Saturday, May 9, 2015

Inflexible Economists

In Inflexible Trends, I showed the new FRED Graph tool for adding lines to a graph. It's not bad. It has its uses. But they insist on calling their line a "trend line" when clearly it isn't. It's a straight, connect-the-dots line.

Here's the first graph from the FRED Blog of 7 May 2015...

... along with the settings that establish their trend line: start-point and end-point dates and values. But if you look at the graph, the data (blue) is almost entirely below the  red trend line.

Actually it looks as if the blue line spends most of its time curving back up toward the red line. If I was going to show a trend line for that graph, I think I'd show a sharp drop-off just after the recession, followed by a gradual curve back toward what FRED calls a trend line.

And there's the real problem I want to point out today: Economists too often insist on thinking of trends as straight lines. That's not the way the world is.

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