Tuesday, October 9, 2012

Numerical conspiracy theories

I just read a brief blog post by Australian economist John Quiggin about the conspiracy theory garbage that is getting peddled on the political right in the United States. He is not the first who has commented upon that and I am just continually rolling my eyes whenever I come across absolute garbage passing itself off as reasonable discourse.

In his post, Quiggin described the "jobs truther" nonsense that was spouted by Jack Welch, former CEO of General Electric, that has been repeated with a bit too much credence by the U.S. media. University of Oregon economist Mark Thoma quoted an article in his blog which said basically that there are three ways to treat that kind of nonsense in the media. The first is to ignore it, the second is to report on it and denounce it and the third is to report a "he said, she said" story. The correct response would be to either ignore it because it's garbage or to file it in the "people say stupid things" column. Unfortunately, neither of these are the general approach by the news media we actually have, so people are being actively misinformed when they see a story where there is false balance.

Let me run through a few economic conspiracy theories:

First, there's the current issue in the media, where non-partisan bureaucrats in the Bureau of Labor Statistics (who are not politically-appointed) have intentionally skewed the jobs report data to make it look like the U.S. economy is doing better than it actually is. Read the articles that I linked to earlier for more about that. Needless to say, this is just dumb. Then there is a metamorphosis that John Quiggin wrote about, which I hadn't heard, that Democrats who participate in the survey are lying about their job status to make Obama look good. As he says, this is non-falsifiable. But how do we know that there are not Republicans who are lying about not having jobs to make Obama look bad?  I would suggest that nobody has a serious incentive to lie under the current conditions any more than they had a reason to lie for previous jobs reports. Historically, jobs reports have been fairly reliable, so I don't think there could be a massive conspiracy of randomly selected survey participants to make Obama look good during this jobs report.

Second, there are claims that inflation is actually much higher than reported by the official BLS CPI. This is reported by Shadowstats, a factory for inaccurate information which charges $89 for six months or $175 per year. As someone (Paul Krugman or Brad DeLong, I'm not sure which) has commented before, the annual subscription rate has stayed the same for years, despite the high inflation which they purport to show.  There is an overall confirmation of the level of inflation as reported by the CPI when you compare it to the Billion Price Index run out of MIT, which charts the development of prices online (Paul Krugman has demonstrated this one over and over).

Third, there is a claim that goes around that fractional reserve banking is some sort of scam. The more conservative David Andolfatto has a post on this, which get to the core of what banking is all about and how it works and why it isn't a pyramid scheme/ponzi scheme. He's probably better at this than I am, but think about Jimmy Stewart's description about his building and loan firm in "It's a Wonderful Life": "Your money is in Joe's house. That's right next to yours, and in the Kennedy house and Mrs. Macklin's house and a hundred others. You're lending them the money to build, and then they're going to pay it back to you as best they can." When money is in a bank, it does not just sit in a vault, much of it gets used to lend out to people who are willing to pay interest on it, for consumer loans, for mortgages or for investment. What keeps the system going is that when people deposit their money into a bank, they expect to get it back. When they don't expect that, then a bank run occurs and the bank becomes insolvent. The lender of last resort role of the Federal Reserve and deposit insurance pretty much solves that problem.  Maybe this isn't a conspiracy theory, but it's certainly an unfounded belief that there is a big scam.

There are probably others, but I've said a mouthful already.  Cutting myself short: BLS stats are not faked, fractional reserve banking is not a scam, there are a lot of crazies out there and don't ever pay any attention to Shadow Stats.

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