Chop Shops

For me, the goal is always to get as much data as I can. The more years, the better. Even so, I generally ignore the first ten years.

There's nothing scientific about that. It's just a habit I developed while looking at graphs of economic data. It's tempting to think you can imagine what the numbers were doing in the years just before the start of the graph, but I've been wrong often enough to know better. And since I cannot see what happened just before the first years of a graph, I don't trust the stories about what I do see in those first years...

I trust that what's there in those first years is valid. I don't trust the interpretations of it or the explanations of what brought it about. But that's just me.


Marcus Nunes (7 September 2013) quotes Ed Lambert:

Volcker put the breaks on the liquidity coming from the Fed rate in the early 80′s. And the babies born from 1960 on graduated from college into a world of tight liquidity due to tight Fed policy. They became disadvantaged. They did not find job openings. As a generation, they fell behind. I was one of those babies that graduated into the heart of the 1982 recession.

A little too personal for me, Ed, but I take your point. (BTW it's brakes, like brakes on a car: for slowing or stopping the car or (in this case) the liquidity.)

Marcus responds:

Actually it appears he had greater luck than those who graduated a few years earlier! The charts show how lucky Edward was!

Here's the second of Marcus's graphs, from that same post:

Graph #1 from Marcus Nunes

Marcus's graph makes it look like employment was stuck at a low level until Ed Lambert needed a job, and then things suddenly picked up. That's not really what happened. The graph creates a false impression because it only goes back to 1979 and only shows 10 years in all. Marcus uses the false impression to build his story.

Here's how FRED shows Employment for the 1979-1989 period, just like Marcus:

Graph #2: Employment, 1979-1989

Looks just like Marcus's graph. But wow, my numbers are way different from Marcus's numbers. Marcus, você pode explicar isso? Maybe we used two different data series? And yet, the patterns appear to be identical.

Here's the same FRED data for the full period, with Marcus's ten years in red:

Graph #3: Employment since 1939

You have to tip your head to the left a bit, so that the employment line since 1960 looks like a flat line. That's the "trend". (Employment was slowing before 1960, and also after 2000, relative to this trend.)

When you look at that trend since 1960, you can see a flat line with high spots and low spots in it. A low spot near every recession bar. One of those low spots, the big red one, occurred just when Ed Lambert graduated.

The low spots are not good times to go looking for work. Lambert went looking for work at one of the low points of employment. I don't see how Marcus can call that luck, unless he means bad luck.

Marcus chops his graph down to just a few years, making it look like the employment numbers support the story he tells. But what looks like a flat spot on Marcus's short graph is really a low point in a generally rising trend.


Ed Dolan (23 September 2013) does a pretty decent evaluation of the Money Multiplier, contrasting old and new views. He opens with a look at the older view:

The multiplier posits that there is a stable ratio between M2 ... and the monetary base

Dolan writes:

There is just one problem. As the following chart shows, something has gone badly wrong with the money multiplier in recent years. For most of the 1990s and 2000s, it was steady as a rock. From 1994 to 2007, the 12-month moving average of the multiplier stayed in a narrow range, between 8.0 and 8.4. Then it fell off a cliff. By July of this year, it had reached a record low of 3.24.

Yep. Dolan could have stopped the graph in 2007, if he wanted to defend the "stable ratio" argument. He didn't do that, maybe because he he's not defending the stable ratio argument. Or maybe because he wants to look at the graph and see what actually happened before he picks an argument to defend. That would be good.

Here's the FRED graph that corresponds to Dolan's graph:

Graph #5

Here's the full FRED dataset:

Graph #6

Who in his right mind would call that "stable"? And why does Ed Dolan not show the years before 1993?


Warren Mosler (24 September 2013) writes:

Interesting chart- inventory of existing homes for sale vs the labor force participation rate…
new home sales track closely as well…

I couldn't find data for inventory of existing homes for sale but FRED has new home sales, so I looked at that. Since 2005, like Mosler's graph:

Graph #8 (since 2005)

Next, the full dataset:

Graph #9 (all years)

"New home sales track closely," Mosler says. That wouldn't be my argument. My argument would be: You can take any little short period of time when two numbers are moving in the same direction, and zoom in on just that period of time, and pretend to show evidence of whatever you want to claim.


EDIT: Concluding sentence removed.