We recently received a question, which may be on many people’s minds, so I thought I’d post the response.“Is it possible for an economist to make decisions based on a complete set of economic data at the macro level?”Your question goes to the heart of the Austrian (Misesian) critique of standard economics. The preliminary answer is that data are never complete, or even reliable. The data generated by government agencies are always subject to tweaking according to previous assumptions. Data are constantly being “updated.” So they can give a false illusion of reality. Ask yourself where the data are coming from. Often the source is telephone surveys, but we have reason to be less than confident in the reliability of such data. Remember that two economists used telephone surveys to conclude that a minimum-wage increase could raise employment, at least in the fast-food industry. After years of theorizing and research in the profession, they suddenly discovered an upward sloping demand curve. That is, the demand for labor rose when the price of labor increased. Amazing!But there is a more fundamental reply. Even if the data were not subject to the problems just mentioned, non-Austrian macroeconomics no help for decision-making. The problem, as Mises and Hayek, long ago pointed out, is that the aggregation of economic phenomena conceals rather than reveals. In my recent article “Inflation as Income Distribution,” I put it this way,

You’d hardly know this by reading mainstream economics, but economic phenomena happen on the ground –- where human action and interaction take place –- and not on the blackboard amid statistical aggregates and averages that no real person ever encounters.

Say the Federal Reserve created bank credit and lowered the interest rate. And say aggregate investment increased. This would be hailed as good thing by many economists. The Keynesians and others (monetarists included) look at capital as one large aggregate quantity (as thought it were a pile of Play Doh). It either goes up, down, or stays the same. But the Austrians realize that the economy has a structure of production that exists in many distinct stages through which inputs pass in various degrees of completion over time. In a truly free market, consumers communicate their preferences — through prices, including the interest rate — to entrepreneurs. The natural interest rate tells entrepreneurs how present- or future-oriented consumers are. Entrepreneurs then respond appropriately (but of course never perfectly) by allocating capital among the various stages, further from or closer to the final consumer level.But when the Fed creates credit and lowers the interest rate, investment shifts from later stages of production, near the final consumer stage, and toward earlier stages, for example, mining and R&D. This happens because the lower interest rates says consumers are more future-oriented. The problem is they really are not. So the fiat money will set off a race for scarce resources that cannot be in two or more stages at the same time.Notice how the multistage structure existing through time is papered over by aggregation. All the macro theorists see is an increase in Investment and Capital.The point is that macro aggregates and averages take our eyes off the ball: human action and interaction. Individuals confront market prices, resource constraints, and tradeoffs while trying to coordinate their plans with others in order to achieve their ends. There is no interaction, much less constant mathematical relationships, among total employment, total income, total investment, total output, GDP, etc.So, the short answer to your question is: Making policy decisions based on macroeconomic aggregates will not lead to good decisions.