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Why Economists are Baffled by the Data
By Shlomo Maital
What in the world is going on with the US economy? Economists are …well, out to lunch.
Why? Labor data is down. GDP growth is way up in the last quarter. Hmmm…
This is what Jason Furman, former head of the White House Council of Economic Advisors, writes in his New York Times Op-Ed piece?
“Economic data never tells a perfectly clear story, but lately the contradictions have been especially jarring. Just a week apart, the government delivered two sharply conflicting messages. One report showed job growth stalling and unemployment rising. Another showed the economy expanding at a blistering 4.3 percent annual rate — more than double the pace of the first half of the year.”
Unemployment is significantly higher than in previous periods. Job growth is small or maybe even negative. But GDP is growing at 4.3 per cent, double the rate earlier. Furman asks: Are we sliding toward recession or entering a new boom?
GDP growth without labor growth?
Could this be the result of AI replacing human labor? Probably not – Not enough companies are dumping people because their work is redundant and done by AI.
Wrong data? Job data is often wrong and updated – that brought a Trump tantrum the last time it was revised down. GDP data too is often updated.
It reminds me of the lovely sad Beatles song, with the repeated line “nothing’s going to change my world.” We economists analyze data with the insights and models and tools of the past. But…our world has changed. And so has the economy. And how people behave, spend, invest, save….
Disclosure: I have unofficially resigned from the army of professional economists. A profession that pitched unbridled capitalism, yet failed to anticipate why, say, a Board of Directors giving Elon Musk a trillion dollars in compensation might be obscene and needed fixing or forestalling – there is no hope.
I wonder what will be said to Economists when they reach the Gates of Heaven – and admit they are economists. I have a hunch.
Global Trade: More Information Than Goods
By Shlomo Maital
McKinsey Global Research points out a remarkable fact about global trade: “Soaring flows of data and information now generate more economic value than the global goods trade.” According to McKinsey:
“…. although the global goods trade has flattened and cross-border capital flows have declined sharply since 2008, globalization is not heading into reverse. Rather, it is entering a new phase defined by soaring flows of data and information. Remarkably, digital flows—which were practically nonexistent just 15 years ago—now exert a larger impact on GDP growth than the centuries-old trade in goods, according to a new McKinsey Global Institute (MGI) report, Digital globalization: The new era of global flows.”
So, what does this key fact mean for innovators and entrepreneurs?
Here are a few important implications:
- “Individuals are using global digital platforms to learn, find work, showcase their talent, and build personal networks. Some 900 million people have international connections on social media, and 360 million take part in cross-border e-commerce. Digital platforms for both traditional employment and freelance assignments are beginning to create a more global labor market.”
- “….not all countries are making the most of this potential. The latest MGI Connectedness Index—which ranks 139 countries on inflows and outflows of goods, services, finance, people, and data—finds large gaps between a handful of leading countries and the rest of the world. Singapore tops the latest rankings, followed by the Netherlands, the United States, and Germany. China has grown more connected, reaching number seven, but advanced economies in general remain more connected than developing countries. In fact, each type of flow is concentrated among a small set of highly connected countries.”
- “…over a decade, all types of flows acting together have raised world GDP by 10.1 percent over what would have resulted in a world without any cross-border flows. This value amounted to some $7.8 trillion in 2014 alone, and data flows account for $2.8 trillion of this impact. Both inflows and outflows matter for growth, as they expose economies to ideas, research, technologies, talent, and best practices from around the world.”
Bottom line? Innovator, wherever you are, if you have an Internet connection (true, 4 billion people, or over half the world, do not), you have access to the New World of trade in information data and knowledge. Perhaps trade in goods is lagging, owing to the Great Recession, but globalization of knowledge is alive and well.
TIMnovate 