1.) Economists use charts to present data. That's because economists base their analysis on numbers. Graphs depict this data in an easy to understand form. A simple perusal of any economics text illustrates this point. To argue that using graphs is bad economics is the logical equivalent of saying, "Get the government out of my Medicare."
2.) Analyzing graphs of data is not "technical analysis." Technical analysis is the analysis of price charts for trading purposes. Again -- this is a rudimentary economic point. To not know the difference is another freshman mistake -- almost as bad as arguing an economist shouldn't use charts to ... oh wait -- he already did that.
3.) I still do plenty of fundamental analysis. Simply go back through all the postings and you'll I cover most major economic releases.
4.) I use to write a great deal about the amount of debt in the US economy. Then came the deflationary scare of 2008. For those of you who don't know history, this is what led to the Great Depression. To not use massive amounts of debt at the end of last year and this year would have resulted in a Great Depression II. I explained the logic in this article titled, Why the Stimulus is Needed. And I explained my new rationale about national debt in Can We Afford All This Spending. Here was the conclusion:
So -- the overall conclusion is we're going to be pushing the envelope of US finances which is never good. Overall debt/GDP will most surely be at 100% by the end of fiscal 2012. In addition, the interest component of the federal budget will surely increase as well. Now -- is this development fatal? No. But are we adding more stress to the system? Yes. But finally, do we have a choice? That is, is there another viable option right now? No. Fiscal conservatives (who by the way don't exist in the Republcan party's policy implementation arm) will argue to do nothing. But given the precarious nature of the economy right now that is still a recipe for economic suicide.
Let's look at the basic problems. First, EP doesn't know basic economic presentation methods and terminology. This is not a debate about the difference between two economists -- it's about how they don't know the basics of economics. In addition, a simple search of my work would have revealed why I changed my position about public debt. And that goes to the second issue -- they don't do their research. That makes all of their writing suspect at best. And in reality, it makes it all meaningless scribes of intellectual illiterates.
Economic Populist is angry because I called them and others out in an article titled Why Hysteria and Economic Blogs Are Best Friends. Economic Populist didn't like being told they are fitting facts to ideology. In actuality, that is all they have because arguing economists shouldn't use graphs and not knowing what technical analysis is indicates economic populist doesn't know anything about economics.
8 comments:
I love this quote from the populist's article:
Bobswern, and most of the Doom-and-Gloomers, aren't all that interested in short-term economic movements. Their horizon is further out.
That's why they aren't trying to do technical analysis, which is only good on a short timeline. The fundamentals are looking 6 months, a year, or several years down the road. Completely unlike technical analysis, fundamentals are useless in the near-term, but are increasingly more useful the further out you go.
The notion that a chart and a trend is something meaningless in a long term time scale is silly. I mean sure, if you're looking at a one week performance of the S&P 500 and trying to draw conclusions about performance 20 years from now, yes, that's foolish. However, looking at a historic chart of say GDP growth and it's relationship to unemployment over a 50 year span is very useful in figuring out what's likely to happen next.
Predicting the future is always going to be a sketchy enterprise. Predicting the future without any kind of trend analysis is just making shit up.
Oh and one other bit of "wisdom" from that article:
"Past performance may not be indicative of future results" is the oldest saying on Wall Street. What has happened in the past means exactly zilch compared to what is going to happen in the future. Sure you can still make the comparisons, but that doesn't mean they actually mean anything.
Not sure how "may not be indicative" translates to "means exactly zilch". No, a trend in the past may not continue in the future, but without the baseline of past trends, you are just making it up. Sure you can talk about new factors not accounted for in past trends, etc, but you need some baseline to go from.
It makes me think about Warren Buffet's take on the economy. How during the dot com boom everybody was dumping their money into selling pet supplies on-line while Warren sat back and bought insurance and brick makers. He looked at the historic trends and projected what would happen in the future and ended up being right. Those dot com investors thought the world had changed and it turns out they were wrong.
It also seems that none of them have looked at the fundamentals. That is that 70% of our economy comes from consumer spending. There's also the issue of psycology. At present the consumer is in no mood to spend when they fear loosing their job especially after months of loosing hundreds of thousands of jobs.
So you really don't need a lot of graphs and charts to tell you that. Just a few basic numbers will do.
Nice smackdown, B-Dad! That's gonna leave a mark!! Keep up the great work.
Business cycle trend projection is always a risky enterprise, since we are notoriously bad at picking turning points at anything more than a month or two in advance - indeed, the firmest cyclical turning point indicator is three successive months of a trend in the leading indicators, with which measurement time lag is normally a more or less coincident indicator.
What Warren Buffet is doing is something more sophisticated than trend projection - analyzing the fundamental economic situation and how it intersects with the finance sector and looking for which of the strategic growth opportunities are presently undervalued in the capital markets. And I reckon he's probably done it again with BNSF - long haul electric freight is under 10% the energy cost of long haul road freight, and when the penny drops for the government that its the only mature technology for getting both civilian and military long haul tasks done without using crude oil - being owner of those Dept. of Defense STRACNET (STrategic RAil Corridor NETwork) rights of way will be another big win.
Regarding the present post, I would note that the concern about debt is as usual overblown ... for a critique of that which is far more capable than anything EP can pull off, see UNcle (NSW) Professor Bill Mitchell's billyblog.
However, setting that to one side, the main problem that the post points to is just about precisely why I ended up abandoning EP. Agree or disagree with someone's analysis, if they give their evidence and their reasoning, and their evidence is public and their reasoning is coherent, the analysis can be critiqued, pro or con or a mix of both.
However, selecting a conclusion on the basis of the stir that it seems likely to make and then sticking to a line of argument that seems to the uninitiated like it will work, when it can be show quite simply to directly contradict the publicly available evidence, that's when the disagreement is on the approach to discussion - whether or not to engage in a evidence-based debate on an issue or to engage in a yelling contest.
The specific issue where I had to pull out was the magical powers of the VAT. Imposing a VAT in the EP Universe has two wonderful protectionist benefits.
The first is the well known and well understood situation of it being much easier to rebate VAT taxes on exports than other taxes with incidence on exports such as payroll taxes. This is more a flaw of payroll taxes than a benefit of the VAT, of course - there are a wide range of taxes with little or no incidence on exports, and many of them are far more progressive and hence far more effective as automatic stabilizers than the VAT.
Its the second protectionist impact where the EP magic came in. A VAT ALSO is supposed to have a protectionist impact because its a tax YOU ARE ALLOWED BY THE WTO TO PLACE ON IMPORTS. So in the EP universe, its a way to sidestep the WTO restrictions on discriminatory tariffs.
Of course, the REASON it is allowed within the WTO framework is because it applies equally to imports and to domestic production ... because it is non-discriminatory ... which is to say, the REASON is it permitted is that on the import side there is no protectionist impact.
Which means that whole line of argument for a VAT at EP and related sites is a steaming pile of the stuff that organic wheat farmers spread before planting.
When pressed to respond to the fact that this half of the pro-VAT argument was a work of fiction - the solution was to block further comments in that discussion thread. That was just about the time I pulled the cross-posted essays I had at the site.
Of course, the REASON it is allowed within the WTO framework is because it applies equally to imports and to domestic production ... because it is non-discriminatory ... which is to say, the REASON is it permitted is that on the import side there is no protectionist impact.
Right, but here's the thing, today, we tax income. So what happens is a company makes some widget here and does so at a profit which is then taxed. That product does to a retailer which marks it up, sells it, and then makes a profit which is taxed. However, a company that makes their product and recognizes their profits in another country, operates at a potentially lower cost than a US producer just on the fact that they don't pay income tax.
That structure sets up an incentive to recognize as much of your profit overseas. On the other hand, if we're taxing the value adds, no matter where you produce a good, we end up collecting a tax on it. So yes, it does create a level playing field, but it's an improvement because the playing field right now is decided unbalanced.
Am I missing something here?
What you are missing is the frame that you have placed the issue in - a value added tax in lieu of an individual (or payroll) income tax.
Replacing any tax that has incidence on exports with any tax with little or no incidence on exports has the same effect - there is nothing special about VAT in that regard. VAT is put forward because the others, such as capital gains tax, financial transaction taxes and inheritance gift taxes, have a higher incidence further up the income ladder, while VAT has a lower incidence as you rise up the income ladder.
The reason that the supposedly "Economic Populist" EP joins in the typical World Bank / IMF / WTO "Washington Consensus" support for the VAT, despite the fact that its an even more regressive tax than the taxes it is proposed to replace, is that in the Economic Populist version of reality, the VAT that is put in place will be discriminatory VAT that only applies to imports, or applies at a higher rate to imports - which of course would make it a tariff under another name, no more or less likely to withstand challenge at the WTO than if it was called a tariff up front.
@BruceMcf ahhhh understood, thanks!
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