Thursday, August 29, 2013

Case for appointing Google as the Central Banker

5 years after the worst economic meltdown (US housing et al) as i watch the indices erode shareholders wealth and the Indian currency plummet, i cannot help but muse over the underlying cause of economic crises in different parts of the world.

I have read of more than a handful of well known economists (Nouriel Roubini, Peter Schiff, Ron Paul, Raghuram Rajan etc etc) who claim to have predicted the housing bubble and almost all of them have something or someone to blame it on. These are people with considerable influence at a global scale. Yet nothing could be averted.

Housing bubble happened
US/Global deficits are at an all time high
Eurozone is terribly stressed. Greece Spain and Portugal are almost bankrupt
The Ver2. of Asian crisis is in the offing
Excessive liquidity flowed into Emerging Markets
Talks of stimulus-tapering have created a new crisis in Asia

My argument is that if so many Economists had the power and the intelligence to opine and take credit, why are we staring at such a dismal global scenario?

Human beings are driven by emotion of greed and fear (cognitive biases) and no one has the ability to take the most rational decision at the right time. (Thats God’s job really). So our central bankers all over the world have failed consistently. Since the time I developed a bit of understanding of economics, I have come across only 2-3 actions that central bankers take. Reduce/Increase interest rates by a few bps, Issue inconsequential - dovish or hawkish statements, give a dubious sense of calm to the citizens and opine liberally. Because that’s the easiest thing to do.

But has the world economics been sorted?

No! Actually its worse off than what it was 30 years ago.

But there is a counter opinion. Decisions taken by central bankers should be based on big data of cause and action and consequences. Only then can a global equilibrium be maintained. It is not humanly possible for the likes of Ben Bernanke, Mervyn King and Mario Draghi to analyse and act in absolute harmony that prevents future crisis and regulates overspending and irrational exuberance.

Between 2005-2008 maybe US interest rates should have risen far more.
Maybe Global salaries / benefits should have been drastically slashed to maintain export and industry competitiveness and reduced dependence on China that played havoc across the world with an artificially cheap Renminbi.

I believe that today no one can write algorithms and collect/analyse data better than Google. Why don’t we reduce our dependence on our central bankers and outsource this job to Google.

Google can analyse a 200 yr action history of central banks of over 150 economies on the planet and chart the action and consequence graph and effects thereof and create a perfect model for each and every nation and define the interest rates and all economic actions that have a bearing on our lives. Algorithms will take harsh decisions which humans fear to take. Algorithms will become perceptive and computers will develop intelligence to take rational decisions.

This is seemingly the only way out and we won’t get a chance to blame a banker or an economist because the world and nations would be in a state of equilibrium.

No one can deny that all of our economists and central bankers have failed miserably till date.

4 comments:

  1. Brilliant idea...but will it work. ....how will the 'haves' exploit the 'have nots' n how will the policy makers n politicians have their own cuts...can we work ourselves to live in a state of panacea

    ReplyDelete
  2. Brilliant idea...but will it work. ....how will the 'haves' exploit the 'have nots' n how will the policy makers n politicians have their own cuts...can we work ourselves to live in a state of panacea

    ReplyDelete
  3. Is the ability to predict the weather the same as ability to control the weather?

    Can you or Google or anyone distill the infinitely complex and infinitely simple interplay of individual and collective human consciousness to mere algorithms?

    Sameer

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  4. Excellent arguments Manu. Complete outsourcing might be too radical a step but, analytical horsepower of Google & the likes should be published publically & certainly be an input in Central Banker's decision making. Bankers are also quite limited in their influence by the virtue of tools & political pressure. International investors/fund managers are only interested in returns & tend to ignore fundamentals for a very long time e.g. India's problems with budget deficit, infrastructure, red tape, judicial backlog and labor laws have all been there all along .... but, the international investors have only started paying attention since the prospect of tapering the U.S. quantitative easing. Funds are fleeing emerging markets to get returns in U.S. markets causing a havoc in emerging market currencies. A big take-away is .... it's easy to get your house in order when times are good. India's biggest economic opportunity is the size of its working age population .... not all of them can enter I.T. so, for the semi-skilled Manufacturing sector needs to fixing (China style), Labor Laws need to be reformed and other state monopolies such as Railways, Coal, Oil & Gas need to be broken.

    Gagan

    ReplyDelete

Your comment is immensely appreciated and will be published for a discussion - soonest. Thanks. manu