Economists like to talk about concepts they can’t measure, like the ‘natural rate of interest’. And they do not talk enough about the things they can and do measure like the stocks and flows of money and debt and the connection of these variables with asset prices (see also the new Eurostat data on house prices which clearly show the 2005-2007 bubble on an European Union level - essential new information!).
from Dean Baker
A sharp drop in government spending, heavily concentrated in defense, coupled with a decline in inventories caused GDP to shrink at a 0.1 percent rate in the 4th quarter. Government spending fell at a 6.6 percent annual rate, driven by a 22.2 percent decline in defense spending, subtracting 1.33 percentage points from the growth rate in the quarter. A 40.3 drop in the rate of inventory accumulation reduced growth by another 1.27 percentage points. Without these factors, GDP would have grown at a 2.5 percent annual rate in the quarter.
Pulling out these extraordinary factors, the GDP data were largely in line with prior quarters. Consumption grew at a 2.2 percent annual rate, driven mostly by 13.9 percent growth in durable goods purchases, primarily cars. This number was inflated due to the effects of Sandy, which destroyed many cars, forcing people to buy new ones. Growth in this category will be substantially weaker and possibly negative in the next quarter. On the other side, housing and utilities subtracted 0.47 percentage points from growth in the quarter. This is likely a global warming effect with warmer than normal weather leading to less use of heating in the quarter. (There was a comparable falloff in the 4th quarter of 2011 when we also had unusually warm weather.) Read more…
Economic metrics are used to describe the world. Enormous amounts of money are spent on measuring GDP, employment, wages, unemployment, inflation, consumer and producer confidence, debt, money, the price level and whatever. These metrics show us if inequality is rising or if unemployment is going down. But these metrics are not just, or even mainly, gathered for the sake of science.
They also play a role in economic policy and are often designed to enable this. Some of these metrics like government debt as a percentage of GDP, are even used to call entire countries to account – they surely are part of ‘the language of power’.
But are we measuring the right metrics? And do we measure them in the right way? Or are our insights and policies biased because we’re looking at biased and incomplete metrics? And are we looking at them in the right way? Or do they act as blindfolds? Who decides anyway and on which grounds about the very definitions and about the money spent on gathering the data?
These kinds of questions are being discussed in the World Economics Association internet conference on The political economy of economic metrics. The conference, which is led by Merijn Knibbe and Dirk Bezemer, is now open here http://peemconference2013.worldeconomicsassociation.org/ Anyone may take part.
from Dean Baker
The accolades for Timothy Geithner came on so thick and heavy in the last week that it’s necessary for those of us in the reality-based community to bring the discussion back to earth. The basic facts of the matter are very straightforward. Timothy Geithner and the bailout he helped engineer saved the Wall Street banks. He did not save the economy.
We can’t know exactly what would have happened if we did not have the TARP in October of 2008. We do know there was a major effort at the time to exaggerate the dangers to the financial system in order to pressure Congress to pass the TARP.
For example, Federal Reserve Board Chairman Ben Bernacke highlighted the claim that the commercial paper market was shutting down. Since most major companies finance their ongoing operations by issuing commercial paper, this raised the threat of a full-fledged economic collapse because even healthy companies would not be able to get the cash needed to pay their bills.
What Bernanke neglected to mention was that he personally had the ability to sustain the commercial paper market through direct lending from the Fed. He opted to go this route by announcing the creation of a Fed special lending facility to support the commercial paper market the weekend after Congress voted to approve the TARP. Read more…
from Lars Syll
Almost a hundred years after John Maynard Keynes wrote his seminal A Treatise on Probability (1921), it is still very difficult to find statistics textbooks that seriously try to incorporate his far-reaching and incisive analysis of induction and evidential weight.
The standard view in statistics – and the axiomatic probability theory underlying it – is to a large extent based on the rather simplistic idea that “more is better.” But as Keynes argues – “more of the same” is not what is important when making inductive inferences. It’s rather a question of “more but different.”
Variation, not replication, is at the core of induction. Finding that p(x|y) = p(x|y & w) doesn’t make w “irrelevant.” Knowing that the probability is unchanged when w is present gives p(x|y & w) another evidential weight (“weight of argument”). Running 10 replicative experiments do not make you as “sure” of your inductions as when running 10 000 varied experiments – even if the probability values happen to be the same. Read more…
From Edward Fullbrook
David Ruccio‘s post yesterday on the 34-year (and still continuing) period of radical income redistribution in the United States featured a graph from a new report from the Economic Policy Institute. Below, from the same EPI report, is a table no less shocking than yesterday’s graph. Read more…
from David Ruccio
Just as we expected: the incomes of those at the very top have rebounded in dramatic fashion.
from Peter Radford
For those austerity advocates amongst you: may I draw your attention to the plight of the British economy?
Its’ headed down again. There’s a distinct possibility that it will enter recession. Make that a third recession. A rare triple dipper. The prolonged slump pervading Britain has now lasted longer than the Great Depression. It is taking an enormous toll. It is steadily eroding the future potential of the economy.
And it is entirely a manmade problem.
Manmade as in Conservative party made..
The British government, for ideological reasons, decided to trash the British economy, It is doing a fine job. So good is its effort that it surely would be eligible for some prize, were prizes given for most asinine, antisocial, deliberately destructive, and all round stupid economic policy. Read more…
Let’s rant. The fundamentalist quasi-monetarists of the European system of central banks (ESCB) do not want
The Irish Government the irish government to monetize its debts to the senior bondholders of the flim-flam banks which… used monetary financing to create these debts in the first place and are still receiving massive amounts of seigniorage profits in the shape of interest payments on this debt. Wow. Talk about a rigged game… Maybe there is some truth, after all, in the mythical stories which tell us that the species which at this moment inhabits the caves along the Main, part of the city of Frankfurt, originally lived in a charming nearby gorge, where a small river called the ‘Düssel’ originates but which is probably named after an old hill, called ‘Neanderhöhe”. Oh, did I tell you already that it was the European system of central banks (ESCB) which forced the Irish government to take public responsibility for these very private debts enabled by private monetary lending and borrowing?
Broad unemployment in Europe, third quarter 2012. A disaster in southern Europe, rising unemployment in the UK.
Unemployment in the UK is high, compared with most neighbouring countries. And it’s rising. At least when we look at the new ‘broad unemployment’ data pioneered by the ILO and estimated and published by Eurostat, severely underreported data. There is quite some discussion about the enigma why ‘normal’ unemployment in the UK is going down, despite the economic downturn. But when we look at the right variable, the enigma largely disappears.
from Peter Radford
It takes a particular type of gall for someone hiding behind the comfort of a cozy tenured professorship to yelp about the way in which unions distort the otherwise – presumably – smooth operation of a mainstream style economy. Apparently one person’s guarantee is another’s structural impediment.
This really stinks. It reeks of hypocrisy. It is devoid of ethical self-understanding. It is just rotten.
But it happens all the time. Far too often.
Today’s Financial Times has another in its series focusing on America’s so-called debt problem. This one is decidedly on the side of the austerity seekers. It is written by Ken Rogoff who seems determined to tarnish the good name he earned when he co-authored a book called “This Time is Different” in which he correctly highlighted that recoveries subsequent to a financial melt down are more difficult and prolonged. Unfortunately he drew some conclusions from his data that have a somewhat tenuous cause and effect connection. Read more…
from Lars Syll
Knowing the contents of a toolbox, of course, requires statistical thinking, that is, the art of choosing a proper tool for a given problem. Instead, one single procedure that I call the “null ritual” tends to be featured in texts and practiced by researchers. Its essence can be summarized in a few lines:
The null ritual:
1. Set up a statistical null hypothesis of “no mean difference” or “zero correlation.” Don’t specify the predictions of your research hypothesis or of any alternative substantive hypotheses.
2. Use 5% as a convention for rejecting the null. If signiﬁcant, accept your research hypothesis. Report the result as p < 0.05, p < 0.01, or p < 0.001 (whichever comes next to the obtained p-value).
3. Always perform this procedure … Read more…
Today, Eurostat published new data on current accounts, third quarter of 2012. For the first time since the introduction of the Euro the combined current account of Spain, Greece, Italy and Portugal as well as the current accounts of the individual countries showed surpluses (caveat: not seasonally adjusted!). Good news? Yes and no. The current account deficits caused by reckless inflows of capital and flimflam lending and borrowing after 2004 were clearly unsustainable – this had to change. But the bad news is that the surplus is mainly caused by ueber-unemployment, austerity and the connected decrease in expenditure and not so much by an increase in exports. Turkey might be an alternative. After 2008 the Turkish central bank lowered its policy rate with about 10% which contributed to an economic boom, a whopping 15% increase in employment (compared with the at present 15% decline of employment in Greece), a connected increase in expenditure and, as a consequence, unsustainable large current account deficits. It however seems to escape the ‘mediterranean curse’ as it’s deficit shows sustained improvement, despite deeply, deeply deflationary policies in the Eurozone.
from Dean Baker
Many people have been asking about the Justice Department’s priorities in the wake of the suicide of computer whiz and political activist Aaron Swartz. As has been widely reported, the Justice Department was pressing charges that carried several decades of prison time against Swartz. He was caught hacking M.I.T.’s computer system in an apparent effort to make large amounts of academic research freely available to the public.
The Justice Department’s determination to commit substantial time and resources to prosecuting Swartz presents a striking contrast to its see-no-evil attitude when it comes to financial fraud by the Wall Street banks. People should recognize that this is not just a rhetorical point. It is clear that the Justice Department opted to not pursue the sort of investigations that could have landed many high-level people at places like Goldman Sachs and Citigroup behind bars. Read more…
from Mark Weisbrot
Economists like to say there’s no such thing as a free lunch – this was even the title of a 1975 book by Milton Friedman. But sometimes there is a free lunch – in a vitally important sense – and now is one of those times for a lot of countries suffering from unnecessary unemployment and in some cases, recession.
Adam Posen doesn’t want to recognize that this is the case for Japan at present. Posen is president of the Peterson Institute for International Economics, which is probably Washington’s most influential think tank on international economics. Posen is not an “austerian” economist – in the second half of the 1990s he supported expansionary fiscal policy in Japan; and more recently, as a member of the Bank of England’s Monetary Policy Committee from 2009-2012, he supported expansionary monetary policy, including quantitative easing and very low interest rates. Read more…
from David Ruccio
This morning, we’re faced with the extraordinary spectacle of two left-of-center, Nobel Prize-winning economists stumbling all over themselves trying to make sense of the role of inequality in creating and sustaining the Second Great Depression.
Really?! Now, they may have missed the trend of growing inequality over the course of the past three decades. Still, with all the talk of obscene levels of inequality in the last five years and mainstream economists, even the best and the brightest, are still having a hard time formulating a theory about the impact of that inequality in producing the conditions for the crash of 2007-08 and sustaining the recovery that never was.
First, Joseph Stiglitz argued that “Inequality stifles, restrains and holds back our growth.” Then, Paul Krugman responded by telling us he’s not convinced “that this particular morality tale is right.” Read more…
from Lars Syll
Last year yours truly had an interesting luncheon discussion with Deirdre McCloskey on her controversy with Kevin Hoover on significance testing. It got me thinking about where the fetish status of significance testing comes from and why we are still teaching and practising it without serious qualifications despite its obvious inadequacies.
from John Schmitt
In a recent post at Wonkblog, Dylan Matthews takes a fairly dim view of a new paper that Larry Mishel, Heidi Shierholz, and I have written on the role of technology in wage inequality. Matthews raises several issues, but I want to focus right now on a key point that he missed: proponents of the “job polarization” view of technological change provide no evidence that the framework actually works in the 2000s.
In his piece, Matthews focused on our criticisms of the ability of the job polarization approach to explain wage developments in the 1990s. I’ll leave the discussion of the 1990s for another day, but the more important issue for contemporary policy discussions is whether the framework is helpful at all for the last decade.
Since the occupation-based “tasks framework” that lies behind the academic research on job polarization is widely considered in the economics profession to be the best available technology-based explanation for wage inequality, Larry, Heidi, and I take the lack of evidence for this framework in the 2000s as support for our view that other policy-related factors are what is really driving inequality. We also think that if this purportedly unified framework doesn’t work well for the 2000s, that it is likely not helpful for earlier periods either.
But, even if you still think technology is the main or even an important culprit, we would argue that you need a new theory of technology that actually fits the facts of the 2000s.
This is a fairly long post and starts with some necessary background –necessary because there is a sizeable gap between the way economists talk formally about “job polarization” and the way most of the public talks about the same issue. Read more…
The European Commission grossly underestimates the effects of German domestic demand expansion
By Leon Podkaminer
The European Commission’s recent study ‘Current Account Surpluses in the EU’ suggests that an expansion of domestic demand in Germany would have only negligible effects on the trade deficits of its EU partners. Rough calculations indicate that these effects may actually be larger, by a factor of 5 or more. Read more…
from Lars Syll
As social scientists – and economists – we have to confront the all-important question of how to handle uncertainty and randomness. Should we define randomness with probability? If we do, we have to accept that to speak of randomness we also have to presuppose the existence of nomological probability machines, since probabilities cannot be spoken of – and actually, to be strict, do not at all exist – without specifying such system-contexts. Accepting the modern econometric domain of probability theory and sample space of infinite populations – just as Fisher’s “hypothetical infinite population, of which the actual data are regarded as constituting a random sample”, von Mises’s “collective” or Gibbs’s ”ensemble” – also implies that judgments are made on the basis of observations that are actually never made!
Infinitely repeated trials or samplings never take place in the real world. So that cannot be a sound inductive basis for a science with aspirations of explaining real-world socio-economic processes, structures or events. It’s not tenable.
As David Salsburg once noted in his lovely The Lady Tasting Tea: Read more…