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Why Is this GDP Revision Goofy?

The BEA published its annual revision of GDP data, including an update of GDP for the last 13 quarters.

Changes in the numbers are to be expected. Changes of the sort that actually occurred are odd, and require deeper examination.

Fortunately, this macroeconomist has a copy of the unrevised numbers for comparison.

The sort of revisions that can reasonably be expected are those in which the level moves in one direction for most observations (indicating a re-evaluation of the counting of some data), or random adjustments in growth rates (indicating some shifting of GDP from one quarter to its neighbors). Other changes should raise red flags.

Instead, what we see is a decline in growth rates for 10 of the 13 revised quarters. It isn't impossible for this to happen, but it isn't very likely.

A regression of the old growth rates* on the new growth rates has an intercept of .0005 and a slope of 0.865. The t-statistic for the test that the intercept is zero is 2.55, while the one for a test of whether the slope is 1 is 2.13. The former suggests a significant downgrade in growth over the last 13 quarters, while the latter suggests an adjustment in which the (few) high growth quarters in this time frame had their reported growth cut. Of course, this also suggests that any quarters of negative growth in the old numbers would be bumped up towards zero - except for the fact that there weren't any.

I'd be much happier with a revision whose intercept and slope were insignificantly different from 0 and 1. Finding that they weren't bugs me.

Am I being cynical to wonder why this is happening in an election year? Especially one in which the incumbent isn't running, so that a new regime can measure its accomplishments from this newly lowered baseline?

Right now, only the raw numbers are available. An explanation for all this is coming in the August Survey of Current Business. Stay tuned.

* As is standard in macroeconomic time series analysis, I used the differences of natural logs, rather than growth rates.

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The Growth Grade for 2008II

The advance estimate of real GDP growth is now in for the second quarter of 2008 at 1.9%.

This is a bump up from the last 2 quarters, but a little less than was expected.

Despite all the worries about declines in stock variables (e.g., real estate prices), recessions are and have always been about declines in flow variables such as real GDP, industrial production and employment. This quarters data should confirm that what we are experiencing is a soft landing, not a recession. It is distinctly possible that in 10 years we're going to be talking about Bernanke, Paulson (and yes Bush) in the same tone that we talk about Greenspan, Rubin, and Clinton, or Greenspan, Baker and Reagan.

Now, lest you think I'm being too rosy, let me note that this is now 6 of the last 8 quarters that the recession has not beaten the 2% threshold that it needs to for people to feel better about their lives.

This grades out as a C on my preferred grade scale.

This grades out as an B on a college student's grade scale.

Remember: no pluses or minuses until the final revision is out in 2 months.

Technorati Tags: letter,grade,real,gdp,growth,2008,II,second

Quote 28 from "The Bottomless Well"

My quotes from The Bottomless Well ends with this observation about the accuracy of energy forecasting:

A paper published in Science in 1981 predicted that by the year 2000 it would require more than a barrel of oil's worth of energy to extract a new barrel of oil from a U.S. well. Returns would go negative and that would be that for the domestic oil economy. It didn't happen. The projection assumed we'd be drilling a lot more dry holes as years passed and supplies receded. But in fact we're drilling fewer - the hit rate is six times better today than it was in the early 1980's. [pg. 172]

Umm ... you know there's a thing in statistics called bias. If your estimates are biased you ought to change them.

This is the problem with most of our energy policy. We start with biased estimates, and when anyone says that maybe we ought to get better estimates first, they get shouted down.

Technorati Tags: oil. well,success,dry,bottomless,well,huber,mills

Stuff Not to Worry About

Ten things from John Tierney, including:

• It's OK to eat saturated fat - worry about quantity not type.
• Wanna' save gas? Use your A/C instead of opening your windows.
• Local food is nonsense.
• Cellphones won't give you cancer.
• Use plastic not paper.
• Your plastic water bottle won't kill you.

Via Cafe Hayek.

Technorati Tags: fat,gasoline,cancer,plastic,fear

Book Review: "The War for the Oceans"

My neighbor the maritime artist recommended this one.

It's a history of the British navy from during the Napoleonic Wars - I know ... big yawn.

But, this book is different. There's almost nothing in here about Trafalgar or Nelson.

Instead, it is a history of the entire period, giving equal treatment to lots of different events.

What's most interesting is that much of it is quotes drawn from letters to families or from newspapers of the day. It's very refreshing to read first person or contemporary accounts of the details of long-forgotten events.

And, a lot of those events were new to me. There's extensive coverage of prisoners-of-war in France and England, of working press-gangs, of expeditions in remote waters (Walcharen, the Rio de la Plata, the Adriatic, and the Moluccas), shipwrecks, and so on - stuff you just don't find in every book.

In fact, the authors have written some of those other books. They've covered the facts and history elsewhere. In this volume, what they dish out is all the interesting snippets that they took down on note cards over the years.

Obviously, not a book for everyone, but very interesting if you want to get a different perspective.

Technorati Tags: war,oceans,adkins,book,review

Quote 27 from "The Bottomless Well"

The Bottomless Well puts the policy choice on the table for greens to ponder:

Will it be still more fossil fuel, a good half (or more) of it coal? Or more uranium?

"Neither" the most passionate greens will respond. And from West Virginia to Wyoming, coal miners will quietly cheer them on. "Neither" has been the official green line since 1980, when Big Coal was 400 million tons a year poorer than today. What more serious greens will reply remains to be seen. What they ought to do is part company with Hollywood and reach some sensible political accommodation with the nuclear industry in case their global warming projections turn out to be true. [pg. 170]

Technorati Tags: coal,nuclear,green,bottomless,well,huber,mills

Cool Science: Endogenous Retroviruses as Proof of Evolution

You know the drill: an ID believer uses the Kuhnian argument that evolution isn't scientific because it isn't potentially refutable.

The missing word that changes the whole picture is "yet".

Part of that problem is that it's really easy to see germs evolve in the lab, but hard to see that in humans where the pace is glacial.

There's a lot in this New Yorker piece by Michael Specter called "Darwin's Surprise", but what I really liked is the idea that with endogenous retroviruses you have is a meta-proof of evolution: we're part germ and that part evolves very quickly.

A retrovirus (like HIV) is one that can insert its genetic material into that of some other creature.

If it happens to be able to do this to a cell involved in sexual reproduction, then that genetic material can be passed on to offspring. This is an endogenous retrovirus. Our junk DNA contains tons of them.

In humans, about 10% of our DNA is little bits of retroviruses. Because it is so rare to infect cells involved in sexual reproduction, most of these retroviruses are now extinct.

Here's the "proof" of evolution: 1) humans share that entire set because the process is so slow, 2) we share almost all our genome with our closest relatives chimpanzees, but 3) retroviral RNA changes more quickly than the DNA of larger animals because of differing lengths of generation, and 4) we share very little of the set of junk DNA made up of retroviral genetic material with chimpanzees because we're infected with different stuff faster than the rest of us evolves. So chimpanzees and humans have gone in different directions (obviously), but part of this can be calibrated and measured by our infection with different retroviruses.

Of course, this is evolution, but it's hard to justify it as such unless the introduction of retroviral material into us makes us different. That's the rest of the article: stuff like whether the evolution of the placenta is related to retroviruses.

Via Little Green Footballs.

Technorati Tags: retrovirus,dna,evolution,placenta

Quote 26 from "The Bottomless Well"

Yes, we may be running out of oil.

But, while we still have oil, The Bottomless Well points out that SUVs are more efficient for society than bikes:

The SUV starts out 300 times worse than the bike - because it moves 30 times the weight of it driver in steel, and because it needs 20 times more roadway per useful pound moved. In terms of land surface occupied to extract and deliver the energy used, however, crude oil is at least 1,000 times more frugal than grain. And a car engine, and the refining and distribution systems behind it, are about twice as efficient in converting crude oil to locomotion than the grain-bread-muscle systems that stand between plants and the pedals on a  bike; make that 16 times as efficient if the biker favors meat. [pg. 165]

The problem is again, opportunity costs. We have whole classes of activities in our society for which the measurement of opportunity costs is simply not done by most people.

Technorati Tags: efficiency,SUV,bike,oil,grain,bottomless,well,huber,mills

Sickening Slideshow (Fitting for a Sunday Morning)

A photo tour of the new Creation Museum in Kentucky.

Over 150 slides and as near as I can figure there isn't anyone who isn't white in any of them.

Oh wait ... there are animatronic people of color in the dioramas.

The exhibits also seem to be really light on non-human primates. Can't have those nice white folks doing stuff like, say, noticing that they have hands that look like theirs.

Via Little Green Footballs.

Technorati Tags: creation,museum

Quote 25 from "The Bottomless Well"

The Bottomless Well brings up something I'd forgotten: that North America is the biggest carbon sink in the world (this was in Science about 10 years ago):

North America as a whole is, apparently, a carbon sink.

... America's terrestrial uptake of carbon - the amount moving down into the surface rather than up in the air - runs about 1.7 billion metric tons, just ahead of the amount emitted by the combustion of fossil fuels. [pp. 162-3]

These figures are a bit dated, but the basic point that on net North America isn't contributing to carbon dioxide in the atmosphere hasn't changed over the last 10 years.

Technorati Tags: carbon,sink,north,america,bottomless,well,huber,mills