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The less big data the better
Throw: It has never provided the information governments need to ‘steer’ the
economy
By David Howden
Adjunct scholar
Ludwig Von Mises Institute of Canada
MADRID, Spain, Jun 30, 2017/ Troy Media/ - Writing for the Financial Times, Robin
Harding reports that experts fear that the U.S. government will soon be “flying blind”
without access to the big data collected by the government, and which is now imperiled
by the shutdown. Indeed, the loss of data may continue through to the new year as
statisticians and data miners try to catch up after this hiatus.
We should be so lucky.
Big data does not provide the necessary information for government officials to “steer”
the economy. It only serves to give the appearance that someone at the top is in
command of the big picture, and altering the course of the economy in such a way that
the big numbers newspapers covet so much – the unemployment rate, inflation or the
omnipresent GDP – are aligned with the prosperity voters expect.
Government officials are already flying blind, with or without big data. The reason is
twofold and simple: the data necessary for business decisions is not often available in
an easily recordable form, and even if it was the relevant information is never of the
general form that government uses but of a localized and very specific nature.
Consider a businessman, perhaps a small tailor near Waterloo, Ontario. Our tailor
needs to know what styles of clothes people are demanding, the fabrics they desire,
and the weight of the cloth that will be necessary to get them through the coming winter.
None of these criteria are in an easily transferable form; indeed, many of them are
fundamentally tacit. If asked why he purchased a certain sweater to stock for the winter
he probably cannot give a quick answer. The tailor just “knows”, whether by gut or
instinct or by whatever term one calls entrepreneurial foresight.
Our tailor does not care what the general inflation rate in Canada is, or even the rate in
Ontario. Indeed, he doesn’t even care much about what prices in general are doing in
Waterloo. He is more concerned with what the incomes of his customers are doing,
where the prices of competitors’ clothes are going, and what how much his expenses
will fluctuate by. None of these data are available through the general government’s
surveys.
Business conditions are never the result of general changes permeating through the
whole economy. The causality is the other way ‘round.
Businessmen use information specific to both time and place to alter their goods and
services on offer. Consumers do the same thing – surely you don’t care what the
average temperature in Canada is expected to be this December, just as you don’t care
what the average rate of inflation will be next year. You care about those factors that
matter to your immediate vicinity: the relevant data will always be of a localized nature.
The interaction between consumers and producers, each acting upon their own little
local slice of the world of information, are what create the general figures that the
government compiles and tries to pass off as important.
Thus, all the individual sweater sales and purchases interact to create some
contribution to the larger GDP and inflation figures for all of Canada, but the latter two
figures have almost no bearing on the individual purchaser’s or seller’s original decision.
If anything, big data serves a purpose of giving a false legitimacy to government
policies. The policies that the government enacts are always of a necessarily broad
nature – that is the inevitable result of having a federal government. Perhaps a less
strong statement would just point out that the relevant trade-off is between the size
(level) of government and the generality of its policies. The more general a policy the
less likely it is to have a meaningful effect of individual economic actors within the
system.
Consider that the Bank of Canada (BoC) is worried that inflation is low right now – big
data tells it so. The Bank’s governor, Stephen Poloz, responds by increasing the money
and credit supply in a bid to push prices up. But the real problem plaguing Canadian
businesses right now is that some prices are too high (and these businesses are
uncompetitive) and some prices are too low (and these companies are not making
adequate profits). The agricultural sector is a good example where both problems at
play. The Bank of Canada’s blanket policy has increased all prices, thus aiding one
group but not the other.
In this example, big data enabled the BoC to pursue a misguided policy. It furthermore
gave it an aura of legitimacy by making it seem as though its goal, increasing inflation,
was both relevant and important to Canadians. It is not, though specific prices over
which the BoC has almost no control are most certainly relevant and important. We –
businesses and consumers – create and alter these prices through our own actions, not
those of the government.
Instead of lamenting the potential loss of “big data” by the U.S. government shutdown,
we should be rejoicing. Not only will it allow us the opportunity to see that the economy
can do just fine without it, but it may also give us a break from the misguided economic
policies structured around it.
David Howden is an adjunct scholar of the Ludwig Von Mises Institute of Canada and
Chair of the Division of Business and Social Sciences at Saint Louis University – Madrid
Campus.
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