If the World Runs in Real-Time, Why Can't the Fed?

Look, we’ve had only one soft landing since the Second World War. Basically, we’ve got it wrong every single time.

Vivek Ranadivé, Founder of TIBCO

Malcolm Gladwell, the author of The Tipping Point, turns in yet another juicy discourse, this time on the fact that David beats Goliath more often than you’d think, in warfare, on the basketball court and in the business world.

Writing in The New Yorker, Gladwell relays a theory from the founder of TIBCO Software (TIBX) on why the Goliath Fed is always behind the curve.

His argument is that as the rest of the world runs based on real-time info (his company’s specialty), the Federal Reserve is getting it’s data in batches, severely hampering it’s ability to make timely decisions:

From The New Yorker:
A few years ago, Ranadivé wrote a paper arguing that even the Federal Reserve ought to make its decisions in real time—not once every month or two. “Everything in the world is now real time,” he said. “So when a certain type of shoe isn’t selling at your corner shop, it’s not six months before the guy in China finds out. It’s almost instantaneous, thanks to my software. The world runs in real time, but government runs in batch. Every few months, it adjusts. Its mission is to keep the temperature comfortable in the economy, and, if you were to do things the government’s way in your house, then every few months you’d turn the heater either on or off, overheating or underheating your house.” Ranadivé argued that we ought to put the economic data that the Fed uses into a big stream, and write a computer program that sifts through those data, the moment they are collected, and make immediate, incremental adjustments to interest rates and the money supply. “It can all be automated,” he said. “Look, we’ve had only one soft landing since the Second World War. Basically, we’ve got it wrong every single time.”

You can imagine what someone like Alan Greenspan or Ben Bernanke might say about that idea. Such people are powerfully invested in the notion of the Fed as a Solomonic body: that pause of five or eight weeks between economic adjustments seems central to the process of deliberation. To Ranadivé, though, “deliberation” just prettifies the difficulties created by lag.

Full Story: How David Beats Goliath (New Yorker)

Full Disclosure: I have no position in TIBX