In most economic matters there are information/action lags.
Between the announcement of unemployment rates and the acceptance of what those rates mean, there is a lag. Between entering a store and examining the merchandise, there is a lag.
Good retailers work hard to attract the customer quickly and direct that attention to the goods the customer is most likely to buy. Politicians use or fight the lag according to their needs.
A salesperson approaches you and says, “May I help you?” The question is intended to reduce the time between your entry and when you start to examine the goods you want. Other stores leave you to wander, using signs and scents to direct your attention to goods you might not have considered before entering the store. It is a vital exercise in providing information to and getting information from the consumer.
Technology has done wonders in speeding up information flows and reducing the costs of those flows. The cellphone in your pocket replaces those bulky yellow pages and reduces the lag between information and action.
Reducing lags often leads to advances in economics. Improved transportation/logistical systems reduce the lag between factories and consumers. Inventory control systems and the Internet have played important lag reduction roles. When you click that catalog item on your screen, a whole series of actions are set in motion to get the item to you promptly and to ensure that another unit is ready for the next customer.
Information, however, does not necessarily imply action. Look at the different interpretations of monthly state and national unemployment rates. Here the numbers are announced by the Bureau of Labor Statistics and the Indiana Department of Workforce Development. Most recently Indiana’s unemployment rate rose and the nation’s rate fell.
It was fun to hear analysts of a GOP persuasion minimize the reported changes while their Dem counterparts were ready to swear by the eternal truths being revealed.
Most people do not have their views of the economy changed easily. This public assessment lag may be as long as six or more months. Politicians will do whatever they can to shorten or lengthen that lag to their advantage. In the next few weeks, Dems will try to convince voters the latest unemployment data are clear signals of economic progress; GOP speakers will try to deny the significance of monthly numbers.
Lags in handling bad news are generally more serious than a lag in responding to good news. When the fire bell rings, we want fast response. When the mail arrives, we may have ambiguous feelings about opening the box.
A lag between bad economic news and the public’s hesitancy to urge action often dampens the effectiveness of public policies. Everyone may know something is wrong, but it takes time to figure out what to do about it. Even when a policy is approved, it will take time to put that policy into motion.
Although I will not encourage knee-jerk reactions to any economic news, long lags definitely reflect both our current political gridlock and a general ignorance about economic behavior. Today we may not respond to good news because of our hesitancy to believe positive change has actually occurred.