Sensitive indicators are good for gossip, and not much else
Credit to Author: The Manila Times| Date: Wed, 05 Feb 2020 16:48:29 +0000
MOST have taken note that the year 2020 has gotten off to an unusually stressful start, with the month of January and the first few days of February being filled with memorable, and mostly calamitous events.
The year began with historic bushfires raging across large parts of Australia; an act of war by the United States against Iran, which Iran fortunately has responded to with remarkable restraint; the beginning of the 2019-nCoV coronavirus epidemic (the first death was recorded on January 9); and the unexpected eruption of Taal Volcano. A plague of locusts, said to be the worst in 70 years, has blanketed East Africa; the impeachment of US President Donald Trump, only the third US president to face that ignominious rite (and the third acquitted by the US Senate) in the country’s long history was held; the African Swine Flu made an unexpected and apparently widespread appearance in Mindanao; and on the first day of February, a spectacular fire in Manila that destroyed a San Miguel packaging warehouse also destroyed about a half-kilometer of the still-unfinished Skyway Stage 3, pushing the completion date of the already long overdue and vastly over-budget project to at least July, and probably much later.
Apart from all that, Great Britain made its formal exit from the European Union on January 31; that was expected, but the reality of the Brexit still rattled markets and much of the public. And in a minor incident, but one that many in the US saw as a harbinger of doom for the all-important US elections in November, the Iowa caucuses, a non-binding vote that traditionally signals the beginning of the US presidential campaign, was derailed by technical problems with a mobile app organizers inexplicably decided to use to transmit vote tallies.
Every one of these events has at least once been identified as having some effect on economic indicators such as gross domestic product (GDP) and inflation. Sometimes they are taken together, as in, “The occurrence of Event A and Event B and Event C contributes to global uncertainty that will negatively affect GDP growth.” Either way, whether a change in an indicator is related to a specific situation or the catch-all of “global uncertainty,” that change is always incremental — perhaps a fraction of a percentage point, perhaps as much as 1 percent — if it is quantified at all, which it usually is not.
If you actually live in “an economy,” however, you may have noticed something puzzling: unless there is a very extreme change in circumstances, something that tends to happen only rarely, and more often than not on a relatively localized scale, economic conditions tend to be rather consistent. Changes will be noticeable in something like gas or food prices, for instance, but only over a timeframe of weeks or months. Changes in something bigger like GDP take even longer to be noticed, and sometimes never are. A moderate slowing of GDP growth, on an individual scale, might manifest itself as a worker not getting a raise in pay that he wasn’t aware was even being considered in the first place.
So why is so much attention given to sensitive indicators, especially when exacting forecasts are almost never right? The simple reason for this is that there are too many economic analysts and too many business journalists, every one of them is expected to do something resembling work every day, and so they must parse things down to very fine shards in order to stay busy. If it were not for financial markets, the information they share would be utterly useless to anyone. And in the case of the markets, they only use the information for the same reason the sources of it do – to look busy.
In 250 years of economic study and thought, most practitioners of the discipline have never figured out that the only useful indicators are specific, undefined ones. For example, “China’s tourism industry will suffer losses in revenue due to the coronavirus epidemic” is a useful indicator, at least to tourism-related businesses in China.
But if the media and economic analysts and consultants left it at that, they would be hard-pressed to fill the remaining 59 minutes and 45 seconds of the hour. No one wants that.
ben.kritz@manilatimes.net
Twitter: @benkritz