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What do we know? What don’t we know? And what don’t we know we don’t know? In any venture, those are serious considerations, even if they are phrased in silly ways.

There’s a common conceit, not just in Washington, but far beyond, that non-participants can act as disinterested, dispassionate observers, while still being the good and caring people we all hope we truly are. Dan Savage once wrote that “[w]e all wind up having to live up to the lies we told about ourselves, and it’s this living up to the lies that often makes us better people.” This is the sentiment I had in mind yesterday when I criticized Kenneth Davis for his more empirical criticism of America’s history of religious (in)tolerance. While I stand by such a creative, redeeming, innovative view of humanity, I can’t see any such beneficence in our governments.

Yesterday I was discussing rent-seeking with a friend, and I said that the behavior didn’t bother me. People generally respond more or less rationally to the incentives they’re provided with. It’s in their interest to care less about the size of the pie, than about the size of their slice. When pundits talk about aggregate demand (which is somehow distinct from and better than base consumerism), they’re missing this point. They’re hating the player, when we all know you should only hate the game.

Local knowledge is important, but it turns out that it might be more widely applicable, and more useful than in just your immediate surroundings. How useful? Like, predict changes-in-the-Dow useful. Turns out, Twitter+Google might explain the economy:

One algorithm, called the Google-Profile of Mood States (GPOMS), records the level of six states: happiness, kindness, alertness, sureness, vitality and calmness.

The question that Bollen and co ask is whether any of these states correlates with stock market prices. After all, they say, it is not entirely beyond credence that the rise and fall of stock market prices is influenced by the public mood.

So these guys took 9.7 million tweets posted by 2.7 million tweeters between March and December 2008 and looked for correlations between the GPOMS indices and whether Dow Jones Industrial Average rose of fell each day.

Their extraordinary conclusion is that there really is a correlation between the Dow Jones Industrial Average and one of the GPOMS indices–calmness.

In fact, the calmness index appears to be a good predictor of whether the Dow Jones Industrial Average goes up or down between 2 and 6 days later. “We find an accuracy of 87.6% in predicting the daily up and down changes in the closing values of the Dow Jones Industrial Average,” say Bollen and co.

On the one hand, this is not very well explained. But the ratio is far too high to be merely correlation. Instead, a simple, Austrian insight: uncertainty is a main driver of economic downturns. For example, when democrats punted on the Bush tax cuts, they didn’t do the economy any favors; not because business feel one or the other about the result, but because they need to plan for the future. A looming (and likely lame-duck) vote means that plans wait, jobs don’t get filled, work doesn’t get done. Until the government decides what the rules of the game will actually be, no one can play.

But ignore all that. Jim Kramer wants you to pay attention to his honks and shrieks and blats. He’s a serious guy. See how high those sleeves are rolled up?

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