7 ms·

One of the things I'm beginning to suspect is that the metrics are rigged. That is, most economic discussions are based on terms that aren't meaningful in any p

One of the things I'm beginning to suspect is that the metrics are rigged. That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly. But I am simply an observer. I love watching smart people argue about stuff, so economics fascinates me. One thing is for sure, there is a ton of diverging opinions about the Euro and the sovereign debt crisis.

beagle3 15y ago
The metrics, GDP being an example, are selected for political rather than merit. And then they are rigged. See e.g. http://www.shadowstats.com/ http://www.shadowstats.com/ for an attempt at an honest (or at the very least, consistent with 30 years ago) measurement of inflation and unemployment. The results are not pretty. My only surprise is that so many people are unaware of it. The government's income is indexed to the real inflation (by being an essentially constant proportion of salaries/profit), and expenditures are indexed to a computation the government is able to redefine at will. Is it a surprise that it is, in fact, redefined often, and that it always makes the government look better?
- jshen 15y ago
  I'm not sure what you mean by "honest". http://delong.typepad.com/sdj/2011/12/james-hamilton-on-shadowstats-and-niall-fergusons-claim-that-true-inflation-is-more-than-10-per-year.html http://delong.typepad.com/sdj/2011/12/james-hamilton-on-shad...
  - beagle3 15y ago
    I will look into brad delong's blog later when I have time, but I did factcheck some of shadowstats numbers four years ago for work, and they were right on the money. E.g., the modern definition of unemployment is indeed very different from the definition of 40 years ago, which would yield something like 20%-25% today (compared to 12% or so today). And yet, everyone assumes it is the same statistic. Same with inflation. Personally, my 3 biggest expenses (rent, food, energy, in that order) have been going up at almost 10%/year over the last 3-4 years. I don't see a reason to doubt the shadowstats CPI metric. You're welcome to trust BLS data. Just be aware that you can't trust them when they are published [ http://www.zerohedge.com/article/visualizing-propaganda-error-term-behind-bureau-labor-statistics http://www.zerohedge.com/article/visualizing-propaganda-erro... ] and given that 90% of the values are revised to be worse within a month, their methodology cannot be considered statistically sound. edit: added "almost" to 10%. Just checked, and rent was "only" 8%/year.
    - jshen 15y ago
      Implying that most other economists in the US are dishonest is a bold claim that needs some significant evidence. Implying that something is dishonest because it is different than it was in the past is a non sequitur. "Personally, my 3 biggest expenses (rent, food, energy, in that order) have been going up at almost 10%/year over the last 3-4 years. I don't see a reason to doubt the shadowstats CPI metric." What was that you were saying about sound statistics ;)
      - beagle3 15y ago
        > Implying that most other economists in the US are dishonest is a bold claim that needs some significant evidence. I do not think that, and I do not think that I implied that anywhere. Rather, almost no one outside the BLS collects this information in the US on a scale that allows you to contest official numbers - so that BLS gets to claim whatever they want, and most economists in the US take that as gospel (and are wrong because they are misled, not because they are dishonest). > Implying that something is dishonest because it is different than it was in the past is a non sequitur. Appeal to authority ("obviously, the BLS/Fed had their legitimate reasons to revise the calculations") is a fallacy. And I did give the reasoning, so let me repeat amd expand that in case you missed: Government gets income indexed to real inflation (by virtue of being a percentage of wages/profits/transactions) - so it is not affected by accuracy of inflation numbers. Government expenditure (salaries, social security) is indexed to a computation controlled by the government. Furthermore, if this computation results in a number 0%-3%, everyone is happy, even if this is not supported by the underlying facts. Said computation has been revised several times in the last 40 years, where new computation always and consistently results in a number lower than it would have been had you used earlier formulas. Now, what do you find more plausible: Everyone in government (and extended government - the Fed) was trying their best to understand the economy, and it just happens that all revisions make government look better - or that these revisions were made because they make government look better, despite underlying facts? Oh, and take into account that government and the fed is actually full of career politicians (bernanke campaigned to become fed chief). At some point I factchecked government stats and actions for a living. My conclusion is that it is all fudged, nothing can be trusted, mistakes get made to make the government look better 90% of the time. Law enforcement (especially in case of the SEC) is very selectively applied. I can cite numerous examples, but I'm tired. Do your own research (karl deninger, zerohedge, michael shedlock are good starting points), or keep watching the CNN / CNBC government mouthpieces and believe all is well.
- seanp2k2 15y ago
  Economic "theories" and "research" make me laugh, because the system is so complex now that it's quite obvious no one knows how to control it or analyze it, except when they're taking credit for their foresight after the fact and shouting "I told you so!" while 10 other equally-likely-at-the-time wrong predictions go un-noted. Further, there is no free market, supply and demand never works like it "should", and the emperor has no clothes. Markets are all artificial and manipulated by those who have the most to gain. Very relevant: US wireless ISPs ("telcos".) Their product is bandwidth since everything is digital now, yet we still have "minutes", "SMS", "mms", and "3G"/"4g" (and the inherent ambiguity in those terms deserves another article entirely...) Make no mistake, you are being conned, you are being lied to, you are being manipulated...every day, for the profit of the ultra-rich. People die and generations are enslaved so a few thousand sick bastards can be kings in the "free world".
  - javert 15y ago
    I agree with some of your points, but your rich-bashing is about as immature and idiotic as racism.
    - batista 15y ago
      Really? Because I seem to recall many intellectuals with degrees to fill up a room, and tons of thinkers, participating in "rich-bashing". It has nothing to do with "immaturity", and all to do with your theory of understanding the world. A lot of theories of political economy --and they cannot just be dismissed a priori-- say that rich people are rich because of taking advantage of other people, societal imbalances, and, on top of this, that most "primary amassment" of capital in a society involves actual crimes. So, it's only "immature" in some specific theories of economy/society, not all of them. That it happens to be considered "god given fact" in the society you might live in, is no proof that it is right. Contrarian theories are also quite common elsewhere.
      - javert 15y ago
        many intellectuals with degrees to fill up a room Doesn't inspire confidence, and shouldn't. they cannot just be dismissed a priori Correct. They can (and should) be dismissed by observing that they contradict reality. That it happens to be considered "god given fact" in the society you might live in, is no proof that it is right. Don't know why you assume I'm just parroting something I've heard elsewhere. And it's not considered a "god-given fact" in the society I live in, anyway. Contrarian theories are also quite common elsewhere. Again, the standard of truth is not how many people hold a view, but whether ot not it is correct. The guy was alleging that there exists a small cabal of uber-rich who control the world. That's pretty clearly not the case.
excuse-me 15y ago
GDP was invented in the days when trade was ships full of iron ore - it screws up the figures for any country with significant banking/financial services By GDP, Luxembourg and Lichtenstein are the worst countries in the world - with national debt ratios of $10M+ per person. It even effects large economies, one of the (many) reason for the UK not joining the Euro was that the size of London's financial industry meant that it's debt/GDP figures would never meet the requirements even if the government never borrowed a penny.
- arethuza 15y ago
  It wouldn't surprise me if the UK splits up and England (which would no doubt steer even further to the right) leaving the EU and Scotland joining the Euro-zone. Probably disastrous for both sides. I suspect that David Cameron would be delighted to be free of the Scots but can't say so, meanwhile I suspect the Scottish Nationalists are probably horrified at the idea of actually getting independence but obviously can't say this either. NB I'm a mostly pro-Union Scot - the only area that would make me vote for independence is if it meant closing the Trident submarine bases on the Clyde, which I can't see being an option that we are allowed to vote for.
  - excuse-me 15y ago
    I'm all for Scottish independence, finally the Orkneys will be able to throw off 800years of Scottish oppression and reap the benefits of THEIR oil and closer links to their Scandanavian heritage. ps. note British tongue firmly in cheek ;-)
chimeracoder 15y ago
> That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly. Actually, the problem is that people infer terms to mean things that they don't mean, oftentimes because the terminology is (regrettably) overloaded, even when the technical meaning is very precise and limited. Understandably, people interpret these terms literally, which sometimes leads to conclusions that seem paradoxical or impractical[1]. Remember that economics is really just the study of choices: choices in the small (microeconomics) or choices in the large (macroeconomics). Choices may involve money, but money is not inherent in economics - it just so happens that there are many advantages to a monetary system, which is why most economies develop some form of currency, and which is also why many (but not all!) economists deal with money. Even though it uses similar terminology, macroeconomics is fundamentally different[2] from microeconomics at its core. One is the study of individual decisions on a small scale, and the other is the study of the non-random patterns of many independent decisions. GDP is not the perfect measure of what it's meant to gauge (macroeconomic economic 'health', which is itself a problematic term). GDP systematically overestimates the health of oil-backed economies with huge wealth disparities, for example. That said, there's no metric that's much better for the general case - all have similar systematic flaws in some way. Furthermore, GDP has the advantage that it's completely unambiguously defined. That doesn't mean it can be measured perfectly, but having an unambiguous definition is a key step. When you start talking about these contrived indices (the 'happiness' index, the 'corruption' index, etc.), you get the problem that there's little underlying justification for the way that the model is constructed, so even if the end results are useful for a particular domain-specific application, they don't generalize well. GDP, on the other hand, can be derived quite easily from first principles, so it generalizes very nicely. Furthermore, GDP happens to correlate very well with most things that we would classify as 'good' (quality of life, corruption, happiness, etc.), so it's a nice proxy for these intangible 'goods' (no pun intended), which are more difficult to measure precisely. So back to your question: maybe the measurements themselves are rigged - that just gets at the question of who is actually doing the analysis. But the construction of the model is no more 'rigged' than any other model. You just have to be careful to know that, like all models, its application is still very limited, even if it's one that we happen to use quite frequently. As George Box says, 'All models are wrong, but some models are useful'. GDP is 'wrong', but it also happens to be by far the most useful way of describing the patterns choices on a large scale. [1] This is by no means specific to economics: it happens in statistics as well, and (to a lesser extent) in computer science. [2] That is to say, they aren't mutually exclusive, but they are based on completely separate assumptions, so principles from the small do not necessarily carry over into the large scale.
pchristensen 15y ago
This 1 hr podcast is a great example of that: http://www.econtalk.org/archives/2012/04/burkhauser_on_t.html http://www.econtalk.org/archives/2012/04/burkhauser_on_t.htm... Basically, by changing the way you look at the numbers, the story changes from "The middle class has disappeared over the last 30 years" to "The middle class has done great and become wealthy over the last 30 years"

beagle3 15y ago

The metrics, GDP being an example, are selected for political rather than merit. And then they are rigged. See e.g. http://www.shadowstats.com/ http://www.shadowstats.com/ for an attempt at an honest (or at the very least, consistent with 30 years ago) measurement of inflation and unemployment. The results are not pretty. My only surprise is that so many people are unaware of it. The government's income is indexed to the real inflation (by being an essentially constant proportion of salaries/profit), and expenditures are indexed to a computation the government is able to redefine at will. Is it a surprise that it is, in fact, redefined often, and that it always makes the government look better?

jshen 15y ago
I'm not sure what you mean by "honest". http://delong.typepad.com/sdj/2011/12/james-hamilton-on-shadowstats-and-niall-fergusons-claim-that-true-inflation-is-more-than-10-per-year.html http://delong.typepad.com/sdj/2011/12/james-hamilton-on-shad...
- beagle3 15y ago
  I will look into brad delong's blog later when I have time, but I did factcheck some of shadowstats numbers four years ago for work, and they were right on the money. E.g., the modern definition of unemployment is indeed very different from the definition of 40 years ago, which would yield something like 20%-25% today (compared to 12% or so today). And yet, everyone assumes it is the same statistic. Same with inflation. Personally, my 3 biggest expenses (rent, food, energy, in that order) have been going up at almost 10%/year over the last 3-4 years. I don't see a reason to doubt the shadowstats CPI metric. You're welcome to trust BLS data. Just be aware that you can't trust them when they are published [ http://www.zerohedge.com/article/visualizing-propaganda-error-term-behind-bureau-labor-statistics http://www.zerohedge.com/article/visualizing-propaganda-erro... ] and given that 90% of the values are revised to be worse within a month, their methodology cannot be considered statistically sound. edit: added "almost" to 10%. Just checked, and rent was "only" 8%/year.
  - jshen 15y ago
    Implying that most other economists in the US are dishonest is a bold claim that needs some significant evidence. Implying that something is dishonest because it is different than it was in the past is a non sequitur. "Personally, my 3 biggest expenses (rent, food, energy, in that order) have been going up at almost 10%/year over the last 3-4 years. I don't see a reason to doubt the shadowstats CPI metric." What was that you were saying about sound statistics ;)
    - beagle3 15y ago
      > Implying that most other economists in the US are dishonest is a bold claim that needs some significant evidence. I do not think that, and I do not think that I implied that anywhere. Rather, almost no one outside the BLS collects this information in the US on a scale that allows you to contest official numbers - so that BLS gets to claim whatever they want, and most economists in the US take that as gospel (and are wrong because they are misled, not because they are dishonest). > Implying that something is dishonest because it is different than it was in the past is a non sequitur. Appeal to authority ("obviously, the BLS/Fed had their legitimate reasons to revise the calculations") is a fallacy. And I did give the reasoning, so let me repeat amd expand that in case you missed: Government gets income indexed to real inflation (by virtue of being a percentage of wages/profits/transactions) - so it is not affected by accuracy of inflation numbers. Government expenditure (salaries, social security) is indexed to a computation controlled by the government. Furthermore, if this computation results in a number 0%-3%, everyone is happy, even if this is not supported by the underlying facts. Said computation has been revised several times in the last 40 years, where new computation always and consistently results in a number lower than it would have been had you used earlier formulas. Now, what do you find more plausible: Everyone in government (and extended government - the Fed) was trying their best to understand the economy, and it just happens that all revisions make government look better - or that these revisions were made because they make government look better, despite underlying facts? Oh, and take into account that government and the fed is actually full of career politicians (bernanke campaigned to become fed chief). At some point I factchecked government stats and actions for a living. My conclusion is that it is all fudged, nothing can be trusted, mistakes get made to make the government look better 90% of the time. Law enforcement (especially in case of the SEC) is very selectively applied. I can cite numerous examples, but I'm tired. Do your own research (karl deninger, zerohedge, michael shedlock are good starting points), or keep watching the CNN / CNBC government mouthpieces and believe all is well.
seanp2k2 15y ago
Economic "theories" and "research" make me laugh, because the system is so complex now that it's quite obvious no one knows how to control it or analyze it, except when they're taking credit for their foresight after the fact and shouting "I told you so!" while 10 other equally-likely-at-the-time wrong predictions go un-noted. Further, there is no free market, supply and demand never works like it "should", and the emperor has no clothes. Markets are all artificial and manipulated by those who have the most to gain. Very relevant: US wireless ISPs ("telcos".) Their product is bandwidth since everything is digital now, yet we still have "minutes", "SMS", "mms", and "3G"/"4g" (and the inherent ambiguity in those terms deserves another article entirely...) Make no mistake, you are being conned, you are being lied to, you are being manipulated...every day, for the profit of the ultra-rich. People die and generations are enslaved so a few thousand sick bastards can be kings in the "free world".
- javert 15y ago
  I agree with some of your points, but your rich-bashing is about as immature and idiotic as racism.
  - batista 15y ago
    Really? Because I seem to recall many intellectuals with degrees to fill up a room, and tons of thinkers, participating in "rich-bashing". It has nothing to do with "immaturity", and all to do with your theory of understanding the world. A lot of theories of political economy --and they cannot just be dismissed a priori-- say that rich people are rich because of taking advantage of other people, societal imbalances, and, on top of this, that most "primary amassment" of capital in a society involves actual crimes. So, it's only "immature" in some specific theories of economy/society, not all of them. That it happens to be considered "god given fact" in the society you might live in, is no proof that it is right. Contrarian theories are also quite common elsewhere.
    - javert 15y ago
      many intellectuals with degrees to fill up a room Doesn't inspire confidence, and shouldn't. they cannot just be dismissed a priori Correct. They can (and should) be dismissed by observing that they contradict reality. That it happens to be considered "god given fact" in the society you might live in, is no proof that it is right. Don't know why you assume I'm just parroting something I've heard elsewhere. And it's not considered a "god-given fact" in the society I live in, anyway. Contrarian theories are also quite common elsewhere. Again, the standard of truth is not how many people hold a view, but whether ot not it is correct. The guy was alleging that there exists a small cabal of uber-rich who control the world. That's pretty clearly not the case.

excuse-me 15y ago

GDP was invented in the days when trade was ships full of iron ore - it screws up the figures for any country with significant banking/financial services By GDP, Luxembourg and Lichtenstein are the worst countries in the world - with national debt ratios of $10M+ per person. It even effects large economies, one of the (many) reason for the UK not joining the Euro was that the size of London's financial industry meant that it's debt/GDP figures would never meet the requirements even if the government never borrowed a penny.

arethuza 15y ago
It wouldn't surprise me if the UK splits up and England (which would no doubt steer even further to the right) leaving the EU and Scotland joining the Euro-zone. Probably disastrous for both sides. I suspect that David Cameron would be delighted to be free of the Scots but can't say so, meanwhile I suspect the Scottish Nationalists are probably horrified at the idea of actually getting independence but obviously can't say this either. NB I'm a mostly pro-Union Scot - the only area that would make me vote for independence is if it meant closing the Trident submarine bases on the Clyde, which I can't see being an option that we are allowed to vote for.
- excuse-me 15y ago
  I'm all for Scottish independence, finally the Orkneys will be able to throw off 800years of Scottish oppression and reap the benefits of THEIR oil and closer links to their Scandanavian heritage. ps. note British tongue firmly in cheek ;-)

chimeracoder 15y ago

> That is, most economic discussions are based on terms that aren't meaningful in any practical way. I see a lot of economists poking at the metrics with their pencils and talking theory while waving their arms around wildly. Actually, the problem is that people infer terms to mean things that they don't mean, oftentimes because the terminology is (regrettably) overloaded, even when the technical meaning is very precise and limited. Understandably, people interpret these terms literally, which sometimes leads to conclusions that seem paradoxical or impractical[1]. Remember that economics is really just the study of choices: choices in the small (microeconomics) or choices in the large (macroeconomics). Choices may involve money, but money is not inherent in economics - it just so happens that there are many advantages to a monetary system, which is why most economies develop some form of currency, and which is also why many (but not all!) economists deal with money. Even though it uses similar terminology, macroeconomics is fundamentally different[2] from microeconomics at its core. One is the study of individual decisions on a small scale, and the other is the study of the non-random patterns of many independent decisions. GDP is not the perfect measure of what it's meant to gauge (macroeconomic economic 'health', which is itself a problematic term). GDP systematically overestimates the health of oil-backed economies with huge wealth disparities, for example. That said, there's no metric that's much better for the general case - all have similar systematic flaws in some way. Furthermore, GDP has the advantage that it's completely unambiguously defined. That doesn't mean it can be measured perfectly, but having an unambiguous definition is a key step. When you start talking about these contrived indices (the 'happiness' index, the 'corruption' index, etc.), you get the problem that there's little underlying justification for the way that the model is constructed, so even if the end results are useful for a particular domain-specific application, they don't generalize well. GDP, on the other hand, can be derived quite easily from first principles, so it generalizes very nicely. Furthermore, GDP happens to correlate very well with most things that we would classify as 'good' (quality of life, corruption, happiness, etc.), so it's a nice proxy for these intangible 'goods' (no pun intended), which are more difficult to measure precisely. So back to your question: maybe the measurements themselves are rigged - that just gets at the question of who is actually doing the analysis. But the construction of the model is no more 'rigged' than any other model. You just have to be careful to know that, like all models, its application is still very limited, even if it's one that we happen to use quite frequently. As George Box says, 'All models are wrong, but some models are useful'. GDP is 'wrong', but it also happens to be by far the most useful way of describing the patterns choices on a large scale. [1] This is by no means specific to economics: it happens in statistics as well, and (to a lesser extent) in computer science. [2] That is to say, they aren't mutually exclusive, but they are based on completely separate assumptions, so principles from the small do not necessarily carry over into the large scale.

pchristensen 15y ago

This 1 hr podcast is a great example of that: http://www.econtalk.org/archives/2012/04/burkhauser_on_t.html http://www.econtalk.org/archives/2012/04/burkhauser_on_t.htm... Basically, by changing the way you look at the numbers, the story changes from "The middle class has disappeared over the last 30 years" to "The middle class has done great and become wealthy over the last 30 years"