in every case. This error has run rampant with the question of “who pays import tariffs?” Asked the question on a public affairs show, a local pundit replied, “Consumers do.” Wrong! If he had only waffled a bit by saying, “Consumers pay most of a tariff,” he would have been right. Nit picking? No. Key issues around tariffs, such as how fast domestic producers can ramp up production, or how much households can shift spending patterns, are rooted in this fraction of the tariff not born by consumers. Plus, the reality is that producers in the exporting nation usually bear some of the economic costs. A good rule of thumb to combat this is to consider that the more sweeping any assertion sounds, the more likely it is false. Would you really believe, “Not one single kid in our high school takes drugs or has sex.” • The final fallacy, that of “false precision,” is less common or treacherous, but still muddies thinking. It is assuming that some information is known with greater specificity than it is and that computed small differences matter. For example, inflation-adjusted GDP grew by 3.3904% per year during the time Jimmy Carter was in office. For Ronald Reagan, it was 3.4355%. So output grew more strongly under Reagan than under Carter, didn’t it? No! First, ignore the post hoc fallacy implied in the question. Then understand that the last three digits are just noise. GDP begins with data from a series of statistical surveys, each having some margin of error, that are cranked into a model that itself embodies multiple assumptions. So it is an estimate, not a precise measurement. What probably is true is that under each president, output grew somewhere between 3.1% and 3.7%. For all sorts of economic and social indicators, unless taken from a decennial census, numbers reported are statistical estimates from careful surveys. They are very valuable but don’t assume precise detail that is not there Thus, as you absorb news this year, not falling for fallacious arguments is a good first step. But go beyond this by understanding three key sets of economic indicators. • Start with jobs and unemployment. These are tabulated monthly from two large surveys, one of households and one of employers. Search for “BLS Employment Situation.” (BLS is the Bureau of Labor Statistics of the U.S. Department of Labor.) With a summary and 24 supporting tables, it may seem overwhelming. But just read through its summary, no longer than this column. Then skim and sample the tables. You will learn much about relevant factors in determining the situation of workers and jobs. Do this today to see November data and you will be prepped for the December numbers due Friday Jan. 10. Understand that the key unemployment rate, the one you see in the headlines, is not a percentage of all the people not working. It is the percentage of the labor force that is not working. And the labor force is defined as the number of people who have full-time jobs plus the number actively seeking jobs. So retirees, part-time or gig workers, stay-at-home parents, for example, are not counted as out of work by this measure. • The second indicator is inflation, and to understand how prices of goods are measured at different levels, search: “BLS CPI” to get to the Consumer Price Index home page. Then open any item under “News Releases.” The pdf version of the release for each month is about 40 pages. But the key information is in the first four pages that include graphs. Again, just skim and sample at first. Then go back to sections that interest you. Inflation can be measured at different levels and each has an impact on economic outcomes. There is the CPI, measuring what consumers pay; the PPI, or Producer Price Index, measuring prices businesses pay for raw materials or other purchased inputs that eventually trickle down to the CPI; and there is the PCE, or Personal Consumption Expenditures index, preferred by Fed policy makers, which measures consumer prices with more modern methodology than the CPI. • Finally, economic growth. This is total output of goods and services, or “gross domestic product,” over a select period of time. Measuring this is complex and time consuming in comparison to prices and jobs, so tabulations are only done quarterly. Search for “BEA GDP” and explore from whatever pops up. “BEA” refers to the Bureau of Economic Analysis of the Department of Commerce. Look especially for “Quick Guide: GDP Releases” for valuable info on the tabulation process. There are three steps in refining the estimate. The first, based on easily tabulated, but limited, data comes out early, with two refinements incorporating data with a longer lag time trailing months later. Unfortunately, the “flash” first estimates for one quarter will come out before the final ones for the prior quarter, often causing confusion. Beyond voting, few of us as individuals have any control over what happens to our nation this year. But with sharper thinking skills and improved understanding of numbers appearing on the dashboard of our roller-coaster car, we can at least better understand what is happening.Related Articles Business | Real World Economics: Eliminating Social Security’s ‘windfall elimination’ would be an injustice Business | Real World Economics: Powers-that-be should heed the warning signs Business | Real World Economics: Bitcoin is in a bubble phase; the bubble will burst Business | Real World Economics: Fed is insulated from political interference Business | Real World Economics: Donald Trump’s ambitious agenda would affect all of us for years to come St. Paul economist and writer Edward Lotterman can be reached at [email protected].