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. 

Proving I'm Alive: Big Bag of Blogs

Bellemare on Swinnen's paper on who wins and loses from high food prices and on the benefits to rural smallholders of joining marketing chains.

Tabarrok showing me why I should be very, very afraid: Kucinich and co. try a real life enactment of Atlas Shrugged.

Sumner discovers a second career as Bernanke's shrink, showing how his psychology  helps determine the fate of this recession. (If you wanted to be more sensational about it, you could talk about the discovery of the sinister figure in the shadows: Vincent Reinhart. That would be overdoing it a touch.)

The early impacts of AGRA's investment in Ghana, combining fertilizer subsidies, market access, and variable loan structure depending on outcome (essentially removing downside risk).

I was getting ready to run some proper experiments out here, only to learn that my very presence might bias the games. Of course, now this proposes that I need to replicate this (preliminary) finding itself. How general is the result? (HT: Aid Thoughts and Roving Bandit)

Urbanization in Africa is mostly about population growth rather than migration.

Create Value, Not Jobs? How about AND?

Gurri makes a very good point (HT: Cafe Hayek), but one that wouldn't be immediately embraced by people the way it is regularly framed. (It's also not the only good point to be made on the subject, either, but that's another day's lecture.) The issue not "Create value. Not jobs." It is to create jobs of value. It is to enable people to create value and jobs will follow, sustainably. Partly this is semantics, but I think the semantics are important in terms of effecting policy.

It's easy enough to create make-work jobs. Keynes opted for digging holes and filling them up again. Germany (and many others) have expensive humans repave roads poorly that machines could do much better, much faster, and less expensively. While I do believe in the principal of having someone work for what they gain to avoid idleness and the evils of a dole, it ought to be work that makes at least one other person's life better off.

Slightly more tricky is creating make-work jobs that produce something more. India has a number of good programs that create jobs that also produce something of value, for instance.

Conservatism: Cohort effects vs. Aging effects

Preliminary research based on interviews suggests that people don't really get more conservative as they age overall (HT:MR). It may look that way because older people today are more conservative than younger people. The research argues that what matters is when you become an adult. During the Depression and WWII, the social environment promoted a lot of values today's conservatives value, and the changed environment promotes different values. What happens within the person?

 Results, which are just starting to emerge, suggest that each belief follows its own complicated pattern. Seniors seem to have become more liberal about subordinate groups, for example, but more conservative about civil liberties. ... Late in life, [Pillemer of Cornell's] research shows, people often become more open, more tolerant, and more appreciative of compassion. Even if they started out conservative, they may become less extreme in their conservatism.

I, Cheeseburger

As I look forward to possibly enjoying my first pizza of the newly renovated AUN Club kitchen tonight, let us pause in humble reflection on the miracle of markets:

I realized that my prior plan hadn’t been ambitious enough—that wasn’t really from scratch. In fact, to make the buns, I’d need to grind my own wheat, collect my own eggs, and make my own butter. And I’d really need to raise the cow myself ... mine or extract from seawater my own salt, grow my own mustard plant, etc. This past summer, revisiting the idea, I realized yet again that I was insufficiently ambitious. I’d really need to plant and harvest the wheat, raise a cow to produce the milk for the butter, raise another cow to slaughter for its rennet to make the cheese, and personally slaughter and process the cow or sheep. ...

Further reflection revealed that it’s quite impractical—nearly impossible—to make a cheeseburger from scratch. Tomatoes are in season in the late summer. Lettuce is in season in spring and fall. Large mammals are slaughtered in early winter. The process of making such a burger would take nearly a year, and would inherently involve omitting some core cheeseburger ingredients. It would be wildly expensive—requiring a trio of cows—and demand many acres of land. There’s just no sense in it.

A cheeseburger cannot exist outside of a highly developed, post-agrarian society. It requires a complex interaction between a handful of vendors—in all likelihood, a couple of dozen—and the ability to ship ingredients vast distances while keeping them fresh.

 Remarkably, Jaquith was unaware of the I, Pencil article of which this is one more example. UPDATE: I forgot to mention I, Pizza, the story of the 150 people it takes to take one shot of a slice of pizza being lifted for a commercial.

Interesting Sentences: Romney

This is the first time I heard the first part of this sentence or anything like unto it: (HT: Mungowitz)

The party establishment wants Romney, but its voters have been so thoroughly trained to focus on gays and abortion that they cannot sit still behind a candidate who concentrates on business and economic growth.

Now that either means the "party leadership" is so secretive a cabal that no one has divined their hidden agenda except Furguson here ... or maybe his analysis is fundamentally flawed?

FDR on the Recession: Monetary Targeting

From Rortybomb (via @TimHarford), some political comics of FDR as the grand architect of society. Normally this is a phrase that makes me shudder, but there is something very interesting about this picture. Notice pillar 7 of Pulitzer-Prize winning editorial cartoonist John T. McCutcheon, October 25th, 1933. Oh, wait, is it too small for you? Let's zoom in:











Pillar 7 translates as "target a particular price level" rather than an inflation rate. No inflation, which hawks ought to love; rules based; but in a circumstance like this would encourage the Fed to do a lot more easing than they have. As Rortybomb puts it:

Notice that Pillar 7 isn’t “Buy $X amount worth of Y” (like QE does) but “set the level.”  It’s not a floor or a step but a destination.  The cartoonist understands that the administration must do whatever it takes across all available monetary tools to get us to the targeted destination.

The Lighter Side of ... Studying

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