As technology enables instant data capture from retail transactions, finance policymakers are getting a bit tool.
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- What's up: No economic expert is able to truly explain what's happening with the world economy as on date. No one expected oil to rise to $ 80, or container ships waiting outside Chinese ports. Covid led to fears of mass unemployment, but today, prices are rising fast. Which policies would maximise jobs and growth now?
- Enlightenment: From this confusion, one can now sense light, and enlightenment. There is a revolutionary phase in world economy, the "real-time economics".
- Quality and timeliness of information is changing everything
- Big data firms (Amazon, Netflix) use instant data to monitor each transaction, and customer behaviour
- Governments and central banks are monitoring consumer behaviour microscopically
- Digital devices, sensos and fast payments are everywhere now, and hence the ability to micro-study will grow
- Governments can take better decisions, as well as try to interfere more!
- Hunger for better data: Since 1950s, everyone has longed for more accurate data, faster. By 1980s, Walmart pioneered supply chain management. Then the field exploded. Data became a source of competitive advantage. Sadly, governments did not improve much, as the figures for inflation and GDP come with a lag of months. They even are revised sharply. So one may say that Central Banks are flying blind.
- Cost of bad data: Such erroneous data leads to wrong decisions, and huge costs. If the US Fed had cut rate to near zero in December 2007, the global financial crisis would have been less harmful. It did so in Dec 2008 by when the recession had set in.
- Indian case - Data on informal economy is patchy, and banks have huge NPAs. Government is hence struggling to end the decade of low growth.
- ECB's mistake - It raised rates in 2011 during inflation that led to a fresh recession in Euro area. In 2021, Bank of England may make a similar mistake.
- Pandemic changed it all: Governments and central banks were forced to not wait for effect of lockdowns to manifest but take decisions more quickly, using data from contactless payments, mobile phones and real time use of aircraft engines! Economist are running number-crunching labs, and using data from bank balances and credit card bills to get real time learning. (people saving or hoarding)
- Technology will go deeper: This is an irreversible trend now, and more and more payments will go digital. India had 2560 crore digital financial transactions in 2020. More sensors are coming everywhere, and CBDCs too. China is piloting its Central Bank Digital Currency, and many others are en route. That will be the gold mine of how economy operates.
- Timely data will eliminate policy blunders: If a govt can see whether a dip is turning into a slump, it can make right decisions quickly. Central bankers realise that policy rate changes take months to show result. So Hong Kong tried cash handouts in digital wallets, that expire if not spent. Instead of huge income support schemes for everyone, the poor can just get instant income top-ups if jobs are lost, paid into digital wallets directly.
- Benefits: This real-time revolution will make decisions more accurate, transparent and rules-based. The risks include misinterpreting signals - is it a new global recession rising, or just Uber losing market share? Private firms like Facebook may know more about economy than the governments.
- Arrogance the enemy: The biggest threat is the arrogance born from a deep real-time insight into economy, that can prompt governments to mould society as per their liking. Chinese communists have already embarked on a digital central planning exercise.
- Summary: Data alone can never predict the future, because the behaviour of millions of independent firms and consumers decides it. Instant economics should be seen as an aid for better, timelier and rational decision-making, not miracles.
- EXAM QUESTIONS: (1) Explain how real time data can help governments get insights into how the economy is doing. (2) The role played by instant data generation and capture is magnified once data analysis tools are available. (3) What are the dangers with real time economic data available for governments? Explain.
#data #datamining #realtime
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