Tuesday, April 28, 2009

Google-nomics

Fellow blogger VI may find this amusing being in the industry of number crunching and forecasting.

Our world last year reached the economic equivalent of the Peter Principle and Google's ability to track trends is a key component.

This now universal truism, coined by author and educational academic Dr Lawrence Peter, dictates that in any given structure people rise through the ranks until they reach their own level of incompetence.

Were he alive today, Peter would no doubt find rich pickings among the wreckage of much of our global financial system. Sadly he is not, but he did leave us with this singularly beautiful quote:

"An economist is someone who will know tomorrow why the things he predicted yesterday didn't happen today."

Seldom have truer words been spoken.

Despite all the sophisticated modelling, and centuries of precedent dating back to the great Dutch tulip bubble of the 17th century, economic forecasting remains about as an exact a science as tipping horse race winners or next week's weather.

But there is a new tool now, and it's driven by the little people who help shape the larger economy in terms of our confidence and spending patterns.

It is a tool which predicts micro-economic trends rather than reflects what has happened through official data released often months later.

Welcome to Google-nomics. Hundreds of millions of internet searches are performed via Google every day. These are people looking for everything from a cheap air fare or hotel room, to new car finance, an investment property or pay-per-view pornography, or flowers for their spouse. Anything.

All these search engine queries are tracked and collated and are available to all on Google Trends. Go there and key in Gold Coast holiday, or new car loan, or refinance mortgage perhaps and you will instantly be able to view in statistical form (by region) what the billions of web surfers in the world are interested in right now.

As Google's chief economist Hal Varian points out in a recent blog entry, internet search data can provide a real-time report on query volume, while economic data is typically released several days after the close of the month.

He then goes on to quote baseball great Yogi Berra, who famously said: "It's tough to make predictions, especially about the future." This, says Varian, inspired our approach: let us lower the bar and just try to predict the present.

If you have a business of your own, consider the following: even predicting the present is useful, since it may help identify "turning points" in economic time series.

If people start doing significantly more searches for "real estate agents" in a certain location, it is tempting to think that house sales might increase in that area in the near future.

The same applies to any consumer spending.

If we are searching what's available for what price, then we're thinking about spending money on it.

Thanks to cyberspace, we now have a truly leading indicator, rather than data that solely reflects what has occurred in times past.

Let's hope now for a Google-led recovery.

4 Opinion(s):

Dachshund said...

My hypothesis is that a significant number of businesses will look to relocating to the Western Cape, followed by prospective home owners.

Vanilla Ice said...

@Dachshund. That was a trend that happened after the 1994 elections. I imagine that we may see a second wave.

Vanilla Ice said...

Conventional wisdom is amusing, but seldom correct.

"The conventional view serves to protect us from the painful job of thinking." – (John Kenneth Galbraith)

"A plan built on conventional wisdom is doomed.” - (Frank Armstrong)

Vince R said...

"An economist is someone who will know tomorrow why the things he predicted yesterday didn't happen today."
In the UK, the same could be said for the weatherman....