Bernanke on Economic Data
Fed chairman Ben Bernanke gave a pre-recorded speech on economic measurement to an academic conference this morning.
No details on any action by the Fed, of course -- though Bernanke's remarks on the utility of data are interesting, given the Fed's current official view that it is waiting for more data to come in before it takes any decisive action in regard to the economy. To that effect, Bernanke closes with a striking quote from Sherlock Holmes, "It is a capital mistake to theorize before one has data."
Here are the key quotes:
[A]ggregate statistics can sometimes mask important information. For example, even though some key aggregate metrics--including consumer spending, disposable income, household net worth, and debt service payments--have moved in the direction of recovery, it is clear that many individuals and households continue to struggle with difficult economic and financial conditions. Exclusive attention to aggregate numbers is likely to paint an incomplete picture of what many individuals are experiencing.This may be an interesting argument to press the Fed in its monetary policy role: the mean is not often a good reflection of a distribution of individual data points -- here, people -- when those distributions are skewed or otherwise irregular. Clearly, the increase in unemployment has such an effect: the unemployed lose a great deal, as well as those whose labor force participation is marginal. Although incumbent workers lose some job security and leverage to press for increases in pay, the individual effects are not on the same order of magnitude.
Bernanke actually opens the speech with a comparison between Simon Kuznets and the coming Big Data revolution, which is strangely enough a topic I wrote about earlier this week:
[W]hat we decide to measure, or are able to measure, has important effects on the choices we make, since it is natural to focus on those objectives for which we can best estimate and document the effects of our decisions. One great pioneer in this subject area, of course, is Simon Kuznets, who was awarded the Nobel Prize in 1971 for his work on economic measurement, including the national income accounts. Over the years many economists have built on his work to further improve our ability to quantify aspects of economic activity and thus to improve economic policymaking and our understanding of how the economy works. The remarkably broad and ambitious research program of this conference and the impressive expertise that has been assembled illustrate the continued vitality of this field. Evolving technologies that allow economists to gather new types of data and to manipulate millions of data points are just one factor among several that are likely to transform the field in coming years.