Data and the Financial Crisis: How Might We Do Better Next Time?

Editor's Note: These remarks are based on discussions of material presented in the “Monitoring Recession and Recovery” session at the Brookings/Heritage Conference “Measuring Innovation and Change during Turbulent Economic Times.” These materials, as well as other information from the conference, are available at: http://www.heritage.org/press/events/ev111709a.cfm.

We have seen an excellent set of presentations this morning that covered a lot of ground—from Paul Smith’s and Marshall Reinsdorf’s discussions of ongoing improvements to our methods for estimating key household financial variables, to Steve Landefeld’s ideas for expanding and supplementing the national accounts in useful ways, to the policy data “wish lists” that Becky Blank and Alan Krueger laid out. In my remarks, I will focus on data needs related to the financial crisis. I will present four key points that draw off what the others have said but also reflect my own experience analyzing the crisis and developing and evaluating policy options. I have been engaged in these issues both as a Brookings scholar and prior to my recent arrival at Brookings, when I was at the Federal Reserve Board working on housing, household finance, and
broader financial market issues.
 
To set the stage, let me define what I mean by financial-crisis-related data needs. I am referring to the need for data that speak to the following three questions: 

  1. How do we anticipate possible adverse financial developments? 
  2. How do we recognize and respond to such developments once they are underway?
  3. How do we avoid or at least respond more effectively to the next (possible) crisis?

These three questions are clearly critical for policymakers, but they are also relevant to anyone who is making decisions that are contingent on the future path of the economy and the risks around it. Further, the task of providing answers to the questions does not fall singularly to the policymaking community but rather to a much broader group of scholars and analysts who are studying the issues, and there are important social gains to having them participate in the policy discussion.