Saturday, December 20, 2008

Data Miners of the World, Unite

Asked about the paucity of statistics while he was implementing the policies that turned postwar Hong Kong into a thriving global financial centre, John Cowperthwaite replied: if I let them compute statistics, they’ll want to use them for (scenario) planning. Governments should not collect them, lest they be provoked into attempting to remedy perceived ills - and mess things up.

Asked about some of the measures he would advocate for a turnaround, Nassim "Black Swan" Taleb replied: I don’t like scenario planning, because people don’t think out of the box. I would also ban the use of statistics because unless you know statistics very, very well, it’s a dangerous, double-edged sword.

Statistics are always relative. They depend on the elements factored in their computation, and these are never constant. That is why dogmas such as 1) Value Added Tax (VAT) reduction automatically boosts consumption, 2) exchange rates invariably affect exports and 3) Pay Research Bureau (PRB) provision is systematically inflationary are all flawed.

Any addiction to per capita income and gross domestic product (GDP) is either an expression of a cynical or a reductive mind. The Genuine Progress Indicator (GPI), devised by the think tank Redefining Progress, offers a far better gauge about how real Mauritius is faring because it also includes other critical components - namely income distribution, crime, environmental damage, public infrastructure and leisure facilities - on which sustainable development and well-being are based.

As a matter of fact, we do not need statistics that feed trite debates and act as a smokescreen to incompetence. Nevertheless, using them smartly is key to decipher patterns and measure supply and demand to reduce inadequacies and improve flow everywhere.