As we know commuting often detracts from people’s well-being, this cartogram perhaps explains why Londoners are richer but more miserable.21  21  For example, Office for National Statistics (2014) and Novaco and Gonzalez (2009). 23  All speeches are available online at www.bankofengland.co.uk/speeches  23  Chart 17: Cartogram of UK travel time to work  Sources: ONS Labour Force Survey, 2011 Census and Bank calculations. Notes: UK local authorities re-sized and coloured by mean travel to work time (minutes). 24  All speeches are available online at www.bankofengland.co.uk/speeches  24  Modelling the Economy  How can these micro-level data help when modelling the economy? Economists and policymakers typically use highly-aggregated models which operate at an economy-wide level, often comprising a small number of “representative” agents. In their most aggregated versions, there is a single representative household and company. The most widely-used is the Representative Agent New Keynesian (RANK) model.22  RANK-type models have real virtues. They are underpinned by an optimising view of individual human behaviour and, in this sense, can be said to be “micro-founded”. They are explicitly identified, in the  statistical sense, and parsimonious. These characteristics mean these models can often offer deep insight into comparative static questions about the impact of changes in the deep parameters of an economy, such as shifts in risk-aversion among households or in levels of technology among firms.23  There are also, of course, costs of simplicity.
Paul Clarke, Chief Technical Officer at Ocado, has recently set out a vision of smart cities and communities, with tracking and modelling of flows through drones, robots and smart infrastructure, which is in this same spirit.38  Such a model is not without precedent. In 1949, the New Zealand economist A W Phillips built a machine in his landlady’s garage in Croydon using liquid and tanks to illustrate the circular flows of income and interactions in an economy (Figure 3). This early analogue computer was not for show; it was used to understand the economy and simulate policy before digital computers existed. Working versions still exist. The model I have sketched is a high resolution, digital version of the Phillips machine. 38  Clarke (2018). 28  All speeches are available online at www.bankofengland.co.uk/speeches  28  Figure 3: Phillips machine  Sources: Image available at https://en.wikipedia.org/wiki/William_Phillips_(economist)  Building a microscopic-level model of the economy is an enormous undertaking if it were to be attempted top-down. But that traditional top-down approach to model-building may itself need to be inverted. Clarke’s suggested approach is to build this model bottom-up. The map would be crowd-sourced and then stitched together, a Wikipedia-style or micro-to-macro approach to model-building. An economy-wide digital twin would, in a very literal sense, be micro-founded, but in a diametrically-opposing way to existing models. The foundations of this digital twin are constructed not on micro theory, but micro fact.