Statistical Optimism: Mortgage Finance and Depressions, Retro Edition

Let’s coin a new phrase: “statistical optimism.” Statistical optimism refers to the belief that if only we had better statistics about X, and that everyone was made aware of those statistics, then we would make better decisions about X and some set of problems would go away without any major changes in the institutions actually making decisions. It’s a practical, quanty version of the classic Enlightenment-style idea that more knowledge always makes things better. Note that by statistics, here, I mean the production and distribution of quantitative data, the old sense of statistics (vital statistics, censuses, national income statistics, etc.), and not the inferential field we know and love today.

This phrase came to mind today as I was reading through a March, 1932 interview with Senator La Follette* about the need for better economic statistics to improve economic planning in the midst of the depression. The interview is chock full of great quotes that give you a flavor of what it was like to live in a time before the CPS, NIPA, and all the other routine, standardized, official data we take for granted. For example:

It is a sad commentary on our statistical information that in the third winter of the depression we have absolutely no authoritative official figures on unemployment. The only data we have are those collected by the census in 1930 for the country as a whole and for certain cities in January 1931.

The authoritative bit here was to be important, too, as FDR and Hoover fought in the 1932 campaign over whose (partial, non-standardized) unemployment figures were better.

The belief that gets me, though, and that seems to be widely shared across the political spectrum at this point, is that just having good data will fix all kinds of ideological disputes. It was this belief, in part, that motivated the founding of the NBER, and it was this belief that animated Hoover to work to produce all kinds of economic reports in the 1920s and early 1930s in concert with economists and businessmen (e.g. Recent Economic Trends, Recent Social Trends, etc.). La Follette was a Republican also, but later founded the Wisconsin Progressive Party, and clearly believed in less business-led solutions to economic problems than Hoover, but he had the same attitude of statistical optimism. A quote from the end of the interview about the potential for authoritative statistics to prevent future depressions struck me as especially relevant and, from a post-2008 perspective, ironic:

Suppose late in 1928 some authoritative body in Washington had publicly emphasized the fact that there was an excess of private houses on the market. Suppose it had pointed out that construction figures showed an appreciable falling off in the building of new houses. Surely in the light of such warnings people would not have continued investing their hard-earned savings in first and second mortgage real estate bonds thus increasing the supply of new capital for speculative building which continued into 1929.

If only it were so.

FRED New Housing Starts 2006 to 2011

Though, I suppose, in fairness to La Follette, what he called for was not simply the creation of better data but also the creation of an institution – a national economic council, somewhat of a precursor to what ended up being the Council of Economic Advisers – that would have the authority to interpret data, not just collect it. Still, the optimism is palpable, and from our vantage point, tragic.

* La Follette is important in my work because he introduced a resolution in 1932 which called for the creation of the first** official US national income estimates.
** Well, he thought they were the first, and so do most people. The FTC actually produced an estimate in 1926, but almost no one knows about it, and no one did much with it then either.

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