Matt Quigley
Matt Quigley

Economics for ordinary people

I write a weekly economics preview for the Mail & Guardian Online. Every Monday morning, before South Africa’s markets open, I preview the noteworthy economic events and data releases likely to generate headlines and move markets in the week ahead.

The economic events that I cover vary significantly from one week to the next. One week, a meeting of European leaders might be the big story. The next week, a rates decision by the South African Reserve Bank may be the thing to watch. The week after that, a budget fight in the United States may be the concern.

Some of these events, like central bank meetings, occur on a regular basis. Others, particularly those stemming from an emergency, like Europe’s debt crisis, are less predictable. In either case, I try to give readers a brief background to the event and my best estimate of likely outcomes, based on the collective wisdom – or folly – of informed experts, past experience with similar circumstances and other well-sourced news reports.

The economic data releases I cover are, by definition, much more predictable. With very few exceptions, release dates are set well in advance. Analysts make predictions about what data is likely to show and markets price in their expectations for a rise or fall in a particular set of figures.

Each Thursday, for example, the United States government releases weekly jobless claims numbers. Economists and analysts in think tanks, academia, banks and other institutions make predictions about whether the jobless claims will increase or decrease. Wire services and other data providers – like Dow Jones Newswires, Bloomberg and Market News International – publish consensus forecasts. If the report comes out better than expected, stock markets generally rally. If the numbers disappoint, markets generally drop.

By reporting historical figures and consensus expectations for future numbers, I believe I’m providing a useful service to individual investors. The big guys have access to all sorts of sophisticated econometric forecasting tools and expert analysis. The little guys do not. My hope is that my articles help to prevent this second group from getting blind-sided by unexpectedly bad (or good) data.

I find this exercise interesting and useful, but also frustrating. It’s the space constraints that kill me. By covering the numerical details of the releases in question I have little space left to explain what the data actually measures, what movement one way or the other means for the economy as a whole and why the general public should care about some abstract piece of economic data, like durable goods orders.

This might not be a problem for most people, but it’s a problem for me. Every Sunday, I watch with dread as the little word counter in the corner of my computer screen ticks ever closer to my self-imposed 1100 word limit.

I’m an economic proselytiser, you see. Not because I’m enamoured with esoteric statistics, but because I believe that broad economic literacy is essential to democracy. The booms and busts of the economic cycle matter, not just to investors, but for all of us.

Most people think that the economy is an indecipherable mess. Prices increase, interest rates rise and fall, property values shoot all over the show, retrenchments happen and businesses close. Most of us have absolutely no idea why and certainly don’t see it coming. Dear readers, I’m here to tell you that it doesn’t have to be this way!

The economy is, admittedly, tough to understand and the future is impossible to predict. But the economy does send out clues, thousands and thousands of them, every day. If you know how to read these clues, you’ll find the economy much easier to understand. Stock market movements, exchange rate fluctuations, interest rates decisions, price rises, wage freezes and a host of other economic phenomenon will be much less mysterious.

That, my friends, is the point of this blog. I know it took me a long time to get there, but that’s the rub of it.

After a few introductory entries, I plan to use this space to provide a detailed explanation of a different economic indicator each week. If you want numbers, read my articles. If you want background, stick with the blog.

I’ll make a few promises to you in advance. One: I won’t be boring. If I am, call me out on it. Two: I’ll pick indicators that really do matter. Novelty will count for nothing, usefulness for everything. Three: I’ll only quote experts who speak plainly and clearly. This will be a jargon-free zone. Four: I’ll try to adapt to meet your needs. If you have specific questions, pipe up. I’ll do my best to answer them or track down those who can.

Next week I’ll write a brief overview of business cycles and an introduction to economic indicators, so come back. This is exciting stuff!

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    • Brent

      Sounds interesting but it would also be useful if you could do a short bit on your “world view/economic ideology/politics” so as to make it easier for us to understand/interpret your views and suggestions.

      Brent

    • pongoland

      “Most people think that the economy is an indecipherable mess. Prices increase, interest rates rise and fall, property values shoot all over the show, retrenchments happen and businesses close. Most of us have absolutely no idea why and certainly don’t see it coming. Dear readers, I’m here to tell you that it doesn’t have to be this way!”

      So did you see the 2008 crash coming then? I did, and I’m not an economist.

      The truth is that the economy is an indescribable mess; a massive pyramid scheme based on debt and wedded to the notion that exponential economic growth is sustainable on a finite planet.

      Here are some clues: Conventional oil production has peaked. We have a long way to go before demand is stabilised, never mind reduced.

      We are also depleting the planet’s natural capital at an increasing rate – think of fresh water, forests, fish, topsoil, clean air.

      There are too many people for too few jobs.

      You think the markets are going to be able to deal with these problems?

      And all you are going to do is help the little people squeeze something out of the system for themselves before it all goes to hell.

      Here’s what I predict from now on: a prolonged global depression, extreme weather, more catastrophic industrial accidents, including of the nuclear kind, famine and plague and the suppression of civil liberties, even in democratic countries, to keep an angry public in line.

      Check out steadystate.org, google “peak oil” and “limits to…

    • pongoland

      As I was saying …

      Check out steadystate.org, google “peak oil” and “limits to growth” for a reality check.

    • HD

      “By covering the numerical details of the releases in question I have little space left to explain what the data actually measures, what movement one way or the other means for the economy as a whole and why the general public should care about some abstract piece of economic data, like durable goods orders.”

      Unfortunately this is the stuff that really matters. I look forward to reading your articles.

      It would be interesting to see what your take is on macro-economic indicators in general. I tend to think macro-economics misses a lot of the detail and simplifies the economy. There might be macro-economic symptoms/indicators but the underlying causes are micro – unless of course intervention is at a macro level. It is easy to spot the macro and a big reason why it is so popular among policy wonks and ordinary people. However the micro arguments and causes are complex and not easily observed. It is easy to make macro observations that “there isn’t sufficient demand” but far more difficult to explain the underlying patterns that might have lead to such a situation or why demand is’t picking up despite a stimulus and aggressive monetary policy.

      Any way let me not preempt your articles.

    • http://hismastersvoice.wordpress.com/ The Creator

      The trouble is that the things which you are talking about, Matt, are essentially financial. The bulk of the economy which affects human beings is not about finance at all. So, inevitably, you are going to give the skewed perspective which you necessarily have due to being a financial journalist.

      And, of course, it’s a very moot point whether you have the knowledge to do proper financial analysis. Not to be rude, but do you really have much knowledge of anything other than PR for finance? Because that’s what most “financial analysts” seem to be good at.

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @Brent,

      Thanks for the kind words. I’m going to try to respond to your requests in reverse order. First, just to clarify, I’m not going to offer specific investment “views and suggestions.” As the standard language goes, you must consult a professional and due your own due diligence on that stuff.

      Second, on the “understanding” bit, I’m only planning on tackling established historical relationships between different data sets. Using what I say, you should be able to check for yourself to see if I’m representing things accurately.

      Third, on the “world view/economic ideology/politics” items, I view this blog as the economic equivalent of an introductory language course. I’m not trying to tell people what to say, just trying to give them an understanding of the language others use.

      To do this, I plan to quote various specialists on the material I present. For example, if I present info on new vehicle sales stats, I’ll try to talk to someone from the manufacturers association (who collects the data) and someone involved in vehicle finance (who uses the data). I won’t know anything about their political or philosophical beliefs, not will I ask. As for me, I’m sure people will pick up on my views or biases over time – correctly or incorrectly – and put me into one box or another. I’m going to let you do this yourself, though, so that you keep reading!

      Thanks,

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @pongoland,

      Thanks for your comments. You’ve raised a number of important concerns about the sustainability of our dominant economic models and political systems. To clarify, my vision of this blog is far less ambitious than yours!

      I believe that markets – on some things – respond to certain types of info in fairly predicatable ways. Certain statistics are – for better or worse, flaws and all – nearly universally accepted by market players as indicative of something. For example, if consumer confidence measures decline, consumer spending statistics tend to follow suit. This predicatable movement typically has certain price implications for stocks, bonds, etc. I’m not arguing that, morally, this is a good thing or a bad thing. I’m just arguing that it happens.

      From an environmentalist’s perspective, a drop in consumer spending may be a good thing. From a retailer’s perspective, it is not. I’m not trying to render a judgment from either perspective. I’m only trying to show people some of the relationships between different the different statistics they see from time to time in the press. The longer-term implications of the categories of economic activity I present can be analysed elsewhere.

      Thanks,

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @HD,

      Thanks. I think you are absolutely right. Unfortunately, I started this blog because I didn’t have enough space in my articles to explain the macro measures. If I now try to explain – or even begin to analyse – the micro stuff, I’m really going to run out of space.

      Also, although I would be happy to talk about this stuff all day long, talk is cheap or – more accurately in this case – free! Nevertheless, you’ll see some of my judgment on measures based on what I choose to include and what gets left out. I’m looking forward to seeing your thoughts as this blog builds.

      Thanks,

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @ The Creator,

      You’re not being rude at all! I’m not a financial journalist. I’m an economic researcher and forecaster in the private sector who happens to write for free now and again. I have been a “financial analyst” in the past and also a “policy analyst” (fiscal policy in the US, to be precise), but am not either of things anymore.

      I would disagree with you somewhat in your comments. I may be talking about the ups and downs of certain “financial” measures, but the ups and downs of the economy have real effects on real people. I’m trying to give people a heads up, in some respects. Understanding physics involves understanding complex maths, but physics is not just about complex maths. Explaining gravity to the extent that it prevents someone from attempting to fly off Table Mountain has some utility, I think.

      Thanks,

      Matt

    • Quinten

      I like this. Although I generally find reports on economic indicators intolerably boring (even though I’ve studied and have a strong interest in economics), your writing style and structure are very, very clean and that’s refreshing. And that holds for these blogs and for Mail & Guardian articles.

    • http://necrofiles.blogspot.com Garg Unzola

      What the hey? A blogger on thoughtleader that blogs about economics and actually did the homework to find out what economics is about. My jaw is on the floor. I’m typing through the tears. Tears of joy.

      Certainly an elegant introduction. I’m looking forward to the posts!

    • Jonathan Haze

      You are right about us ordinary people needing lessons. Just the other day I saw a beggar at a traffic light with a sign around his neck saying:

      ” I lost everything on Moody’s AAA-rated Synthetic CDOs. Please help.”

      What does it mean?

    • Peter Joffe

      This is great as long as you note that there is “No Economics in Politics”.
      Politicians do what is politically right for them personally and seldom what is right for the country.

    • http://www.cindynel.co.za peter nel

      Thanks for the economics lesson Matt. With your experience in the US Treasury Dept. and the Federal Reserve of Boston you probably understand better than us “ordinary folk” just how obtuse and deceitful the money scam can be. What you fail to elucidate on however is that economists are usually just guessing mostly and when cautiously optimistic they have access to information which they do not divulge anyway. They are the brightest and the best and definitely part of the reason why this planet is in such a mess. The part that intrigues me most is their feeling of being superior to “ordinary folk” whom they feel should be informed of their shortcomings on a regular basis. It was’nt the ordinary folks who screwed up the planet, it was the clever boys.

    • pongoland

      Hi Matt

      Thanks for taking the trouble to respond to all the comments.

      Perhaps you should be more ambitious!

      The fact that consumer confidence affects retail sales seems blindingly obvious to me.

      Less obvious is the fact that every transaction carries with it an environmental cost and the environment is almost bankrupt.

      People need to be encouraged to be more self sufficient – then, when we lose our jobs, and we will as this Ponzi scheme collapses, at least we can grow our own vegetables, build our own houses and mend our own clothes.

      Rather than investing in the markets, we should be investing in arable land, seed and rainwater tanks.

    • http://www.sane.org.za Yaj

      Why not start by explaining to the people how fractional reserve banking works ? How this creates 97% of our money supply and why there is a desperate need for monetary reform of the system because it is now insolvent and bankrupt and unsustainable. Then explain to people the phenomenon of Peak Oil and why endless exponential growth on a finite planet is impossible. If you need help then here are a few helpful websites : http://www.positivemoney.org.uk , http://www.moneyasdebt.net to start with. Pongoland makes a good point about the need to transition to a steady-state economy as advocated by Prof Herman Daly.

    • jandr0

      “…but because I believe that broad economic literacy is essential to democracy.” Yes, please. Knowledge is power. Especially with regards to beetroot, HIV and the authenticity of “benevolent” dictators and tweets on Twitter.

      However, I am also sympathetic to Brent’s interest in your “world view/economic ideology/politics,” as for example a Keynesian, monetarist or Austrian (my current leaning) world view is likely to have some (often hidden) influence on your writings. It was, after all, originally called “political economy.”

      Lastly, also some agreement with pongoland’s views: Essentially, in this global Ponzi scheme, we are “borrowing from the future” (what else would you call the enormous budget deficits – often financed by printing money – by governments across the world). However, it seems the future we’re increasingly “borrowing” from is in high danger of defaulting (e.g. peak oil, deteriorating environments).

      Big government is not the answer, because big government is the problem.

    • HD

      LOL, based on all the replies already I think you are going to have your hands full if you think you can separate the politics from the economics. How about convincing some that economics is a value free science? 😉

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @Quinten,

      Thanks very much!

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @Garg Unzola,

      Thanks! Now I’m really feeling the pressure to perform.

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @Jonathan Haze,

      Haha! I count myself very much among the ordinary people. Tell the guy at the traffic lights that there are multiple class action lawsuits in the US that the plaintiff’s attorneys would be more than happy to have him join!

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @Peter Joffe,

      I think that there are economic principles at play in politics (sometimes bad economics, but economics nonetheless) and – as other commentators in this stream have pointed out – politics in economics.

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @peter nel,

      As I mentioned to Jonathan Haze, I am one of the ordinary folk! I’ve just spent a lot of time thinking about economics – the good, the bad and the downright ugly aspects of the field.

      I think you’re right that, when it comes to forecasting, in the end, it is a guess. It can be an informed guess or a wildly ignorant one, but it remains a guess. The exercise is, flawed though it may be, necessary for a lot of people, businesses and governments.

      Finally, as for who screwed up the planet, I don’t think any one group can monopolise the blaim there. Most of us are culpable – some just more than others.

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @pongoland,

      I agree with you that we, as a global society, haven’t been successful at incorporating the true environmental and social costs into a lot of our pricing systems. Trying to come up with better methods is a laudable pursuit and there are a lot of clever people devoting a lot of their time to the problem. I am, unfortunately, not that clever and don’t have that much time to think!

      The one promise I’ll make you is that once the boffins come up with the measures, I’ll tell you what they are, what they measure and how they relate to other indicators.

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @Yaj,

      I believe that if you want to change the system you need to understand first how the current system works and where it falls short. You may feel that you have an understanding of global economic systems which is sufficient to recommend specific changes. I think that other people are looking for more basic information so that they can look through it and come to their own conclusions. I think a lot of people refrain from participating in the debate because they’re unfamiliar with the language being used to frame it.

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @jandr0,

      The problem I have with labelling myself upfront is that people will not necessarily focus on what I’m saying at a given moment but rather focus on what they believe I might be thinking based on adherence to some specific school of thought. Given the material I’m probably going to present, it shouldn’t really be an issue but I can try to label specific things as being an argument from one school of thought or another. Let’s see how it goes and revisit the discussion if you guys still think I’m being evasive.

      Matt

    • http://www.thoughtleader.co.za/mattquigley Matt Quigley

      @HD,

      If I hadn’t pledged not to bore people I could have used really, really boring language to keep only the data geeks involved. Alas, I’m a prisoner in a jail of my own construction!

      Matt

    • MLH

      Not sure that TL is the place for what I am about to suggest, perhaps it needs a wider, less sophisticated reader. But I’d love to read a complete analysis of the latest auditor-general’s report. Many do not understand the terms used, particularly, it seems, the people working with government department budgets.
      Having worked in a government department at one silly season of my life, it always flabbergasted me that proposals do not, as a matter of course, enter the system via the relevant financial officer.
      I changed that to suit my own proposals: asking our financial officer to check them against his budget before I sent them on. Any mistake I might have made, he would have picked up immmediately. Once I had his signature, I was far happier about sending any proposal upwards, through directors and chief directors whose main claim to fame was freedom fighting. At least it doused one excuse from them for delaying tactics: how do I know you have the budget? (Easy, Bud; if you can’t count, at least the financial officer can).
      Government budgets are worked out in immense detail, but if you put too much towards PR and nothing towards merit awards (for instance) you have immensely furious employees being offered free flights, accommodation and lunches but receiving no acknowledgement for effort made.

    • Brent

      Matt tks for the reply/explanation. I tend towards economic/political liberterianism (hell to spell hope I am better at its understanding) so obviously view all comments/articles etc through that lens, so if I am not being too cheeky – what is your lens?

      Brent

    • http://www.cindynel.co.za peter nel

      Thanks for the reply Matt – you are quite right in that we cannot just blame our appointed decision makers and our seers. We need to apportion part of the blame on ourselves collectively in that we were simply ignorant enough to believe blindly that those we appointed were perfect and would do the right thing. Our disappointment when we found that their interests were based on self glorification and had nothing to do with the betterment of their fellow beings or other inhabitants of the planet but were selfishly aimed at improving the lot of their own elites and friends was a revelation. Devastated that our heroes turned out to be just ordinary folks with sometimes devious and immoral attributes was exactly the reason why the people are rising up in protest throughout the world. The time has come when rhetoric won’t cut it anymore. We are headed for some scary times ahead. In closing it remains my view that ” one cannot borrow money to get out of debt.” I hope to live to see how the Eurozone gets that right. Our worship of money will be our downfall. It seems that some folks believe that there is no limit to what our environment can provide. We shall see.

    • jandr0

      @Matt: “…but I can try to label specific things as being an argument from one school of thought or another.”

      I for one would enjoy that. If you do manage that, thanks. If not, understood.

      (I do see at least one other espoused libertarian – viz Brent – reading your blog…)

    • pongoland

      Matt, I don’t think Yaj’s point about fractional reserve banking is beyond the understanding of most people.

      It is essential that everyone realise that for every rand a bank lends out, it needs to hold only a few cents in actual deposits. Most of the “money” in the system doesn’t actually exist. Continual exponential economic growth is essential to keep the system from becoming dangerously unstable. But things are starting to wobble.

      I know this is not what you intended to address in your posts, but those of us who realise what is going on are desperate for the chance to expose this whole charade in any forum possible.

      You sound like a nice guy. You clearly understand what is going on. Turn away from the Dark Side!

    • jack sparrow

      Go Matt, maybe at last we’ll get a bit more Thought, and maybe even some Leader in TL.

    • http://www.apollosbrain.blogspot.com jamesnimmo

      Matt, I like the basis you’ve chosen for your column.

      Now,, how do I get a copy of each new column you write to show up in my inbox?
      I don’t see a subscription for a feed except for the entire website. If that’s what it takes, OK.
      I’m a friend of your indomitable uncle JQ.

    • James

      I have a topic for one of your blogs. Although it is somewhat political so maybe it won’t be your thing. I want to know what the likely consequences of Ron Paul’s idea of disbanding the fed and putting the u.s. on the gold standard (or some equivalent) would be. Bearing in mind I know almost nothing about economics. I know its not an indicator but I’ve often wondered about the merits of the gold standard.

    • http://www.sane.org.za Yaj

      Matt,
      thanks for the reply but I still feel it is vitally important for all people to understand fractional reserve banking and its implications, Are you familiar with Prof. Steve Keen of the University of Sydney West , Australia- author of “Debunking Economics ” ? He also has his own blog. Could be pretty useful.

    • HD

      @James

      Although Ron Paul is not fan of the Fed, (I speak under correction here) even he is not proposing for its immediate shutdown. Yes, most libertarians would like there to be no Fed, but such a step would be very drastic and it needs to take place in stages.

      Your best bet to see how things might look is to google “free banking” or “gold standard”.

      Some (Selgin, White, Horowitz etc – free bank school) advocate for fractional reserve banking (but no central bank) and others (Rothbard, Salerno etc) think it should not be allowed and is part of the problem (Rothbard would say it is plain fraud), whilst strongly advocating for a gold standard. The debates between the different positions can get fairly technical and heated. But, lets just say there are alternatives to fiat money and central banking.

      It is ironic that we had many of these things in the past historically – so it is not that hard to imagine, nor did it work badly at all (most of the time it was government intervention – wars – or additional regulations that led to its collapse).

      A good place to start is this podcast and blog:
      http://www.econtalk.org/archives/2008/11/selgin_on_free.html
      http://www.freebanking.org/author/selgin/

      If you google “mises and gold standard” or “federal reserve” you will get the Rothbardian take on it – most likely Salerno which is the biggest influence on Paul:

      See here:
      http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve-2/

    • HD

      @James

      Sorry, rather just go the http://www.freebanking.org. I did not mean to specifically bring your attention to Selgin. There is two recent articles that is very relevant to your question.

    • http://www.africansway.co.za menzi

      Interesting and very vital information is indeed needed. SO thank you for doing what you doing at the wee hours of the morning.
      But I am concerned about the whole financial indicators bit, and wonder what your take is on the issue of a ‘Resource Based Economy’ and also Localized Banking systems which are linked to what MTN is doing in Haiti and Central Africa?

    • http://none Lyndall Beddy

      I agree with Yaj – there is nothing in the least bit complicated in explaining that 97 percent of the money lent by the banks never existed, and is no-one’s earning or savings, and this is the reason for inflation and depreciated savings.

    • James

      @HD Thanls a lot :)

    • Tatenda

      Matt- good on you mate! this is great stuff

    • http://www.czas-czas.eu/internet_i_komputery/pit_36,am,354.html Pit 36

      I’ll probably write something about NEPA at some point. It’s one of those things that in hindsight looks like one of the colossal boondoggles in atomic history, but tracing out why it appealed to various people in positions of influence (at the expense of attention for what proved to be the “winning” technology, long-range rockets) would be a fine historical exercise. Thanks again, Mark.