Category Archives: Dubious statistics

American Exceptionalism and Euro-Bashing, Adam Davidson Style

Adam Davidson has an article in the Sunday New York Times Magazine, “The Other Reason Europe is Going Broke,” that manages the impressive feat of making you stupider than before you read it. It misrepresents most of the few facts it contains in appealing to American prejudices about our cultural, or in this case, economics superiority, to sell worker bashing.

Davidson uses the spectacle of Europe going into an economic nosedive to claim that one of the big things wrong with Europe is its spoiled workers. The piece is anchored in a glaring, fundamental misrepresentation. It argues that Americans are much better off than Europeans because we have a higher GDP per capita (more on that in due course) and asserts that that is because Europeans are not able to compete in world markets:

Extreme Predictions 2012

I tend to avoid the year end retrospective/forecast blizzard, although some of the more creative compilations can be fun.

However, some 2012 forecasts crossed my screen, and two were such striking outliers that I thought I’d call them to your attention and seeing if readers have come across other Extreme Predictions for the new year (aside from the Mayan end of the world sort).

Doug Smith: One Way Journalism Paints Flawed Picture Of Poverty

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By Douglas K. Smith, author of On Value and Values: Thinking Differently About We In An Age Of Me

As a subscriber and well wisher for the critical role that might be fulfilled by The New York Times, I’m always disappointed when Times’ journalists substitute personal agendas for accuracy. This was glaringly on view last week when three reporters butchered the chance to shed light on the Census Bureau’s new “supplemental poverty measure”.

Steve Rattner, Card Carrying Member of Top 1%, Tells Us We Should Lie Back and Enjoy Much Lower Wages Resulting From Globalization

A corollary to Upton Sinclair’s famous saying, “It is difficult to get a man to understand something if his salary depends on his not understanding it” is “People promote ideas that help them secure or preserve a privileged position on the totem pole.”

A glaring example of these observations came in an op ed in the Sunday New York Times by Steve Rattner, former Lazard mergers & acquisition partner, later head of the private equity firm, Quadrangle Partners. He is best known as the chief negotiator in the auto bailouts (and he was criticized for not involving any auto industry experts). He paid $10 million to settle a kickbacks investigation and agreed not to work for a public pension fund in any role for five years. I happened to see Rattner on a panel at a Financial Times conference earlier this week and he elaborated on some of the themes in this piece, “Let’s Admit It: Globalization Has Losers,” which reader Brett asked me to debunk line by line. I’ll spare you and focus just on the most critical and bald-facedly dishonest bits.

Philip Pilkington: The Irish Establishment – Mad as Goats?

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

Learn to say the same thing
What defeats people is a double confession
One time they will confess one thing
And the next they will confess something else
Talk to them, they will say:
Learn to say the same thing
Let us hold fast to saying the same thing”
– Cat Power, ‘Say’

In Ireland we used to measure our economic performance based on GDP (GNP actually, but we won’t go into that). Pretty standard fare for any advanced economy, really. Not so anymore. These days we measure our economic performance based on the government’s ability to extract tax revenue out of the general populace to pay for extortionate loans to our EU masters.

Study Asserts World’s Stocks Controlled by “Select Few” (Bad Studies That Confirm Conventional Wisdom Refuse to Die Edition)

Wow, there is nothing like searching through your archives for an anecdote you want to recycle only to discover that the post you used it in pre-debunked the very same paper that you are now girding up to debunk.

A whole bunch of readers sent me either links to a paper “The Network for Global Control” by physicists Stefania Vitale, Stefano Battiston and James Glattfelder, or to reports on it (for instance, at PhysOrg, which I put on a black list because it has embarrassed me too many times before readers by reporting reverently on dubious studies). I pre-debunked a report on an earlier version of this paper, as reported in Inside Science, by Battiston and Glattfelder.

Let’s look at a breathless summary per PhysOrg:

Michael Hudson: The Case Against the Credit Ratings Agencies

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

In today’s looming confrontation the ratings agencies are playing the political role of “enforcer” as the gatekeepers to credit, to put pressure on Iceland, Greece and even the United States to pursue creditor-oriented policies that lead inevitably to financial crises. These crises in turn force debtor governments to sell off their assets under distress conditions. In pursuing this guard-dog service to the world’s bankers, the ratings agencies are escalating a political strategy they have long been refined over a generation in the corrupt arena of local U.S. politics.

Will S&P Downgrade Be Another Y2K Scare?

Remember Y2K? The world was gonna end because there was tons of legacy code that couldn’t accommodate the rollover to the new century. I know people in who went into survivalist mode, stocking up months of supplies, and others who took less extreme precautions, like having lots of cash on hand in case ATMs were disrupted.

As we now know, January 1, 2000 came in without major incident, since the widespread publication of this software threat to End the World as We Know It led to lots of preventive action. Perversely, the big effect of the Y2K scare was that it accelerated tech spending, since many firms bought new systems and upgraded hardware as part of their overhaul. That increased the severity of the post-bubble economic downturn. Remember, Greenspan dropped Fed fund rates to negative real interest rate levels and held them there for an unprecedented amount of time, which many argue helped stoke the housing bubble. So while Y2K’s direct effects were greatly overestimated, its indirect impact (on how long the former Maestro kept rates down) may not have been fully acknowledged.

It isn’t yet clear what the impact of the S&P downgrade of the US to AA+ will have. There are good reasons to believe, despite the media hyperventilating, that it won’t add up to much, and may perversely hit wobbly stock markets more than Treasury yields.

But there is a much bigger issue, namely S&P’s highly questionable conduct, the lack of any analytical process behind this ratings action, and the political implications.

“Europe plans its next crisis”

By Delusional Economics, who is unhappy with the current dumbed-down vested interest economic reporting. Cross posted from MacroBusiness

With the economic world firmly focussed on the US debt debacle this week it is likely that Europe will slip off the radar a little. I suspect, as many people do, that for the US there will be an eleventh hour resolution followed by a short lived bounce in the world markets. Once that bounce heads back to earth again it is likely that the world’s eyes will turn back to Europe. There is much to see.

Cash Flow Discounting Leads to “Astronomically” Large Mistakes Over the Long Term

Your humble blogger is a vocal opponent of placing undue faith in single metrics and methodologies, like placing a lot of weight in total cholesterol as a measure of heart disease risk. One of the most troubling examples is the totemic status of discounted cash flow based analyses. It’s a weird defect of human wiring that reducing a story about the future to a spreadsheet and then discounting the resulting cash flows (which means you are now layering a second story, about what you think reasonable investment returns will be over that time period) is treated as having a solidity and weight that simply is not there, a reality of its own that manages to take precedence over the murky future it is meant to help understand.

An article by physicist Marc Buchanan in Bloomberg gives a layperson’s summary of an important paper by Yale economist John Geanakoplos, and Doyne Farmer, a physicist at the Santa Fe Institute. It shows that the conventional use of discounted cash flow models over long time periods, as is often the case when discussing environmental impacts, is fatally flawed.

Marshall Auerback: There is No Progressive Case for Deficit Cutting – The Myth of the “Virtuous” Clinton Surpluses

By Marshall Auerback, a portfolio strategist and hedge fund manager

For once, President Obama has sought to address his progressive critics, without caricaturing them as a bunch of out of touch, irresponsible radicals. At his press conference on Friday, the President made the following argument:

Satyajit Das: Bailing In to Bail Out – The Greek Bank Debt Exchange Proposal

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (Forthcoming September 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

The proposal to extend the maturity of Greek bonds emanating from the Élysée Palace reflects French strengths first identified by Napoleon III: “We do not make reforms in France; we make revolution.” Structured to meet a German requirement that private creditors contribute to the Greek bailout, the proposal falls short of what is actually required.

Moody’s Hacked

Via Richard Smith and Tom Adams. FT Alphaville is also on the case and informs us that this is really not a hack but a URL script trick. Click to enlarge.