Appendix: the Information Crisis and the Need to Improve the Availability and the Use of Relevant Statistics
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Appendix: The Information Crisis and the Need to Improve the Availability and the Use of Relevant Statistics The international monetary and financial crisis has also been a major information crisis at both the national and international level. This was true for Stage I of the crisis (the “subprime crisis”) and for Stage II (the “debt crisis”). Decisions are about the future—information is about the past. There is a broad agreement that the availability, the quality and the timeliness of qualitative and quantitative information have a major impact on the quality of the decisions of both private and public actors in the modern economy. Yet, the general disaffection following the outbreak of the financial crisis in 2007–8 for the so-called theory of rational expectations has to do with the (belated) dual recognition that (1) all information (or the most relevant information) is not available or correct, and (2) statistics from the past are far from being a perfect guide for the future, especially when it comes not only to projecting “trends” but predicting major “events” that disrupt trends. The importance of this information and expectation issue has been dramatically demonstrated on two occasions since 2008: the suddenness and magnitude of the “subprime crisis” and the outbreak and brush-fire effect of the following “debt crisis.” The so-called information age or information society has been as much of a problem as an improvement when dealing with data relating to the com- plex economic structures of a globalized economy. As noted in Chapter 1, the great progress in hardware and software for collecting, storing, process- ing and distributing information that has occurred during the last 20 years has not prevented serious gaps in information or outright misinformation at the macro as well as at the micro level. Many claim, not without justifica- tion, that the “subprime crisis” was to a large extent an “information crisis” where the information problems were a combination of incompetence and of deliberate attempts to mislead markets and regulators. The Stage II debt crisis—with the outbreak of the “Greek debt crisis”—was a textbook example of negligence with respect to crucial information at all levels: government authorities, EU and ECB experts as well as leading international financial advisors and managers. The “information crisis” has multiple aspects. The most common prob- lems included: lack of availability of data, lack or insufficient comparability, insufficient diffusion or access, and the ignoring or misinterpretation by 240 Appendix 241 official and private observers and decision makers of the message coming from the data. There was, however, also: deliberate distortion or falsifica- tion, restricting access or diffusion by both private and official bodies to essential information that could have attenuated or even prevented some of the worst consequences of the crisis, as well as systematic disinformation of investors, of authorities and the general public at large. The most funda- mental and most widespread “information breakdown” was the systematic ignoring of the storm warnings coming from the data—deliberately disre- garding the “handwriting on the wall.” These problems have been recognized, although belatedly, by many people within national and international organizations, in the corporate world and in the research community. Since 2009–10 there have been notable efforts to improve the quality and the volume of the data relevant for the analysis of the debt situation at any given moment and of the trends and likely future developments. There has been a series of initiatives by organizations such as the IMF, the World Bank, the OECD, the BIS, the ECB, the European Commission as well as the national monetary and economic authorities, to speed up the availability of data and most importantly to better coordinate their availability. Further, the definition and use of tailor-made “warning packages” (such as the IMF “Fiscal Monitor”) have increased. Four major general lessons for the future should be mentioned here: 1. It is necessary to narrow the scope of “proprietary information,” both for “ business-sensitive” and “politically restricted” data. 2. There is a need for much closer and effective cooperation as well as com- petition and “redundancy” in data collection and diffusion. 3. Market transparency has to be enforced independently and much more systematically than in the past. 4. Finally, it is important to recognize that the prevailing confusion about what is available and to whom and on what conditions ( subscribers, cli- ents, government officials) represents a major source of future problems and has to be addressed as an urgent issue at the highest levels. There remains much to be done on all four accounts. 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