flowing motion

3 questions to structure your filter of economic data

Posted on: September 23, 2009

All over the internet yesterday, people were chattering about filters.

What sense do you make of the world? And the 100 million dollar question, what is your understanding worth to anyone else?

Scary thought?

Well, here is an easier one!

Which indicators do you use to judge the health of the economy?

Last night, Forbes suggested that men wear brighter ties when the economy is on the up.  And wear duller ties when it is going down.  And the dull ties came out before Lehman crashed!

What do geeks wear when the going is good?  What do Kiwis wear?   They seem to wear black forever.

How do you judge the state of the economy?

The Forbes indicators tell us about confidence in the economy. What else should we be looking at?

When I lived in Zimbabwe, a leading economist advocated that we look at the state of people’s lawns.  Lawns are expensive and tiresome to look after.  Someone who is ‘staying’ will look after their lawn.  Someone who is ‘leaving’ will let it go.  Drive down the street and you get a fair idea of what people intend to do.

So if guys’ ties tell us how chirpy we feel, and where the economy might be headed, what tells us what people are going to do?

Which behaviors do you look out for and which leading indicators suggest the behavior may increase (or decrease)?

And what deceives us? What is just another dazzling bubble?

I remember another economist being overly impressed by the growth of flash chain fast food outlets in Harare.   I was stunned because I saw fast food outlets as a sign of non-investment activity.  When we have money that we have ‘won’ rather than ‘made’, we tend to waste it.  It’s a sure sign we are in a bubble.

Another working economist reckoned that he could judge the viability of a working farm in a glance as he drove up.  If there were more vehicles than drivers, the farm was going under.   The motivation was a little different, but once again money was being spent on decoration rather than functionality.

British political scientist, Parkinson described this phenomenon in other terms.  When organizations build monuments to themselves, they are on the way down.

Others may call this ‘chi’ – or lack of it.  We can feel the focus and vigor seeping away.

Which warning signs do you notice?

Three questions for your economics filter, then.

  • In your world, what tells you when the economy is on the way up, and does the same indicator tell you when the economy is on the way down?
  • In your world, which behaviors are so important to the future health of the economy that it would be good to have advance warning? What might that leading indicator be?
  • In your world, which behaviors suggest our eye-is-off-the-ball?  Or, that we are playing with funny money – or stolen goods – or money not made in the productive economy?

What else should I be looking at to structure a useful, working filter of the economy?

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