Indeed. One Can Fix Government Economic Forecasts
August 26, 2015
Big Data is magic. Big Data is revolutionary. Big Data is good consulting angle.
But Big Data is not going to fix government forecasts. I hate to rain on the parade of a distinguished academic and chief economist, but those rain drops keep a falling.
Navigate to “Economic Forecasts in the Age of Big Data.” The passage I highlighted with my sea of red ink colored marker was:
Properly used, new data sources have the potential to revolutionize economic forecasts. In the past, predictions have had to extrapolate from a few unreliable data points. In the age of Big Data, the challenge will lie in carefully filtering and analyzing large amounts of information. It will not be enough simply to gather data; in order to yield meaningful predictions, the data must be placed in an analytical framework. The Fed may have blundered in releasing its data ahead of schedule. But its mistake offers us an important opportunity. In order to improve economic predictions, economists must be encouraged to seek new sources of data and develop new forecasting models. As we learn how to harness the power of big data, our chances of predicting – and perhaps even preventing – the next recession will improve.
I am thrilled with job opening analyses in Boston, demand for rentals in San Francisco, and housing starts in Los Angeles (you know the water crisis city).
However, government economic analyses are not into reality. In Washington, DC, there is a big building adjacent the train station. It is filled with folks who do economic forecasts among other things. There are economic forecasts cranked out by lobbyists. There are super grades in Federal entities crunching numbers. The numbers get reviewed, shaped, and tweaked. Eventually the numbers emerge in a new release which may or many not be widely distributed. The government process for creating economic forecasts is institutionalized. Like an aircraft carrier, the system carries some momentum.
A person who wants to inject real time Big Data into these procedures can go through the normal process. Get involved in an allocation for an initiative. Find a way to work on a statement of work. Compete for a Big Data economic forecast project. Do the work. Have the work reviewed and taken under advisement.
End of the day: The existing system keeps on generating forecasts.
Net net: Economic forecasts from DC and other world capitals drift above real time. Rome had the same problem.
Stephen E Arnold, August 26, 2015
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