Friday, November 14, 2014

Real Adjusted Total Bullshit

Some time around 1994 apparently they changed the definition of M1 money. Before 1994 the definition of M1SL money included "sweeps". After 1994 it didn't.

So now, if you want to look at the same money measure before and after 1994, you have to look at what's called "M1 Adjusted for Retail Sweeps", or M1ADJ.

But this nomenclature is wrong. It's backwards. They changed the definition of M1 money, M1SL. That was the change. So when you look at M1SL, what you see after 1994 is not the same measure as before 1994. When they made the change, they should have made a new series to show the new numbers. This new series is the one that should have been called "adjusted for retail sweeps". I should be able to look at the old M1 money series M1SL and not see numbers that change suddenly and dramatically because of the adjustment.

Graph #1: M1SL (blue) and M1ADJ (red)
The data series title "M1 Adjusted for Retail Sweeps" implies that the change occurs in the M1ADJ data series, when really the change occurs in M1SL, the data series whose title makes no mention of the adjustment.

This is exactly the same kind of deceptive language you get when economists take GDP -- a measure of the stuff we actually bought, at prices we actually paid for it -- when they take GDP, and take the inflation out of it, and call the result "real" GDP.

Total bullshit.

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