Another example of the importance of starting dates

Back in October, Yglesias reported on how the Trump stock market rally wasn't all that impressive. Other countries' stock market indices had risen by more than ours had. To illustrate this, he included this graph comparing the US S&P 500 with Japan's Nikkei, Germany's DAX, and France's CAC indices:

It clearly shows that, while the S&P500 has risen considerably since Aug 2016, the rise is not as large as the gains experienced by other countries. He concluded:

That said, the fact that stock market enthusiasm over the past year has been worldwide with the United States lagging other key countries seems like a strong indication that Trump hasn’t done anything that’s particularly successful or exciting. ... For whatever reason, markets are up just about everywhere, not only in the United States. And markets generally seem to be up by more in countries with boring, competent-seeming leadership than they are in the United States.

I liked the graph and it is a good idea to think in terms of such counterfactuals, but I also had my doubts. Why normalize all the indices at the end of July, half a year before he became president and months before he won the election? In the middle of the semester I felt it was interesting enough to mention to my honors students while bringing up a concern or two, but I eventually forgot my desire to investigate further.

Well, time to investigate! Compare if you will the following graphs with three different normalizations: Yglesias' end-of-July 2016, the election in 2016, and the inauguration in 2017. I'm extending the data out to today, using weekly closing numbers.

The S&P's relative performance has improved since Yglesias wrote, so that even using his normalization the US is now modestly outperforming Europe and has been for the most part since the Tax Cut and Jobs Act. The Nikkei is still outperforming the S&P by a wide margin, but his conclusion would now have to be that the President's antics haven't harmed the US.

If we normalize just before the election, however, we see that the US is right on par with Japan and outperforming Europe by a wide margin.

And normalizing from the inauguration shows the US ahead of every other country with the most boring and competent seeming Germany performing worst.

So what's the takeaway? We need more crazy antics? I doubt it. My three lessons for today are about how little we know:

1) If you're going to do this kind of analysis, be forthright about why you are choosing your starting dates. Starting dates are everything. That's part of why statistics gets its reputation for lies: you can make the same numbers tell almost any story you want. If you want US stock returns to look as bad as possible, start at July 3, 2016 (really close to Yglesias' starting point) so that Japan is 20 points ahead of the US. If you want the US stock returns to look as strong as possible, go back nearly 3 years ago to June 28, 2015 and give Trump credit for growth that happened during Obama's term, putting the US 20 points ahead of Japan. Or maybe just pick a credible day from which we can justly and reasonably judge the President's performance.

2) Let's please remember on all sides that the stock market is not a great indicator of how the economy as a whole is doing. The correlation may even be negative in the very long run (http://www.businessinsider.com/equity-returns-and-gdp-per-capita-2014-2)

3) Let's not draw too many life lessons about how to run an economy and a presidency until all the data points are in. 

How to recognize unfavorable labor laws

Labor laws in Brazil. One law bans paying an employee less one month than the previous month.

That many of the new jobs are formal (ie, legally registered) is despite, rather than because of, the labour laws. The trend to formalisation is largely a result of the greater availability of bank credit and equity capital on the one hand, and recent changes that make it easier to register micro-businesses on the other. …
Gustavo Gonzaga, an economist … notes that a remarkable one-third of Brazilian workers are made redundant each year, a fact he attributes in part to the labour laws themselves. These are extraordinarily rigid: they prevent bosses and workers from negotiating changes in terms and conditions, even if they are mutually agreeable. They also give workers powerful incentives to be sacked rather than resign. Generous and poorly designed severance payments cause conflict, Mr Gonzaga says, and encourage workers to move frequently. That churn affects productivity, as employers prefer not to spend on training only to see their investment walk away.

Private enterprise and capital laws in China: “behind China’s remarkable success has been an odd and often unappreciated experiment in laissez-faire capitalism.”

The right of China’s private companies to exist is by no means clear. Private companies with more than eight employees began to emerge only in 1981 and were not officially sanctioned until 1988 (the number was drawn from an essay by Karl Marx on an inflection point for the creation of a rentier class); …
No one knows quite how much private companies contribute to China’s fast-growing economy. Chinese firms fall into a bewildering variety of legal categories and their respective contributions to GDP are not reported in official statistics. …
Zhejiang’s scrappy entrepreneurs had already acquired, in the least auspicious circumstances, a culture of opportunity and a belief that anyone could become successful. The anecdotes are almost endless. … [They appear to include a healthy dose of microloans and pay day loans since the] sources [of Chinese capital] are a bit of a mystery: largely unofficial, even secretive … discerning, vibrant, and (depending on the authorities’ sentiment of the moment) even illegal. … The system is entirely informal. Records, he says, are minimal and all investments are in cash. A by-product is a proliferation of vast steel safes in homes and offices. … Although success brings praise, too much of it can invite envy and scrutiny.

And the increasingly antagonistic agricultural labor laws in the US:

This is how our relatively inexpensive food gets to us.   The costs, as the economists tell us, are externalized.  Here is one of those externalized costs–the potential of those kids to become functioning citizens in our democratic society.

Successes: Uruguay Dairy

IPS reports: Uruguay "cruderos" sell fresh, unprocessed milk ("leche crudo" --> "crudero") at the city limits. The problem is they are far too small to make it worth processing and too far from a processor. The city government of Durazno teamed up with a private milk processor, Nutri'sima, to open a plant closer to the cruderos in 2008. The government provided additional training and some capital equipment to the farmers. The plant then buys their milk, processes it, and sells it on to supermarkets, gaining the dairymen access to more markets, lifting them out of the informal sector, and improving food quality. They hope to get the farmers access to freezers also so they can bring the milk in every other day instead of daily to decreasing transportation costs. If my unreliable Spanish is right, this is the plant in question:

Claudia Jeannette Pérez, president of the association of former "cruderos" from the areas surrounding the city of Durazno, explained that they used to sell raw milk, artisanal cheeses, eggs and vegetables "door to door, in shops and in the local open air markets."

Today, all that has changed.

They no longer live below the poverty line, and there are now proper hygiene conditions on their small farms, which must live up to certain standards in order to sell their milk to the pasteurisation plant.

Furthermore, they now have access to running water - essential to maintaining production levels and standards - and many also have electricity.

And while they continue to live in the impoverished outskirts of cities and towns, "now we feel respected; we feel like we are part of society," said another small dairy farmer.

The one thing the article doesn't mention is how the poor on the outskirts of the city are getting their milk now that the cruderos aren't riding through every morning to sell cheaper milk.

Hat tip: Poverty News