Thursday, October 12, 2006

Why "The Street Light"?

There’s an easy explanation for the name of this blog, and a more involved explanation for it. Which do you want?

Both, you say? Very well.

The easy explanation is this: this is a blog largely (though not solely) about things economic and financial. It's about Main Street as well as Wall Street. And ideally, I'd like to shed some light on both of those streets. Or at least give it a good try.

The more involved explanation has to do with an old joke that economists like to tell each other. Okay, maybe “joke” is overselling it a bit – a little story with a modestly amusing punchline might be a better description. But most economists are not generally renowned for their senses of humor, so to us it’s a good joke.

At any rate, my personal version of the joke goes something like this:
Late one evening, a man who was walking his dog comes upon an economist (you can always tell an economist from anyone else at first glance, of course) who is searching the ground under a street light. The passerby asks the economist what he is doing.

“I'm looking for my lost keys,” says the man searching the ground. “I dropped them on my way home from that bar down there” he says with a slight slur, pointing to an establishment of somewhat disreputable appearance at the far end of the street.

The passerby offers to help search for the keys, but after several minutes of searching under the street light they have no luck. “Are you sure you dropped them here?” asks the passerby.

“Oh, I have no idea if I dropped them here," says the economist, now swaying ever so slightly. “All I know is that I think I’m pretty sure that I dropped them somewhere on this street on my way home.”

“Then why are you only looking under this street light?”

“Well…” replies the economist very slowly, blinking with the effort. “Because this is where I can see the best.”
The reason that economists like this story so much is not, despite what you might think, because it involves staying at a bar until late at night. Rather, it's because the story serves as a parable for what economists spend most of their lives doing.

The goal of economic analysis is to gain some understanding about how the economy works, and to try to come up with some explanation for past, current, and future economic phenomena or events. Yet the tools we have to be able to understand something as vast and complex as the world's economy are woefully limited. Returning to the parable: most of the street is pretty dark to us economists. So what we end up doing is trying to understand the economy based on those relatively small areas of the street that our tools of economic analysis do manage to shed some light on. As far as the rest of the street goes, we just sort of have to use a combination of deduction and guesswork.

Personally, I think that the street light that economic analysis provides is truly important (which is comforting, given that I'm an economist) – it helps us to understand things that we wouldn't otherwise be able to figure out. But it also illuminates just a small portion of the world around us. I chose the name for this blog to give me a daily reminder of both of these important points.


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