You can read economy with signals, says Pippa Malmgren

When the Queen met a group of the world’s top economists in the wake of the financial crisis, she asked them question we all wanted to know: ‘Why did nobody see it coming?’

Pippa Malmgren, a former advisor to the President of the United States and a policy expert, believes it was because economists were looking at the numbers and the models – which are backward looking – but failed to see signals in everyday life, which all of us can see.

In this episode of the Big Money Questions, Pippa explains how to look for signals, what they can tell us, and how we can use that information.

Even the smallest things, such as the amount of cereal you get in a box, can tell you something about the economy, she explains.

She says: ‘You open the box of cereal in the morning and it costs the same that it ever did, the size of the package is the same, but there’s far less inside.

‘The Bank of England is telling us there’s no inflation whatsoever, you are imagining it if you think we have inflation, and yet you can see that you’re being asked to pay more for less – in other words your price per unit of cereal is going up.

‘This is a little signal that maybe there are upward cost pressures – the company is trying to protect itself by giving you less for the same price – and this is just a simple example of if you just look at things in your daily life, that probably tells you just as much or maybe more than all the mathematical models used by the experts.

‘And then based on that you can make your own decision on whether you think inflation is happening.’ 

Pippa has just written a book on the subject called Signals. Watch her talking about her findings in the video above.