Getting economic policy right in turbulent times is fiendishly hard. Those controlling interest rates and taxes first need to understand the shock: is coronavirus a hit to demand, to supply, or both? Then they must predict human responses: how and when will consumers and businesses react?
Yet there is another difficulty, equally important, that few sitting in central banks or finance ministries contemplate: the problem of missing data. A vast unmeasured economy influences the markets we measure accurately. Typically seen as a poor-country problem, this missing economy looks very likely to grow over the coming decade. As it does, official economic data and the policies that result from it are likely to become worse.
The economy missing from our statistics is variously tagged as “underground”, “hidden”, “shadow” or “grey”. None of these labels are very helpful descriptors: much of what we fail to capture takes place at street leve l, is vibrant, colourful, self-regulated and well organised.
Some of it is illicit, but most simply exists outside taxation and government rules — the street vendors, hawkers, unregistered pop-up shops and informal markets that thrive around the world, for example. This kind of activity creates jobs, spending, income and output, which should all be counted in national gross domestic product but often goes unmeasured.
To read the rest of this Op-Ed, head over to the Financial Times.