Presentation Transcript

1. Economics Complexity Analytics An Economic Update and the Complexity of Analytics David Stringfellow Chief Economist of the Office of the Utah State Auditor
2. Summary How do people, or groups of people, decide to use resources in production, consumption, or trade? Economics Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Public Policy Complexity Analytics If the economy, business, and government are complex systems how do we manage them? Are analytics robust enough to ask and answer the right questions?
3. Economics – Why should we care? if people waste resources… Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications depletion… unemployment… waste… fraud…
4. Economics – Resource use and misuse How do we measure resource use? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Consumption Savings Human Capital Personal Income GDP Capital Stock Money Stock Inflation Policy Regulation Resource Allocation Taxes Transfers Fees Credits Land Income Natural Resources Labor Individuals Governments Pensions Taxes & Fees Funds Homes Portfolios Infrastructure Vehicles Land Subsidies Purchases Credits Payments Profit Taxes Patents Innovation Entrepreneurship Creativity Debt Depreciation Trade Productivity Technology Prices Dividends Fees Shares Wages Employees Business Revenue Networks Plants & Equipment
5. Economics – Efficiency and Effectiveness Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Inefficiency = theft through incompetence Televisions Roads decisions Economy Model of Perfect Competition Market Failures complete information homogeneous product many firms no barriers to entry/exit price takers profit maximization rational actors imperfect information externalities public goods oligopolies barriers and protection inflexible prices contract enforcement
6. Economics – The Great Recession Quotes: Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications “The fundamentals of the economy are strong.” - John McCain, September 2008 “I also dropped a bomb when I informed them we had decided against buying illiquid assets.” - Hank Paulson, September 2008 “It is time to spray foam on the runway.” - Timothy Geithner, September 2008 “When Lehman Brothers failed, the financial markets went into anaphylactic shock basically, and it was that shock to the financial system that led to the global recession…which is probably the worst one since World War II.” - Ben Bernanke, July 2009
7. Economics – Recovery Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications 97% TARP repaid $700b TARP S&P 500 at 1,300 S&P 500 at 1,885 S&P 500 at 1,446 S&P 500 at 1,100 S&P 500 Bottoms 696 Bear Sterns purchased QE1 ends QE2 QE3 QE3 Taper Lehman Bankrupt QE2 ends 2013 2014 2007 2008 2009 2010 2011 2012 unemployment rate falls below 9% 1.2 mil long-term unemployed Recession Starts Recession Ends 4.2 mil long-term unemployed U.S. peak employment 138.4 mil Fed sets 0% rate QE1 U.S. trough employment 129.7 mil U.S. 1 mil from peak employment 137.4 mil Operation Twist
8. Economics – World Summary Growth moves from 3% to 4% through 2015 Advanced countries move from 1.5% to 2.5% Europe moves from recession to recovery Output gaps still high in advanced economies Advanced economies must avoid premature tightening Emerging markets must manage volatile capital flows Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications IMF Economic Outlook Jan 2014Is the Tide Rising? Oct 2013Transitions and Tensions Jul 2013Growing Pains Apr 2013Hopes, Realities, and Risks Jan 2013Gradual Upturn in Global Growth Oct 2012Coping with High Debt and Sluggish Growth
9. Economics – National Summary Recent weakness due to unusually harsh weather Real GDP moves from 2.5% to over 3% Federal Reserve raises rates in 2015 Inflation remains below 2% target Housing starts near 1 million soon at 1.5 million Unemployment rate moves below 6% Job gains near 200,000 per month (2 million annual) Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications 2014 Russian Sanctions Obamacare operating Competiveness and Energy Increased Bank Lending End of Quantitative Easing Housing, robust or not 2013 Tax Hikes Sequester and Fiscal Cliff Government Shutdown little Debt Ceiling drama Taper of Quantitative Easing Housing recovery
10. Economics – United States Employment Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Forecast from IHS GlobalInsight
11. Economics – Status of the Recovery Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Forecast from IHS GlobalInsight
12. Economics – Will Economic Growth Recover? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Expansion Muted Forecast from IHS GlobalInsight
13. Economics – Regional Experience in the US Consumer spending will lead economic growth Housing rebounds in hardest hit states Home foreclosure rates fall but remain high in judicial review states Energy and high-tech sectors strong Trade has slowed but should rebound Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Northeast (4th 26m 1.0% yo) Middle Atlantic New England South (2nd 50m 1.8% yo) East South Central South Atlantic West South Central Midwest (3rd 31m 1.3% yo) East North Central West North Central West (1st 31m 2.6% yo) Mountain Pacific BLS State and Area Employment, March 2014
14. Economics – Regional Experience Lean inventories of homes driving up home prices Unemployment rate will fall from gains not shrinking labor force Low population growth and weak household formation Manufacturing struggles but with diminished losses Education should post strong gains Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Northeast Middle Atlantic NEW JERSEY NEW YORK PENNSYLVANIA New England CONNECTICUT MASSACHUSETTS MAINE NEW HAMPSHIRE RHODE ISLAND VERMONT BLS State and Area Employment, March 2014
15. Economics – Regional Experience Automatic federal cuts slowed growth Strong service sector growth Manufacturing should strengthen, led by autos Tourism continues to improve Construction sector boosted by housing sector Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications South East South Central ALABAMA KENTUCKY MISSISSIPPI TENNESSEE South Atlantic DISTRICT OF COLUMBIA DELAWARE FLORIDA GEORGIA MARYLAND NORTH CAROLINA SOUTH CAROLINA VIRGINIA WEST VIRGINIA West South Central ARKANSAS LOUISIANA OKLAHOMA TEXAS BLS State and Area Employment, March 2014
16. Economics – Regional Experience Real estate begins to recover, prices just above pre-boom levels Lagging regional retail sales growth Steady, middle of the pack, job growth Strong boost from commodity and energy prices Slow population growth Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Midwest East North Central ILLINOIS INDIANA MICHIGAN OHIO WISCONSIN East North Central IOWA KANSAS MINNESOTA MISSOURI NORTH DAKOTA NEBRASKA SOUTH DAKOTA BLS State and Area Employment, March 2014
17. Economics – Regional Experience Home prices stabilize Construction sector should lead job growth Job growth will outpace the nation Employment will remain below prerecession peaks until 2015 Robust population growth boosts economic growth Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications West Mountain ARIZONA COLORADO IDAHO MONTANA NEW MEXICO NEVADA UTAH WYOMING Pacific ALASKA CALIFORNIA HAWAII OREGON WASHINGTON BLS State and Area Employment, March 2014
18. Economics – % of Peak Employment after 7 years 12 month growth peak date rank Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications BLS State and Area Employment, March 2014
19. Economics – Interesting, but Why? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications “How do we get government to adapt to the information age? The Senate is perfectly adapted to work in the 19th century.” - former Utah Senator Bob Bennett The economy drives government budgets Budget pressure pushes government efficiency Increase in risk, opportunity and incentive for fraud, material misstatements, etc.
20. From Economics to Complexity Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Homo Economicus rational knowledgeable self-interested utility maximizing - yes - no “All models are wrong, some are useful.” - George E.P. Box
21. The Science of Complexity Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Complexity means more than complicated, it is a system of concepts involving: Diversity, variety of types Interdependence, interaction affects choice Connectivity, the extent and quality of interaction Adaptation, change to better fit a situation
22. Complexity Systems, more than the sum of the parts Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Cosmic Thing, 2002, Damian Ortega, The Institute of Contemporary Art, Boston
23. What type of System is being analyzed? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Stable Equilibria resistant to change Periodic Orbits regular sequence or cycle Chaotic sensitive to initial conditions Complex regular structure, high information content
24. A Model of a Complex System – A Sand Pile Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications
25. Is the Complexity buried in Uncertainty? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Y = b0 + b1X + e
26. Why Complexity? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications 1. Understand how the world works 2. Better Models for Prediction and Detection 3. Create better Public Policy
27. Complexity Theory and Analytics Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications
28. The Power of Analytics Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications The systematic application of mathematics, programming, and data to discover patterns, predict states, and communicate information. Optimization Decision Trees Predictive Modeling Machine Learning Risk Analysis Credit Scoring Neural Networks Portfolio Valuation Fraud Detection Surveillance Segmentation Studies Campaign Targeting Simulations Load Forecasting
29. What is information? Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications The Original Big Data
30. Data is more than a googolplex of 0s and 1s Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Utah Income Tax Collections Jan 2012 Jul 2012 Jan 2013 Jul 2013
31. Analytical Tools Workflow Data find access, scrape, sample scale, store, manage clean, format, transform Explore visualize, describe, experiment quantify, summarize infer, criticize, theorize Model design code predict test, deploy, maintain Communicate charts, tables, maps patterns, trends stories questions/answers interpret, persuade Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Gartner (February 2014)
32. Analytics in Practice - Government Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Public Policy Base Margin Analytics Transfer Payments Income Tax Reform Revenue Reporting Investment Returns Government Ledger Health Care $500m $2.8b $5.5b $21b $11b $1.0b $10m $125m $400m $6b $1m $25m scoring, fraud networks simulation, distributive impacts smoothing, forecast accuracy regression, risk tolerance big data, duplication of effort scoring, waste
33. Decision Making in Government Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications “Data-driven decision making refers to the practice of basing decisions on the analysis of data rather than purely on intuition.” “Whether knowledge extracted from data will aid in decision making depends critically on the application in question.” - Provost and Fawcett
34. Implications Outline Summary Economics What? Recession Recovery World U.S. Regions Why? Transition Complexity What? Part/Whole 4 States Sand Pile Uncertainty Why? Transition Analytics What? Information Tools Choices Why? Implications Utilizing data assets properly should change process: sampling versus universe checks inference data forensics change public policy by applying reason Optimizing the use of government resources will produce more efficiency.
35. Economics Public Policy Complexity Analytics An Economic Update and the Complexity of Analytics David Stringfellow Chief Economist of the Office of the Utah State Auditor