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What happened to the scientific process?

by Cyrille Tue Mar 12th, 2013 at 05:14:44 AM EST

David Greenlaw, James Hamilton, Peter Hooper, and Rick Mishkin (no, those names did not mean much to me either) have published an op-ed in the Wall Street Journal based on their recent paper on debts, deficits and borrowing interest rates.

Thus far, the sentence reveals nothing extraordinary. What they end up concluding (the most policy-absorbed might have surmised it from where their op-ed was published) was that there was a strong relationship between debt level and interest rates. There is a detailed takedown of the conclusions by Matt O'Brien, so I'll focus on something else. The data they based their conclusion on can be plotted on a graph easily enough, like that:

front-paged by afew


You can see that on this graph - which I borrowed from Paul Krugman- there are two different kinds of dots. This is called a stratified scatterplot. You plot all your data points according to the two characteristics between which you think there might be a relation (in this case, interes rates and gross debt ratio, measured as a percentage of GDP), but you stratify the data between categories that are both complete -each data point is in one of the groups- and exclusive -no point is in two groups. Here, the categories are euro and non-euro. Then you have a different marker per category.

And what it shows here is that there are two populations (in this case, euro and non-euro) that behave totally differently. If you were to fit lines, the one for euro would be fairly steep, the one for non-euro would be flat. In fact, possibly very slightly downward-sloping.

I tried to explain it thoroughly because it's a written medium and I can't see the feedback of a nod of understanding, but one thing should be clear: in terms of data analysis, this is very basic. I've been teaching Lean Six Sigma for some years, and it's a field in which the scientifically minded can feel some frustration at the fact that there is not enough time to properly cover analytical tools.

Well, the stratified scatterplot was mentioned in the half a day introduction sessions, and taught in every course, from the 2-days Yellow Belt to the 4-weeks Black Belt. Bear in mind that analytical tools is only one of the topics covered -it gets allocated a third of the time at the most, and the candidates may have no background at all in data analysis.

Typically, there would be a similar graph given as an exercise in the class, and we wouldn't go beyond that point before the class had correctly explained what was going on. It never delayed a class much. I have interviewed candidates for Lean Six Sigma roles, and if one had stumbled on such a simple exercise there would have had to be a  VERY pressing reason for his application not to end there and then. I swear that, even on a bad day, it would not take me five seconds to think "there are two populations there" -and that is without the distinct markers for euro and non-euro.

What you then learn is that, when there is such a clear stratification, you should never make the kind of model called a "regression" on the whole of the data (but you might do so on each strata).

So guess what our four op-ed writers had done? They ran a regression on the whole of the data.

Now, that this could be published in the Wall Street Journal should not necessarily come as a surprise. The WSJ probably has less truth in it than Pravda ever had (although at least its title is not misleading in the way Pravda -truth- was. It really is what Wall Street wants to read). But their op-ed was based on a published paper.

Now, the way things are supposed to go in science (even in those fields where the word "science" is stretched almost to breaking point) is that, for your paper to be published, it needs to be peer-reviewed. This paper was based on the most horrible use of regression you could imagine. Yet it was published. What is going on?

In case you'd be tempted to be charitable and think that maybe everyone had a blank and overlooked that:

   -In the paper they explain how they collected the data: they restricted their analysis to countries that borrow in their own currency ... yet over half of their points are euro countries, that don't even have their own currency. Note that the peer-reviewers did not see fit to object.
   -After writing that it makes a big difference to have your own currency, they do not stratify the data according to it.
   -Even if you go that far without noticing, any software that will do a regression for you will give you something called residuals analysis, which would scream bloody murder here. It would also yell that two points (they are, as some would have guessed, Greece and Japan) have far too much of a weight for a regression to be meaningfully run on the data. The authors must have had that in front of their eyes, as it is probably what makes them say that their model "does not have predictive power". But it does not have descriptive power. Yet they submitted their paper, and it was accepted.

To really rub it in, one of the authors, David Greenlaw, happens to be ... Morgan Stanley's chief economist! We have been told for years that extremely high salaries in finance were justified and needed in order to attract the best and brightest. Well... I must admit to having often, when teaching in investment banks, played at taking a few of their economic notes from the reception to make the class work on finding the mistakes, but they were never that trivial.

Quite a few of the people I taught in 2-days classes would not have been paid much (if at all) above median wages. But not one of them would have made the simplistic error made by the "best and brightest" David Greenlaw, who must receive over 40 times more.

And who then submitted it, got it peer-reviewed, and published.

Something has gone very wrong with the peer-review process.

Display:
Cross posted on Anachronicles

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 9th, 2013 at 12:05:02 PM EST
European Tribune - What happened to the scientific process?
Morgan Stanley's chief econom propagand-ist

For that is what bank economists are. Media chaff.

The WSJ too, since the early '70s, has been devoted to ultra-liberal propaganda.

As for peer review and scientific process, that is a serious problem. The steady privatisation of research over the last decades, the hold of big money on access to funding, are probably the main issue. Like media folk, scientists don't want to step on the wrong toes. The notion that science is free from ideology and politics is a fantasy, since scientific practice is subject to power relations.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Mar 9th, 2013 at 01:07:07 PM EST
" The notion that science is free from ideology and politics is a fantasy, since scientific practice is subject to power relations. "

Well, perhaps, but I'm not even talking about the substance of his conclusions (which are wrong, of course), but he backs them with something that is a crass misuse of data. I really am not exaggerating when saying that it would not take me five seconds to spot it.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 9th, 2013 at 01:25:55 PM EST
[ Parent ]
My point concerns those who are peer-reviewing and publishing. Those who committed the "study" are simply propagandists.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Mar 9th, 2013 at 05:00:55 PM EST
[ Parent ]
"those who are peer-reviewing and publishing" are, undoubtedly, concerned with avoiding heresy and being cast into the outer darkness of junior colleges. There are a good number of honest economists working in various aspects of 'the market', those where the need for realistic forecasts is far more important than the need for ideological purity. Many of these are hedge funds. There one can enjoy playing the stupidities of 'mainstream economics' against the believers. But there remains a bias against pulling back the curtain.

Those who want to get ahead likely learn to overlook and ignore the deceptions of colleagues. How much better if one can manage to really believe or to convincingly pretend to believe the dogma. If one has gone into debt to get a degree it is rather awkward not to believe what one has learned, especially if one needs to teach. This is rather like someone who has become a Doctor of Divinity only to find that they are actually an atheist. What to do if the student loan still has to be paid.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Mar 9th, 2013 at 10:26:06 PM EST
[ Parent ]
I'm not even talking about the substance of his conclusions (which are wrong, of course), but he backs them with something that is a crass misuse of data. I really am not exaggerating when saying that it would not take me five seconds to spot it.

This is what he is expected to do - serve the interests of his Church. It obviously has nothing to do with science. What comes out of investment houses is sort of like economic creationism. Any old rhetoric or device to make the followers feel confident in the dogma. This is little different than pagan priests who used to blow perfumed air through bellows out the mouths of statues of the Gods whose worship they oversaw. This was the pneuma and, when felt and sniffed by the worshipers, undoubtedly helped with the contributions to the temple.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Mar 9th, 2013 at 10:08:05 PM EST
[ Parent ]
"The WSJ too, since the early '70s, has been devoted to ultra-liberal propaganda."

It's a bit more complicated than that; in its editorial pages yes - but, just as in this thread there's been some welcome support for honest and competent economists, instead of blanket dismissal, so Chomsky defends honest and competent journalists, and even the WSJ's news pages:

Why do the media often provide crucial information undermining established doctrine? One important reason is that journalists are no different from other people. Many are honest, dedicated, courageous people who pursue their craft with honor and admirable professional integrity. They want to find the truth, whatever it is, and to report it honestly. Sometimes they succeed, though there is plenty of filtering at the news-management level. Furthermore, those in decision-making positions in the economic, political, and ideological domains have to have a tolerably realistic picture of the world. The editorial pages of the Wall Street Journal may be mostly a comic strip, but the news pages are often excellent, and some of the best reporting in the world can be found in the London Financial Times and other business journals. In addition, the discipline of the intellectual community can be trusted to shape what appears into forms that will serve power interests, to a substantial if not overwhelming extent.

http://www.zcommunications.org/sustainer-forum-reply-by-noam-chomsky




Maybe it's because I'm a Londoner - that I moved to Nice.
by Ted Welch (tedwelch-at-mac-dot-com) on Sat Mar 9th, 2013 at 06:22:03 PM EST
[ Parent ]
Note that the Chomsky article is from before Murdoch bought the WSJ. There were fears that he would meddle with the news section of the paper: does anybody know if this is actually happening?
by gk (gk (gk quattro due due sette @gmail.com)) on Sun Mar 10th, 2013 at 07:03:34 AM EST
[ Parent ]
I'm not sure, But I can ask

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sun Mar 10th, 2013 at 05:00:29 PM EST
[ Parent ]
This is reminiscent of Jérôme's usual point about The Economist: that it contains useful information and analysis, even if its editorial line is militantly pro-liberal. This is not surprising: journals of record and repute like The Economist and the WSJ would not be efficient as propaganda outlets if they ceased to act as journals of record and repute. So it's entirely to be expected that certain reporting standards should be maintained.

However, with Robert Bartley's editorial tenure in the '70s, '80s, and '90s, and since, the WSJ has consistently used its stature as America's financial newspaper of record to disseminate, among the serious people that constitute its readership, radically pro-business and liberal-economic views. Chomsky here mocks the editorials as "comic strip", and yet they have carried out their function in the manufacture of an ultra-liberal common wisdom. The op-ed Cyrille refers to is just one more in a long line.

And the quality of reporting may be called in question, especially since Murdoch's takeover. According to Barry Ritholtz (yesterday) (click over there to see the headline he objects to):

Wall Street Journal Fail | The Big Picture

The Wall Street Journal was once the greatest American newspaper. Sure, the OpEd writers were insane idealogues, and there was the occasional drunk or pederast on the masthead. But overall, the quality of the writing was so good, and the objective look at business so sharp, investors could rely on it.

Today, Fox News seems to write the headlines. The influence of the partisan editorials has completely overtaken the entire paper.

In other words, to investors, it has become a gnarly mess of unreliable, EXPENSIVE partisan bias. Nothing is trustworthy on its pages anymore.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Mar 10th, 2013 at 07:25:38 AM EST
[ Parent ]

Chomsky here mocks the editorials as "comic strip", and yet they have carried out their function in the manufacture of an ultra-liberal common wisdom.

Chomsky is quite capable of mocking something for its extremism AND understanding all-too-well how it functions to "manufacture ... the common wisdom" - he did write, with Herman: "Manufacturing Consent":


Now the elite media are sort of the agenda-setting media. That means The New York Times, The Washington Post, the major television channels, and so on (WSJ. TW). They set the general framework. Local media more or less adapt to their structure.

http://www.chomsky.info/interviews/1992----02.htm

I'm quite prepared to accept that Murdoch's takeover will have had some negative effect on the news reporting of the WSJ; but I'm OFTEN sceptical about claims which use words like "always",  "all", "nothing" etc. So I think this is an exagerration:

"Nothing is trustworthy on its pages anymore."

A more reasonable critique, from the Columbia Journalism Review, based on some indicative stats regarding decline in length of stories, includes this:


Certainly, the Journal still does lots of top-flight work, and most stories don't need 2,500 words. But many do, and how does going short as a policy help readers understand the really important stuff like systemic problems, corporate misbehavior, business innovation, or sweeping economic change?

http://www.cjr.org/the_audit/the_shorter-form_journal.php

There is a quite reasonable reply:

http://www.cjr.org/the_audit/charts_of_the_day_wsj_story-le.php

which is not to say that it is entirely correct :-)

But I think that, as Chomsky says, and as Jerome says of the Economist, they need to be reasonably accurate because their audience needs to have at least a reasonable approximation to the facts since they're making important decisions partly on the basis of such information. If they really provide "nothing" that can be trusted they will lose an important part of their readership. Murdoch's a shrewd enough businessman to understand that.

 

Maybe it's because I'm a Londoner - that I moved to Nice.

by Ted Welch (tedwelch-at-mac-dot-com) on Sun Mar 10th, 2013 at 04:04:37 PM EST
[ Parent ]
Ted Welch:
he did write, with Herman: "Manufacturing Consent":

Yeah. That's why I used the word "manufacture".

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Mar 10th, 2013 at 05:08:23 PM EST
[ Parent ]
If they really provide "nothing" that can be trusted they will lose an important part of their readership.

My own view is that one can trust anyone. It is just a matter of what they can be trusted to do, say, etc.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Mar 12th, 2013 at 02:22:52 PM EST
[ Parent ]
Something has gone very wrong with the peer-review process.

Could it be that the reviewers are more concerned with WHO the author is than with what the author has to say?  - unless, of course, what the author has to say is critical of some beloved assumptions of those guarding the gates to their own academic citadel. This response it common to religions that are symbiotic with a state.

Thorstein Veblen compared hierarchical religious sects to retail distribution chains. An anthropologist would see the behavior amongst those in the 'mainstream' of modern economics as much more like a church and the theoretical systems as more like doctrine and heresy than like scientific postulate and experimental testing. It is not without reason that economists 'joke' about to which 'church' various economists belong. It is also significant that senior members of the profession argue that economics is more a branch of moral philosophy than of social science and that therefore a deductive, axiom based approach is in order. I agree with that view, though I find the 'moral' aspect problematic.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Mar 9th, 2013 at 01:07:24 PM EST
In, for instance, the Catholic Church any nonsense that the archbishop writes, provided it does not provoke a negative response from Rome, is 'received' guidance for the truly faithful. David Greenlaw has a rank in 'mainstream economics' comparable to that of a Catholic archbishop, I would argue.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Mar 9th, 2013 at 01:11:12 PM EST
[ Parent ]
And the Wall Street Journal is like the church news letter, especially the opinion pages. Substitute for 'moral' guidance investment guidance and you have the same tendentious advise, intended, at least, to make a positive contribution to the bottom line of the 'Chruch'.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Mar 9th, 2013 at 01:22:13 PM EST
[ Parent ]
As I said, it's not that it was in the WSJ that baffles me. It's that the academic paper was published.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 9th, 2013 at 01:26:37 PM EST
[ Parent ]
Which journal?

The not-really-secret of scientific peer review is that you can get any old shit published somewhere. The problem with economics is that it publishes shit in its "top-tier" journals.

Actually, the real problem with the journal culture in economics is that it lacks second-tier journals - which is where all the scientific legwork gets done, as anybody who has ever compared, say, Nature and Physical Review Letters side-by-side will know.

So what you have in economics is three top-tier journals, which can get away with publishing any old shit which is Novel and Interesting, because there are no second-tier journals around to push them to at least make a cursory check that it is also methodologically sound and empirically relevant. And then you have a vast gulf of nothing at all until the third-tier specialist journals start. Which are, as in all fields, a somewhat mixed bag.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Mar 9th, 2013 at 03:24:33 PM EST
[ Parent ]
Well, that situation would, I feel, fully justify my title.
There are some honest PhDs in economics -I would bet my life that my brother is one. They joined a field that purports to follow scientific processes.

Now, I know that the views here are somewhat cynical towards that field. And I fully include myself in that. But this was not necessarily written with an ET reader in mind. If I just claim that the WSJ is corrupt, I'll be preaching to the choir -those who don't believe it will instantly stop listening.

So my angle of attack was not the conclusion, not even the person (well, not only the person), but the process. And my bitterness that something that I had to teach in introduction classes can be entirely overlooked by a per-review in the field.
And knowing that I am a far, far better economist than this overpaid guy, but currently unemployed while he's raking in millions, sort of rubs it in deeper, of course.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 9th, 2013 at 03:41:18 PM EST
[ Parent ]
There are a great many honest and competent people in economics. The natural habitat for honest, competent professionals is the second-tier journal.

In economics, they get published in third-tier journals and then tacitly ignored by everyone Important. Because the Important People publish mainly in the top-tier journals (whereas in a field like physics, even the Very, Very Important people don't regularly publish in top-tier journals - this definitely helps build recognition and credibility for the second tier, which I would argue is more important anyway).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Mar 9th, 2013 at 04:46:42 PM EST
[ Parent ]
Economics is such an outlier in its politicization. Inconvenient economists are just ignored (Veblen included), while "useful" shit is accepted as routine (or even top tier) science.

I was asked a few times economics students to help with their regression or modeling exercises, thesis. It's always a disgrace: few points and with obvious problems, and always to show a tax/growth correlation or something.

Broadly though, the standards of science are quite decreasing (thanks to Indian publishers perhaps, but especially to corporatization of universities in management, funding). Apart from economics, those standards have a long way to go down for creationist satisfaction, though.

by das monde on Sun Mar 10th, 2013 at 06:36:48 AM EST
[ Parent ]
There is obviously little need for further decline, as the current state of resolute disconnect between economic theory and observed reality indicates.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 10th, 2013 at 12:23:23 PM EST
[ Parent ]
"Economics is such an outlier in its politicization."

There is law. That said I sometimes suspect it's just tolerated at universities as a legacy. Being a part of university before the time science was invented.

by IM on Thu Mar 14th, 2013 at 04:47:53 AM EST
[ Parent ]
There is not much pretense of law studies as science. The academic tradition of law (and largely, medicine) studies stems from the need to prepare really skilled practitioners.

You also have "political sciences", "social studies" - but the softer flavor of science is humbly acknowledged there.

Economics is unique in its pretentiousness and its public status. They even give Nobel prizes (as they are widely known) in Economics, right?

by das monde on Sun Mar 17th, 2013 at 05:31:13 AM EST
[ Parent ]
Well, they do in Peace and Literature and they hardly pretend to be sciences.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sun Mar 17th, 2013 at 05:42:31 AM EST
[ Parent ]
I had a frightening discussion with an expert in the Philosophy of Law recently.

Most people assume justice is a moral concept. But in legal terms it's considered by many lawyers and judges to be purely procedural.

So justice is considered served if due process is followed, even if the result is a moral nonsense.

This explains a lot about both politics and law, IMO.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Mar 17th, 2013 at 06:04:50 AM EST
[ Parent ]
Well, the important thing to understand is that the institution called "Justice" in various countries is not there to deliver justice but to uphold the law. It shocks most people's intuition, however there are also some good reasons for it in most situations.

But that does lead to some extreme. I'm pretty sure that it's a current US Supreme Court Justice who claimed that proof of innocence was no reason to cancel an execution that was decided by due process.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sun Mar 17th, 2013 at 08:19:37 AM EST
[ Parent ]
Legal Positivism.

It has its merits, because the "natural law" people are also insane.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Sun Mar 17th, 2013 at 08:30:01 AM EST
[ Parent ]
Well - both are a subjective exercise of political power. So I'm not sure one is any more insane than the other.

Utilitarianism is rather more practically oriented.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Mar 17th, 2013 at 09:27:22 AM EST
[ Parent ]
Except that utilitarianism is based on an exceedingly poor model of human behavior, making it just another Utopian mirage.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 10:09:11 AM EST
[ Parent ]
That's better than being based on distilled fluff and rhetoric.

I suppose ideally you'd have explicit legal/political goals, and sanctions/rewards which would be calibrated and tested against an objective and provably accurate assessment of their value.

But why bother when you don't have to progress beyond simple emotionalism?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Mar 17th, 2013 at 10:13:46 AM EST
[ Parent ]
 >But in legal terms it's considered by many lawyers and judges to be purely procedural.<

Gerechtigkeit durch Verfahren. (Luhmann)

That said, due process is at least achievable. A just result is much more difficult.

by IM on Sun Mar 17th, 2013 at 03:19:48 PM EST
[ Parent ]
Do we know well how are we are treated by law?

Say, is that stuff about us as natural persons or CORPORATIONS serious?

For a change, here is a peculiar story of "science" and law colliding:
The Professor, the Bikini Model and the Suitcase Full of Trouble

by das monde on Mon Mar 18th, 2013 at 06:23:56 AM EST
[ Parent ]
>There is not much pretense of law studies as science.<

True, that is the saving grace. A discipline should know it's limitations.

by IM on Sun Mar 17th, 2013 at 03:17:21 PM EST
[ Parent ]
The simple answer: Economics isn't a Science.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sat Mar 9th, 2013 at 02:02:48 PM EST
Still, papers get peer-reviewed. It's the scientific process that went missing there.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 9th, 2013 at 02:04:07 PM EST
[ Parent ]
Look - Henry George spawned a wave of populist reform. Mark overturned the course of history, and then Keynes dictated the policies of 2 generations of politicians across the globe. At that point, anyone with half a brain noticed that economic arguments carry immense political weight, and that this weight need not derive from underlying correctness of any given theorem.

Given this obvious insight, people with both an entirely intact brain, and quite considerable funds have made it their buisness to buy out economics.
This is not a secret.
The foundations and individuals doing this have webpages and disclosure lists.

And economics is not Physics. If you propose a theory which is in grave error, but which is pleasing to people who endow university chairs, lab experiment will not demonstrate your foolishness. Instead, the error gets perpetrated on the lives of millions, at a cost that makes all the colliders of the world seem very cheap.

Whenever you hear an economic argument look for the paymaster, and assume that you are being lied to. I would suggest that since Keynes seems to have been effective until the oil crisis, we ought to substitute away from oil by brute engineering force, and then try his policies again, because all economic thinking since his is drawn from a poisoned well.

by Thomas on Sat Mar 9th, 2013 at 02:39:41 PM EST
[ Parent ]
Salon.com has this review article:

When neoliberalism exploded

And then we should not forget the Powell Memorandum.

by das monde on Sun Mar 10th, 2013 at 02:29:05 PM EST
[ Parent ]
I would suggest that since Keynes seems to have been effective until the oil crisis, we ought to substitute away from oil by brute engineering force, and then try his policies again, because all economic thinking since his is drawn from a poisoned well.

Or perhaps we should add rents to the keynesian theories.

by kjr63 on Tue Mar 12th, 2013 at 12:08:30 PM EST
[ Parent ]
He had rents in his theory. He proposed Euthanasia.
by generic on Tue Mar 12th, 2013 at 12:20:22 PM EST
[ Parent ]
Thank you for the link. Perhaps Keynes had but not keynesians.

In that link Keynes correctly notes that rentier capitalism does not reward real risk any more than land rent. He talks about rent of capital (scarcity rent) not land rent. I'm still skeptical what Keynes had to say about land rent.

Anyway it looks like Keynes makes clear distinction between land and capital.

by kjr63 on Wed Mar 13th, 2013 at 01:19:48 PM EST
[ Parent ]
yep

(and I say that having a PhD in "economics" - although my dissertation does not have a single equation in it)

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sun Mar 10th, 2013 at 08:40:26 AM EST
[ Parent ]
It's a conference proceeding, not a paper. You can get any old shit published in conference proceedings.

You can also find lots of good stuff in (some) conference proceedings, of course. But conference proceeding peer review always has a substantial risk of being crony review, unless you personally know and can vouch for the integrity of the conference steering committee.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Mar 9th, 2013 at 03:36:08 PM EST
Ah, that makes it somewhat better. I was fooled by the reporting -Krugman and O'Brien called it a paper, and I really did not want to give them additional traffic, not from this drivel, so I didn't check.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 9th, 2013 at 03:43:56 PM EST
[ Parent ]
What you are citing is not the "scientific process" ... what it is I won't conjecture but it's not science. Science is suppose to be about performing controlled experiments in order to firstly determine which independent variables are significant to a system's workings and which ones aren't ... and don't forget to randomize the order of your experiments or you  might mistake regular background error with actual important correlation.

So please, when you folks do your "economics" crap, please leave science out of it. Cite religion or something else equally stupid.

They tried to assimilate me. They failed.

by THE Twank (yatta blah blah @ blah.com) on Sat Mar 9th, 2013 at 04:59:38 PM EST
Rick Mishkin (no, those names did not mean much to me either)

The last one is famous for his role in "Inside Job"

In 2006, Mishkin co-authored a report called "Financial Stability in Iceland". The report maintained that Iceland's economic fundamentals were strong. The report was commissioned by the Icelandic Chamber of Commerce in response to critical coverage of the Icelandic economy and certain Icelandic companies in the international business media. Mishkin was paid $124,000 to co-author the report. Iceland subsequently experienced a spectacular financial collapse two and a half years after Mishkin's report. According to the documentary film Inside Job, the title of the report was changed to "Financial Instability in Iceland" on Mishkin's curriculum vitae (CV). Mishkin's CV was later corrected to list the report with its original title.
by gk (gk (gk quattro due due sette @gmail.com)) on Sun Mar 10th, 2013 at 06:47:46 AM EST
I was just about to google 'Richard Mishkin' after my re-read jogged my memory about this fraudster for hire.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 10th, 2013 at 12:27:50 PM EST
[ Parent ]
That will give you someone with a more honest profession (real estate broker). You're looking for Frederic Mishkin.
by gk (gk (gk quattro due due sette @gmail.com)) on Sun Mar 10th, 2013 at 01:15:39 PM EST
[ Parent ]
I guess 'Rick' is his call name.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 10th, 2013 at 04:28:18 PM EST
[ Parent ]
Please note that your graph is not a graph of any of the data used in the regression you criticize.  That is explained here:

<a href="http://www.econbrowser.com/archives/2013/03/why_im_more_wor.html">http://www.econbrowser.com/archives/2013/03/why_im_more_wor.html</a>

Also please describe when in your statistics course you get around to explaining how country and year fixed effects work.

by James Hamilton on Thu Mar 14th, 2013 at 11:18:26 AM EST
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Mar 14th, 2013 at 11:34:21 AM EST
[ Parent ]
Your reply, and the blog post linked, do nothing to enhance your scientific credibility.

My take-away from the blog post is this : you claim that showing a correlation between EU countries' debt levels and bond interest rates has policy implications for the USA.

This is a political assertion, and frankly laughable from an economics point of view. The graph from your blog (below) demonstrates that, as long as the market was under the illusion that the Euro was a normal currency, debt levels had no influence on interest rates for member countries. It was precisely when it became apparent that the ECB was unwilling to function as a true central bank, and was in fact prepared to let member countries' economies go to the wall, that the correlation between debt levels and interest rates becomes apparent.



It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Mar 14th, 2013 at 11:47:29 AM EST
[ Parent ]
The US comparison would have to be with the state or municipal bond market.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Mar 14th, 2013 at 11:50:25 AM EST
[ Parent ]
Like to like : non-sovereign entities can become insolvent, they have to pay their credit risk with the interest rate.

For sovereign entities, the policy takeaway from the ongoing failure of the euro is this : if you want interest rates to correlate with debt levels, then kneecap your central bank. The Fed has made it abundantly clear that it will find creative ways to print money, as much and as long as necessary. If it were to signal that it was no longer willing to accommodate debt-based stimulus, then buying US treasuries would suddenly become dangerous. And the interest rates would soar. Wouldn't that be nice?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Mar 14th, 2013 at 12:14:20 PM EST
[ Parent ]
There is the additional complication that there is no other safe dollar asset you could hold instead.
by generic on Thu Mar 14th, 2013 at 01:16:00 PM EST
[ Parent ]
Municipal bonds are not a "safe dollar asset", that would be the US treadury debt.

That's why US municipal bond insurance exists (remember AIG?).

Or do you mean there's no "safe Euro asset"?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Thu Mar 14th, 2013 at 01:24:07 PM EST
[ Parent ]
Should have quoted:

If it were to signal that it was no longer willing to accommodate debt-based stimulus, then buying US treasuries would suddenly become dangerous.

There still wouldn't be an asset that is inherently safer than treasuries. In Europe you could rank national debt after how credible the non backing by the ECB was.

by generic on Thu Mar 14th, 2013 at 01:34:19 PM EST
[ Parent ]
Yes, if the Fed were to signal that it was willing to put ideological purity ahead of financial stability, or the maintenance of the full faith and credit of the US government; in other words, if the Fed were to signal its willingness to let the US government default, then buying US treasuries would become dangerous.

But faced with the choice of defaulting on the debt or shutting down the government, both the US Congress and the Treasury appear to lean on the side of shutting down the government. So even in case the Fed decided to become the Bundesbank US treasuries would remain safe.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Thu Mar 14th, 2013 at 01:44:48 PM EST
[ Parent ]
"It is true that you won't find statistical confirmation of the nonlinearities reported in equation (3) if you confine yourself to recent experience in the major non-eurozone advanced economies. There's a simple reason for that-- these countries have not yet reached the tipping point in the dynamics of fiscal debt loads."

You seem to introduce this tipping point - not defined - after the fact to defend your conclusions.

by IM on Thu Mar 14th, 2013 at 11:51:40 AM EST
[ Parent ]
The tipping point is described in detail in pages 4-12 of our paper:
http://dss.ucsd.edu/~jhamilto/USMPF13_final.pdf
by James Hamilton on Thu Mar 14th, 2013 at 12:01:49 PM EST
[ Parent ]
But you cannot fit to the linear part and then claim that it validates, by extrapolation, the nonlinear part.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Thu Mar 14th, 2013 at 12:07:33 PM EST
[ Parent ]
First, let me welcome you to European Tribune

You claim, in your linked post, that using a fixed-effect estimator suffices to account for the effect of being a member of the Eurozone.

This is obviously false. In order to properly account for higher-order effects, you would have needed cross-terms of a Eurozone dummy with each of your independent variables. Just as (and for the same reason) you include cross-terms between the independent variables in question.

As you correctly note, this would have reduced the statistical power of your test. You are incorrect about the magnitude of the reduction, however: Including Eurozone dummy cross-terms would increase the number of estimated coefficients by only five, not one hundred as you allege.

But more fundamentally, the fact that your data is insufficient to power a proper estimator does not in any way, shape or form justify using an obvious misspecification. In point of fact, using an obvious misspecification to generate fake statistical power is a strong indicator of pseudoscience in action, and hence an argument in favor of the original diary's conclusion.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 14th, 2013 at 06:01:51 PM EST
[ Parent ]
Your post contains a crucial, yet wholly unsubstantiated, assertion:

It is true that an unanticipated inflation would succeed in bringing the real debt burden down. But as soon as creditors become concerned that this is the way the problem will be resolved, nominal rates will rise

The central bank sets interest rates net of compensation for nominal default risk. In extremis, the central bank sets interest rates for all maturities if it wants to.

And indeed, the central bank should set interest rates for all maturities: If the central bank does not do so, the long-maturity end of the yield curve depends exclusively on animal spirits and expectations about future central bank policy.

But either way, there is no connection to the government budget, let alone any economic fundamentals. At all.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 14th, 2013 at 06:13:56 PM EST
[ Parent ]
It is somewhat gratifying that Cyrille's diary drew a response from one to the authors of the paper he critiqued.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 15th, 2013 at 11:19:40 AM EST
[ Parent ]
We have a high google page rank.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Mar 15th, 2013 at 11:50:46 AM EST
[ Parent ]
But the diary could have been ignored. It is interesting that so much effort has gone into defending lumping together similar numbers of EU countries and non-EU countries when the common constraint on all EU countries of having to act as though they are on a gold standard is having such dramatic effects on them. Perhaps this is unremarkable to 'mainstream' economists, but to me it seems it would be better to 'compare and contrast' EU countries to countries with their own sovereign currency AND a central bank committed to protecting the solvency of its banks, (full stop).

It also raises the question of whether the authors consider such defense appropriate, even if it should entail 3-5%/yr inflation for smaller countries - or even if it entails no inflation - as is currently the case with the Fed policy in the USA.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Mar 15th, 2013 at 02:18:17 PM EST
[ Parent ]
Failing to do a simple general-to-specific specification search is not at all unremarkable to mainstream economists. It's the sort of thing that would cause you to fail any half-way respectable undergraduate course on time-series statistics.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Mar 15th, 2013 at 02:21:40 PM EST
[ Parent ]
Since you have still not issued a correction, retraction, or apology, please permit me to again call your attention to the following.  Your article contains the following statement: "The data they based their conclusion on can be plotted on a graph easily enough, like that:"  You then provide a graph that is a plot of the data in Table 3.2 of our paper. Permit me to quote from page 21 of the paper: "Table 3.2 reports each country's average interest rate during 2012 for our sample of 20 advanced economies.... Note that these observations were not used in the preceding empirical analysis."

And you titled your piece, "What Happened to the Scientific Process?"  

by James Hamilton on Thu Mar 14th, 2013 at 07:12:34 PM EST
Where I come from, it is considered polite to allow for up to a 24 hour delay in online communications, due to time zone differences and other obstacles to more expeditious communication. Certainly if one is to take a strident tone.

The observant reader will notice that you have allowed for less than twelve.

But while we wait for that, could you perhaps enlighten us as to whether you believe that the figure would be materially different if all the relevant data had been included, and the data to which you object been excluded? Because if that is not the case, then the substance of the diary stands, irrespective of a single sentence having to be reworded or the graph updated.

Oh and while you are here anyway, I'd like to hear your reasons, if any, for not including cross-terms for Eurozone membership in your specification?

For that matter, would you like to justify your assertion that bondholders have price-setting power against a sovereign with its own housebroken central bank?

Those strike me as rather more central to your argument than whether you use 2011 or 2012 data.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 14th, 2013 at 07:27:49 PM EST
[ Parent ]
I further notice that you have not provided the results of any misspecification tests in your paper. How have you tested the appropriateness of your specification? What were the results of those tests? And why did you decide to not share them with your readers?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Mar 14th, 2013 at 07:31:26 PM EST
[ Parent ]
"Table 3.2 reports each country's average interest rate during 2012 for our sample of 20 advanced economies...."

But you did use 2012 numbers for your table anyway.  So that is this, quod licet jovi non licet bovi?

by IM on Fri Mar 15th, 2013 at 05:14:03 AM EST
[ Parent ]
Note that these observations were not used in the preceding empirical analysis
"Here is a fancy chart that is only tenuously related to the conclusions of the paper."

And that was acceptable to the referee, exactly why?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Fri Mar 15th, 2013 at 05:47:43 AM EST
[ Parent ]
As Jake noted, above:

It's a conference proceeding, not a paper. You can get any old shit published in conference proceedings.


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Mar 15th, 2013 at 02:58:02 PM EST
[ Parent ]
Quite apart from the strict time demands (I was sitting an exam on Friday and had to look after my kids alone for the rest of the day. Also, I need to find some work assignments. Those will tend to take precedence):

A correction, retraction or apology? What for?

My graph is a plot of table 3.2 of your paper. So that seems to fit the description that I'm plotting your data. In fact, the most recent data points in your sample -those that could, by the way, be seen as the most relevant to a paper pretending to give some insight into the future.
That you then decide not to use them in a regression that should not have been produced at all is neither here nor there. It would raise strong suspicions as to the motives for leaving those data points out, except that the conclusion is not supported by the 2008-11 sample either.

We're not at analytical stage yet with that. Practical assessment suggested that having your own currency was very important. You suggested as much but still included euro countries despite claiming that you had restricted the data to countries that had their own currency.
Then, moving on to the graphical assessment, it is good practice not to confuse stage effects from stratification ones. So, a time series that shows that things change after 2008 (and that's not passing a debt threshold since it does for countries with a rather low debt too), and a scatterplot with a single point per country, which will always be, unless there is a pressing reason to do otherwise, the most recent, with the obvious previously (at the practical stage) identified stratification is in order.

Yet, despite having highlighted it when wrongly claiming that you had only taken data from countries with their own currency, and while having the data right there, you don't do this simple stratification. In a way nevermind: any experienced data analyst will guess that there are two populations from just a passing glance at such a graph. But that's the thing: no regression should be attempted in that situation. Not on the whole data sample anyway.

Then, there is the little rule of not using a model outside of its scope, so using a correlation (probably not causation, the cause is far more probably to be found in current account imbalances) derived purely from euro countries to make policies recommendations in the USA is, as Eurogreen noted, to be avoided.

As for your implied assertion that my post does not follow the scientific process, well, I don't feel I'd need to defend that at all. It was posted on my blog, and cross-posted here. Neither is a noted scientific publication. I have never, in fact, published in a scientific journal. So, no, this did not have to follow this process, although posting anything where people like JakeS or Migeru are lurking involves some of the strictest kind of peer review -and it happens in public, as you can see.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Mar 16th, 2013 at 04:01:04 AM EST
[ Parent ]


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