Results tagged “index”
March 6, 2013
Every single day, almost every mainstream news source in America offers live updates throughout the day on a few metrics which have almost no meaning for most Americans. Whether it's a radio broadcast, a local TV station going to commercials, or the homepage of most big news sites, you'll see a nod to how the stock market is doing, despite the fact that stocks exist as, at best, an abstraction having to do with a theoretical future retirement for all but the wealthiest in the United States.
Covering the Dow in every news update is like reporting on the price of a Mercedes daily. It's information only of actual use to the richest extreme of people in America. Yet we act as if it's information so central to our economic well-being that we talk about it as often as the weather. We evaluate presidents during our elections based upon stock performance during their tenures, without having any other long-term indices used in the conversation.
We can do better, by creating and discussing a daily economic index that has to do with the economic lives of regular people. The importance of understanding these concepts is illustrated perfectly by this brief video that's becoming extremely popular:
What Would an Opportunity Index Look Like?
I should be clear: While I am versed in the cultural impacts that this kind of index could have, I am nowhere near literate enough in economics to actually offer meaningful advice on how to construct it. But I can offer a broad view of the way it could come together, to inspire a useful conversation by those who are experts.
Let's look a few key traits a meaningful opportunity index would have to include:
- Opportunity: The first, and most important principle of creating a meaningful economic index would be to have it attempt to measure or represent the potential opportunity for everyone in the economy, not just the wealthy. Income inequality must be a significant part of this metric, but so too should straightforward factors like the minimum wage, the regressiveness of tax code, and other structural barriers to opportunity for everyone. The key thing to understand is that such an index does not have to be a perfect representation of these concerns; Indeed, nobody would argue that the DJIA or NASDAQ function as even rudimentary measurements of the real economy. Instead, they're useful as detailed measures of a tiny number of variables that are considered important as indicators, and an opportunity index should be similarly narrow in scope but broad in possible interpretations.
- Daily: This is one of the most contentious aspects of such an index, from the perspective of those concerned about data quality and relevance. While we're used to the stock market trading at light speed (literally!) with the backing of some of the riches and most powerful companies in the world, our measurements of real people's financial lives are typically done by small, underfunded non-profit organizations and government agencies, with results coming out monthly or even annually. It will take both a cultural change from those institutions and the use of smarter, faster data to power a meaningful measure of opportunity. For this reason, it may make sense to base some parts of the measure on very dynamic existing metrics like the markets for financial instruments, but to consider them through an algorithm that's weighted by relevance to average people's economic concerns.
- A simple number: One of the oldest, and most valid, criticisms of the big market index numbers is that they're such blunt instruments that they don't actually represent anything useful. But the very simplicity of the indices is what makes them so powerful in our culture. I'd reckon that most folks don't actually understand what makes up that "Dow" number they hear about on the news, or that its components change, or that almost all of the new entrants to the index are not "industrial" in any recognizable classic interpretation of the term. But that one number people hear about? It goes up or down. It can be charted and tracked. For all the murkiness of what it's actually measuring, its role in society is clear. And an index that tracks measurements which represent ordinary concerns could be even more powerful.
Who Can Do This?
There's been interesting precedent around private companies defining these sorts of measures, especially in media. Though broad, slowly-measured statistics about these sorts of things are usually the domain of government agencies, the example set by everything from Twitter showing follower counts to the Weather Channel deciding to name winter storms shows that there are media-ready messages that can be created as a proprietary marketing exercise, yet come to represent much bigger concepts in culture. And of course, the Dow average itself is a perfect example of this.
I can imagine a useful combination of a major traditional media organization (New York Times, CNN) along with a respected non-partisan non-profit with data experience (Sunlight Foundation, Pew Research) and a tech industry player that would be helpful in collecting and/or disseminating the data (Google, Buzzfeed, Twitter). The coordination would almost certainly have to come from the non-profit player, unless a single company could be convinced to bankroll the thing from end to end.
But the final result, if successful, could be a meaningful measure that would create a brand name mentioned millions of times a day across thousands of media outlets around the world. And not incidentally, if successful, it would become a powerful tool for treating ordinary citizen's economic concerns as being as central to the news as the daily fluctuations of the porfolios of the super rich.
I thought this slideshow called "A Crack in the Matrix: A Financial Fable" from David Bressler did a really nice job of illustrating how communications about personal finance can really distort economic information in a way that misleads average people about their financial situation.
- Inequality.org, from the Program on Inequality and the Common Good, is an outstanding and undersung resource for articulating many of these issues. If some of the information they're presented could be made live and more dynamic, it'd be a wonderful start toward a true opportunity index.
- A few years ago Business Insider aggregated a broad range of infographics on income inequality that is still striking; They should post an updated version of this with newer data, to show how the current economic recovery has essentially only accrued to the wealthy.
I'm sure there are very complex issues that I'm glossing over in this brief description of the Daily Opportunity Index idea, but I'm looking forward to responses from those who are more literate in the topic to provide insights on what I've missed.