The Covid-19 lockdown will become known as the moment when the world finally abandoned the analogue age. I do not mean this in a technological sense. It is about how we compile and use information.
The mobile phone and other digital devices have been around for a while, but now the mobile phone has become a primary source of public data intelligence. Scientists are using mobile phone data to track the spread of coronavirus. Another fledgling application of big data is in economic analysis. If phone location data can be used to track contagion, their use in retail payments means they can also be used to track consumption.
And as that happens, we are discovering that the quality of this real-time information is arguably better than the antediluvian data sources — like confidence surveys — that we have previously relied on for real-time economic intelligence. Some of those surveys use fixed panels of respondents who fill out a questionnaire each month.
In Germany many years ago, a media analyst claimed he could predict the Ifo confidence survey by studying the relationship between positive and negative economic news stories in the days before the questionnaires were sent out. His presumption was that the company staffers who fill out the questionnaire were influenced by what they read in the newspapers. I could never verify this claim, but it seemed plausible.
Confidence indicators either confirm what we know already or, if not, are likely to be wrong. They mostly constitute low-quality data noise. Yet people rely on them because there is not much else around. That will not be so forever.
The digital revolution has come in stages. In the first came digital hardware and the internet; then internet-based services; and then big data combined with artificial intelligence. These advances combined to allow mobile phones to produce pictures of a quality unimaginable only a few years ago.
Big data does not just mean lots of data, but linking data to algorithms. Just as it is possible to turn noisy visual data into a clean picture, the same may one day be possible in economic analysis.
Tech companies are now the main providers of photographic equipment, and could soon become the providers of economic intelligence. If so, you would not need economic analysts to make sense of uncertain data. I suspect that big data algorithms will easily beat economic forecasters — though this is not a particularly high hurdle.
The way we measure inflation is another example of outdated statistical practice. Inflation indices are typically based on baskets of goods that date back to a time when industrial workers had comparable wage packets and consumption patterns. Yet why shouldn’t people be able to determine their own personal inflation rate based on goods they use? This would undermine the independence and power of modern central banks, which rest on the money monopoly of the state, and analogue-age metrics such as inflation forecasts.
Society will still need central bankers to act in a crisis, as they did this year. But daily life will be different: perhaps most central bank employees will be data analysts, not economists.
This extreme vision does not lie immediately ahead. But it is not an outlandish prediction. Politics and governmental institutions do not adjust to technical change as fast as consumers. But they, too, will adapt.
The dying of the analogue world will also shift power. Drones could have a bigger impact on military personnel than past technical innovations. Big data will lead to different job profiles in government and healthcare. Populists, too, have embraced the digital age, some with malicious intent. But the digital revolution will outlive them.
The yearning some of us feel for the old days of western-dominated multilateral capitalism reflects a form of analogue nostalgia — when G7 leaders sat around a fireplace or self-appointed elites met at a Swiss mountain retreat. There will be a lot of displacement in the transition away from the analogue world. Many winners and losers can already be discerned from the relative changes in the share prices of companies in the old and the new economy. I suspect that this shift, not the aggregate macroeconomic impact, will be the pandemic’s lasting legacy.