voluntaryXchange

Another F

Not surprisingly, the U.S. real GDP growth rate came in negative for 2009 II.

Today’s report of –1.0% grades out as an F on both my preferred grade scale and my grade inflated college student grade scale.

N.B. Reporters are emphasizing the bit of trivia that this is the first time real GDP has declined for 4 straight quarters since records were started 60 years ago. That isn’t quite true. This has happened a few times in the initial announcements. But every decade or so the government does a major revision of how GDP is calculated, goes back and recalculates all the announced values from the past, and then prints those re-revisions in all of its publications. So, we are comparing apples to oranges: without digging the original releases out of a government documents repository (or the the file cabinets of middle-aged macroeconomists like me) to compare with the current original releases, this is just the sort of “record” that should have a big asterisk by it.

Technorati Tags: real,gdp,growth,letter,grade,2009,II,second

Outrageously Bad Recession Graphic In The Wall Street Journal

The Wall Street Journal broke one of Edward Tufte’s big taboos in a graphic on the severity of the current recession.

Here’s the culprit:

The problem is that the typical person looking at this will focus on the size of the triangles – so their area should be important to the idea being conveyed. But it isn’t. So, the graph has a huge “lie factor”.

The areas of the blue triangles are arguably the largest in 3 out the four panels (and a close second in size in the third panel).

Let’s think about what this means for the panel on GDP. Severity, on the vertical axis, is the important variable. The current recession is the mildest of the three shown on this count. Duration, on the horizontal axis, is a far les important measure of the economy’s problems. Here, the current recession fairs much worse.

To put this in words: the current recession took a lot longer to get almost as bad (but not quite) as the other two.

I submit that the reporter wouldn’t have had much of a story if they’d written that sentence out and thought about what it meant.

But, put it in a graph, combine a primary variable with a secondary variable, and add shading, we get a triangle that rather blurts out that the current recession is the worst overall.

But that isn’t what’s being shown at all. Let me offer analogy.

This chart is sort of like measuring the braking of a speeding car. The reduction in speed is the severity variable: the faster you’re going the worse it is to have to slam on the brakes. The horizontal axis will still measure duration, but now of the braking: braking for a long time isn’t a good thing, but it isn’t quite as critical as how you fast you were going. What the graph is saying is that it is worse to be driving slower, and to take a longer time reducing your speed. Tell that to your passengers the next time you have to lock ‘em up.

The core problem with this graphic is the impulse to connect the dots and shade the interior. They hypotenuse of each of these triangles actually contains important information: how far we’ve fallen, and how steep is the slope we’re sliding down. But, if we’re only talking about that line segment, there’s no need to form a triangle (or even a basis to call that line segment the hypotenuse – you only think of it as a hypotenuse because the triangles are being spoon fed to your brain). So, problem 1 is connecting the right endpoint of that line segment back up to the horizontal axis. Think about it: you’d only do that in a math class if they told you the question was about a triangle – you wouldn’t do it for the heck of it. But, having done that, the author goes one better and shades the triangle they just pulled out of thin air. The scary thing is, they don’t even have a triangle yet because there really isn’t a good basis for using the horizontal axis to connect the points other than that it just happens to already be there!

Lastly, let’s talk a little bit about the psychology of recessions. Turn the clock back to say 2005 and imagine you knew a recession was coming with certainty, but could steer the economy to one of two kinds of recessions. The two kinds have equal severity, but one takes less time to develop, while the other one takes longer. Which would you choose? My guess is that it would be about an 80/20 split in favor of the more slowly developing recession.

Don’t believe me? Then ask yourself how people felt last September when this recession switched from a very slowly worsening one to a quickly worsening one. Do you remember anyone being relieved? I didn’t think so.

In sum, recessions are no fun, and this one is a doozy. But to improperly emphasize that with weak thinking qualifies as pessimism porn.

Caveat 1: this is a pretty bad recession, and these charts only show some of the worst recessions, so if we showed all of them the current one would not compare well.

Caveat 2: duration of recession is a problem, but it is secondary when compared to the reported severity, so combining them to show duration-severity actually diminishes the point the author is trying to make.

Caveat 3: because this recession started out mildly and then shifted into overdrive, the triangles aren’t an accurate depiction anyway. Instead, something like a scooped-out triangle or even a crescent would make for a more realistic (and smaller) blue shaded area.

Technorati Tags: pessimism,porn,recession,severity,wall,street,journal

500 Worst Passwords

The worst passwords: good for a few laughs – you have to browse all the way down to # 5 to get the first sexual slang.

Technorati Tags: 500,worst,passwords

Pavlovian USB Hounds

When I disconnect my thumbdrive, the 3 dogs sleeping on the office couch know the Windows ding-dong means that it’s time to go out.

Software Recommendation: Fences

Fences is a freeware program for Windows that manages your desktop.

Fences does one thing, and does it well: it puts little shaded areas on your Windows desktop to corral your shortcuts and files. You can move these corrals.

This solves two problems:

1. It’s a big improvement over Windows choices for the sorting of your stuff: you know, probably alphabetically, and sometimes locked to a grid.
2. A major Windows annoyance is the reordering of your desktop following a crash. By managing those little corrals, Fences keeps tracks of where you want your stuff.

I’ve been using Fences for several months now, and have no complaints. I’ve had some major crashes, and all my shortcuts are right where I left them, every time.

Technorati Tags: fences,freeware,windows,desktop,managerment

Irony: Democrats and Health Care Reform

Plastic surgery is one area of healthcare that seems to be doing just fine with people making their own decisions and paying out of pocket. Gosh … just like groceries and the other 80% of GDP.

So, Congress wants to put an excise tax on it.

Ahem.

Since most people view taxation as a sort of penalty, doesn’t it make sense to tax the parts of the healthcare system that aren’t working to subsidize the stuff that is working? Just wondering …

Technorati Tags: tax,healthcare,plastic,surgery

Missing All the Good Things

The Gates controversy is dying down … and still no one talks about how just about every feature of the story is an unalloyed good thing.

• Gates was able to return after midnight to a safe, unmolested home.
• Gates was able to pay a stranger (the limo driver) to deliver him to his home.
• That stranger was willing to help Gates open his door.
• Gates’ neighbors were looking out for his home.
• Gates’ neighbors had the good sense to call the cops when they saw something untoward. They did not mention the race of the apparent intruders when they called the police.
• Gates’ neighbors waited for the cops in their front lawn.
• The cops arrived so quickly the neighbors were still on the phone when they got there.
• The cops investigated the apparent break-in without drawing weapons.
• The cops asked Gates for identification and he was able to provide it satisfactorily.
• Gates was able to assert with evidence to the satisfaction of the cops that the house was his.
• The cop in question not only had diversity training, but was a diversity trainer.
• The group of cops at the house was multiracial.
• Just about everything was recorded or witnessed.

I could go on, but you get the picture.

We need to ask ourselves how many of these would occur in our own neighborhoods.

Certainly there are many neighborhoods in this country where they wouldn’t.

What is important is not the single problem that occurred in this standoff, but that we have a society where so many things worked right. Most people on the globe don’t.

Does Obama get this?

Did anyone in the White House get this in real time? Or are they really that tone-deaf to the things that make America great?

Technorati Tags: henry,louis,gates,skip,obama,crowley,race

The Moose In the (Healthcare) Room

Just look at the center panel:

The moose in the room is that people like you and me are basically full of sh*t.

We complain that we can’t afford healthcare. Sorry, but the chart puts the lie to that.

How is it that then that the share of out-of-pocket payments by individuals has steadily declined over the last generation? Just ask any economist or parent of a bride: the best way to bloat spending is to have someone spend other people’s money.

The obvious comeback to this is that we’re spending a smaller share of a bigger pie, so that on net, our spending has gone up.

This requires a little more math. Eyeballing the graph on the left, you can see that we spent about 7% of GDP on healthcare in 1970, and the center panel says that about a third of that came out of pocket. That works out to just over 2% of GDP paid out of pocket by individuals. Doing the same comparison shows that we pay about 18% of GDP for healthcare now, and just over a tenth of that comes from individuals. This works out to a bit less than 2% of GDP. Bottom line – a smaller share of our GDP is paid out-of-pocket than when I was a little boy.

Get a clue: to the extent that the healthcare system is broken, it’s because third parties can’t afford our profligacy any more. Is that really the tragedy it’s painted to be?

Read the whole thing.

Two New Medical Journals

Melinda Beck makes a great suggestion:

I think there should be two more scholarly periodicals: I’d call them Duh!, for findings that never seemed to be in doubt in the first place, and Huh?, for those whose usefulness remains obscure …

Her target here is medical research, and some suggestions for Duh! include:

• Toddlers become irritable when prevented from napping.
• TV crime dramas inaccurately portray violent crime in America.

Some suggestions for Huh? include:

• Men are better than women at hammering in the dark.
• The more abdominal hair, the greater the tendency to collect belly-button lint.

Economics could use a couple of journals like this.

Read the whole thing, entitled “On Navel Lint and Other Scientific Triumphs” in the July 21 issue of The Wall Street Journal.

Technorati Tags: huh,duh,medical,research

Giving It Back

AARGH! This is a piece I wrote a few months back that I forgot to post (see my June 26 posts here, here, here, here, and here about why I disappeared from the net for a month).

But … this makes it kind of cool to read through as an exercise in the pointlessness of most of the bluster that passes for news:

• Point 1 has already come to pass.
• Point 2 – which was a big deal back then – is not in the new any more.
• Point 3 is another complaint that didn’t have legs.
• Point 4 also covered the making a mountain out of a molehill. It’s interesting, although not surprising, that Obama and the Democrats (sounds like a doo-wop combo) are making the same mistake with health care outlined in the last paragraph.
• As to point 5, it’s now clear that Goldman-Sachs did very well the past year, but again the worry about their treatment by Congress may have been overblown.

An article in the Business Day section of Tuesday’s issue of The New York Times discusses the plan in the works for Goldman-Sachs to repay the TARP funds they received in the fall.

There are a number of issues going on here.

1) It’s probably a good sign for the economy that someone can start repaying the money they got.

Very soon, actually — ideally within the next month, according to people involved in the process. That’s a much quicker timetable than the end-of-year goal previously set out …

2) Goldman-Sachs has gotten some bad press the last month because they were one of the largest recipients of money from AIG. So there’s money that went straight from the Treasury through AIG to Goldman-Sachs.

Criticism of Goldman over revelations that the firm had been the largest recipient of government money as a counterparty of bets placed with A.I.G. …

3) Goldman-Sachs has also gotten some bad press because Bush’s last Treasury secretary – Hank Paulson – was the CEO of Goldman-Sachs before taking that position.

Goldman would also like to put an end to the whisper campaigns about ties between it and Mr. Paulson (and Timothy F. Geithner, too, for that matter).

4) If you recall back in the fall, Paulson and the Treasury made a group of large banks all take money – whether they needed it or not – so as not to reveal who was in trouble. Apparently, Goldman-Sachs wasn’t.

But here’s the asterisk, and it’s a big one. If Goldman succeeds in returning our money, it could put pressure on other banks to give their money back, too, lest they appear weak.

This, you’ll recall, was the logic used by the former Treasury secretary, Henry M. Paulson, last October when he strong-armed some of the chief executives of the nine largest banks to participate in the Treasury plan to inject $165 billion of capital into the banking system, even though some felt they didn’t need it.

The problem now is that many of them may still need the money. And yet they may try to follow Goldman’s lead. …

…

Richard M. Kovacevich, chairman of Wells Fargo, expressed outrage at the TARP money he accepted and the strings that might be attached to it after the bonus bill passed last week.

“Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?”

5) Goldman-Sachs is also making very clear that they are doing this because they want to be able to pay bonuses to people who deserve them without government interference.

“It’s just impossible to run our business in this environment,” said one senior Goldman executive who insisted on not being quoted by name for fear of crossing the Treasury …

…

The firm’s famously well-paid executives — Mr. Blankfein made $60 million in 2007 (some of which was in stock, which has since fallen in value) — would be taxed at 90 percent of their bonuses if a bill passed by the House last week were to become law.