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Wednesday, August 29, 2012

Mailvox: logical or empirical?

691 doesn't do the math:
What you cite as a logical blunder is not a logical error at all. Maybe an empirical error. It's entirely logically possible for a $1 decrease in spending to lead to a $3 decrease in revenue, resulting in a $2 increase in the deficit.

The deficit, the change in debt levels, is the difference between two numbers: spending and revenue. Does the extra debt come from (relatively) higher spending or (relatively) reduced revenues? You claim that spending and borrowing have increased, which would imply that each $1 in extra spending is leading to less than $1 of extra revenue.

But citing debt levels alone is not sufficient to prove your case.
Very well, let's look and see if what he's saying is, in fact, logically possible. I pointed out that the debt doubled from $5 trillion to $10 trillion in four years. 691 is claiming that "it's entirely logically possible for a $1 decrease in spending to lead to a $3 decrease in revenue, resulting in a $2 increase in the deficit."

There are two ways to show 691's criticism is incorrect. First, his statement can only be true if the multiplier effect on government spending can be 3x or more. But is that the case? No, it is not.

"For U.S. annual data that include WWII, the estimated multiplier for defense spending is 0.6-0.7 at the median unemployment rate. There is some evidence that this multiplier rises with the extent of economic slack and reaches 1.0 when the unemployment rate is around 12%. Multipliers for non-defense purchases cannot be reliably estimated because of the lack of good instruments."
- Macroeconomic Effects from Government Purchases and Taxes,
Robert J. Barro and Charles J. Redlick, NBER Working Paper No. 15369 (September 2009)

So, because the unemployment rate never reached 12 percent, the G multiplier cannot possibly have reached 1.0, much less the required 3.0, and therefore it was, as I previously wrote, logically impossible for the post-crisis governments to simultaneously produce large deficits and cut spending.

Concerning the second method, even if we plug in his numbers, we can see they don't work on an empirical basis either. We're not dealing in hypotheticals here. What X decrease in annual spending could lead to a 3X decrease in revenue to create a $1.25 trillion deficit? There would have to be a $625 billion decrease in spending as well as a $1.875 fall in revenue to produce it. However, there was a $535 billion INCREASE in spending to go with a $419 billion fall in revenue, thereby providing an empirical illustration of the logical absurdity of his position.

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41 Comments:

Blogger Astrosmith August 29, 2012 1:05 PM  

Hmm, you could have just dismissed him as a flea like our good friend Dick does.

Anonymous Stilicho August 29, 2012 1:20 PM  

Don't you know that every dollar of government spending offered up on the altar of Mammon summons three dollars worth of animal spirits? This is demonology (Krugmanology?) 101.

Anonymous Barbie August 29, 2012 1:32 PM  

Math is hard!

Anonymous tviper August 29, 2012 1:37 PM  

pwn3d

Blogger ajw308 August 29, 2012 1:52 PM  

Astro, why pass on the chance to educate those who are nearby and paying attention?

Anonymous Daniel August 29, 2012 1:52 PM  

Nice, Stilicho. Very nice.

Anonymous 691 August 29, 2012 2:08 PM  

Considering that I offered up a minor, tangential criticism that was entirely hypothetical, I'm surprised you made this a top level post.

There is a difference between calculations with variables and calculations once you replace the variables with numbers of empirical significance. The former governs the latter. I was making a point about the former and my choice of specific numbers was to illustrate a point.

To me, "logically possible" means there is a hypothetical value of the multiplier that would produce such an effect. It's within the scope of the general case, while not necessarily realized by a given, particular case. Measuring the actual value of the multiplier effect is an entirely different matter and an empirical, not logical question, as it depends upon real world data. You seem to accept this argument while offering evidence that my hypothetical numbers do not agree while empirical data. That's fine and entirely expected on my part, but it doesn't affect my original argument.

This is what I meant when I made a distinction between logical and empirical. I made no intentional claim about what exactly the multiplier is and in fact I have no idea. I'm not an economist and have never looked at the data. I appreciate you providing me with some information here.

In essence, my criticism was about a lack of precision and completeness on your part. Citing deficit levels in not enough to prove your case, which requires the extended analysis you offered in this second post.

Anonymous Noah B. August 29, 2012 2:13 PM  

I'm sure there are narrow examples of where $1 of spending results in $3 of additional revenue. The costs of arresting and imprisoning Madoff might be an example of that. On the other hand, so much of what the government spends money on is counterproductive and reduces revenue, like pretty much all of the foreign wars we're involved in, enforcing unnecessary and cumbersome regulations, etc.

Overall, I'm skeptical that the aggregate multiplier would rise to 1 even if unemployment were to reach 12%. There is just too much mismanagement and waste in government. So you're being overly generous here, Vox.

Anonymous FUBAR Nation (Ben) August 29, 2012 2:27 PM  

Keynesians really believe that stone can be turned into bread, that the government has magical powers that the voluntary sector lacks.

Can anyone tell me how shoveling more money to teachers unions is going to improve the economy, except for worse schools and dumb kids? No matter how much is spent on education, it never improves.

Anonymous kh123 August 29, 2012 2:39 PM  

"No matter how much is spent on education, it never improves."

Don't let PPHS Dad hear that. He may have to break away from his multi-multi-tiered teaching efforts and start commenting here with his emotive CAPS! and anecdotes.

Blogger Vox August 29, 2012 2:42 PM  

In essence, my criticism was about a lack of precision and completeness on your part. Citing deficit levels in not enough to prove your case, which requires the extended analysis you offered in this second post.

Here's what I don't understand. Why do I have to prove my case every single time? Not only is no one else expected to do this, as I've shown in my critique of the manifesto, they don't even get the basic facts correct. I see these demands from time to time, especially about my opinion columns. If I state that 2+2=4 or that Germany is a member state of the European Union, no one demands proof. But if I state something equally true and equally in evidence, suddenly I start hearing about "a lack of precision and completeness" on my part.

What is the line between "true statement that must be proven" and "true statement that need not be proven"?

Furthermore, I note that there is a difference between "hypothetically possible", which is true of the purported 3x multiplier, and "logically possible", which would require some evidence of that hypothetical 3X multiplier in order to be valid.

Anonymous 691 August 29, 2012 2:44 PM  

Power/Internet may get killed soon due to hurricane Isaac so I might not be able to respond for a few days.

Anonymous Josh August 29, 2012 2:48 PM  

That's convenient of you...

Seriously though, be safe down there.

Lots of good folk praying for the gulf coast.

Anonymous Orion August 29, 2012 3:15 PM  

I don't think the word "logically" means what you think it means. Theoretically or hypothetically are kind of required when your working based off a hypothetical value. Other wise you end up with Japanese sailors having hypothetical wings making logically possible kamikaze runs with out planes...

Anonymous Mr Green Man August 29, 2012 3:16 PM  

What is the line between "true statement that must be proven" and "true statement that need not be proven"?

That's the beauty of the whole "extroardinary claims" flagellation -- it's in the constitution of the one making the demand. After all, if your true statement strikes him flaccid, it must require proof.

Anonymous Mike43 August 29, 2012 3:18 PM  

In my undergraduate studies, admittedly in the late 70's, we had a chapter on the velocity of money. That is to say, what happens when a dollar is introduced into a community, and more importantly, by home.

The data above seems to mirror what I remember;
a. Private money was good for a factor of 1-2.
b. Defense dollars were good for a .6 or .7 factor.
c. Entitlement programs were good for .25 to .35

The reason I remember this so well, was as a veteran, my first thought was "start up the draft!" Okay, not practical but I was only 20.

I guess the concept has gone away, but it was a very good indicator of just how money moves through the system. Personally, I always thought it disappeared precisely because it didn't fit the Keynesian philosophy.

Anonymous Hoots August 29, 2012 3:19 PM  

Isn't it even worse than that because you have to factor in the aggregate tax rate on top of the multiplier?

Anonymous Daniel August 29, 2012 3:23 PM  

Here's what I don't understand. Why do I have to prove my case every single time?

Because, just like the geniuses at Apple, there are some things that the intelligent are simply not allowed to say.

Bomb, crash, hang, bug, problem and now, apparently, logical blunder are off the menu.

A demand for "proof" every time is an rhetorical reset button. "Your honor! Strike it from the record!"

Anonymous Hoots August 29, 2012 3:26 PM  

Isn't it even worse than that because you have to factor in the aggregate tax rate on top of the multiplier?

Blogger Mr. Nightstick August 29, 2012 4:05 PM  

Is google still deleting me?

Anonymous stevev August 29, 2012 4:22 PM  

Is the hypothetical "$1 decrease in spending causes $3 decrease in revenue" empirically observed anywhere in government spending?
I'm hung up on this one thing. If not ever observed in the real world of government spending, why should it be granted as the basis of any argument?

Blogger Vox August 29, 2012 6:01 PM  

Is the hypothetical "$1 decrease in spending causes $3 decrease in revenue" empirically observed anywhere in government spending?

No.

Anonymous Barbie August 29, 2012 6:04 PM  

Math is hard.

Sorry I couldn't resist

Anonymous Idle Spectator August 29, 2012 7:22 PM  

Cannabis Smoking Permanently Lowers IQ

This is a new longitudinal study that is out. Apparently if you have heavy usage before the age of 18, your IQ drops an average of 8 points permanently. The rest of the people recovered when they ceased usage. That might explain some mathematics problems in the general population.

//hits bong

But remember man... IQ is not real, except...... when it is real...
This voxblog is tasty.

Anonymous Idle Instigator August 29, 2012 8:09 PM  

Since we are talking mathematics Vox, want to see something that will totally overload your primitive sub-160 IQ mind?

The Neanderthal Correlation

My favorite quotes:

---

"Yes," I said, trying to smile. "I know you've got something very interesting to tell me." That sometimes worked.

She nodded, her usually expressionless face showing a shadow of a smile. "I found strong genetic correlations between Neanderthals and modern subpopulations," she said. "A lot more than I had expected."

"There's a gene cluster linked to advanced mathematics skills, information processing, logic, analytical intelligence, concentration skills, obsession–compulsion and Asperger's syndrome. That cluster correlates very strongly. I can trace some genes back to the interglacial around 450,000 years ago..."

"That human mathematical intelligence came from Neanderthals? That's what the data say. The Cro-Magnons had the social skills. But that isn't all."

I stared at her. I couldn't tell that to the research council."

---

Oh shitttt, no you ded-ent!

It makes perfect sense. Everyone knows that people more inclined to the math and science areas have higher incidences of autism. This would explain the lack of orientation towards groups. Are these Neanderthal genes at work?

We already know that Africans don't have these Neanderthal genes. That would explain the lower human capital in Africa. How long before some scientist maps the individual genes to individual races? Will they have their funding pulled before they can publish? ...Five years maybe?

OH DEAR GOD. NOW I'VE DONE IT!


//stirs pot

Anonymous Mrs. Pilgrim August 29, 2012 10:36 PM  

Well, if we're going OT, I've recently learned that, in June, two female police in France were shot--one with her own gun that a male perp took from her, and the other in the back as she fled screaming for help. Routine arrest, yet somehow these empowered grrrls couldn't carry it out.

I'd link it for you, but I can't read French so I don't know which is a good article. Search for "Abdallah Boumezaar".

That is, if you're interested.

Anonymous Idle Spectator August 30, 2012 12:11 AM  

It's all on topic.

Mailvox using math skills => Cannabis use effects on math skills => Neanderthal genes creating math skills

QED

Anonymous Jack Amok August 30, 2012 3:17 AM  

If $1 swings in government spending could produce $3 swings in revenue, that would be just about the most compelling argument for not allowing the government to touch a single dime ever. Such a system would be massively unstable - minor variations in spending would brew up into massive tsumanis roiling across the economy. It would be totally chaotic and unstable.

Or perhaps the proponents claim that 3:1 ratio only applies in some particualr special range of spending, in which case that range of spending would be totally irrelevant to any policy discussion because the instability would always shove spending out of it to one side or the other. Any system that operated that way would be inherently and unavoidably short lived.

And anyway the whole debate ignores the fundamental problem that $1 of government spending almost never produces anything near $1 of actual productivity. That's the truth behind Mike43's breakdowns. "Spending a dollar" is, by itself, a valueless act. Shuffling a piece of paper from here to there. The money in a transaction is the least important part of it, since money is nothing but a (increasingly tentative) claim on potential goods and services. What matters with the $1 of government spending isn't the $1, but what got bought with it. Usually what got bought was a vote...

Anonymous FrankNorman August 30, 2012 4:23 AM  

That "Neanderthal Correlation" article dates from 2008. Interesting reflection there on the rate of information propagation across the blogosphere.

Blogger JACIII August 30, 2012 5:12 AM  

Here's what I don't understand. Why do I have to prove my case every single time? Not only is no one else expected to do this, as I've shown in my critique of the manifesto, they don't even get the basic facts correct.
-VD

Because you are a political/economic heretic.

Anonymous Kickass August 30, 2012 6:30 AM  

Dont get a big head. You are not the first.

Anonymous Kickass August 30, 2012 6:36 AM  

Because they are astounded that you do. Like little children at a birthday party, they keep begging to see the rabbit pulled out of the hat.
How is the book coming? Edits driving you nuts right now or is it clear sailing?

Anonymous joe doakes August 30, 2012 9:02 AM  

691's thinking doesn't even make as much sense as "lose money on every sale, make it up in volume" or my wife's personal favorite "I saved so much I couldn't afford NOT to buy it."

Anonymous Idle Spectator August 30, 2012 12:08 PM  

That "Neanderthal Correlation" article dates from 2008. Interesting reflection there on the rate of information propagation across the blogosphere.

They're trying to bury the story. The finally grungingly admitted that every person of European descent has some Neanderthal genes a few years ago. In case no one has noticed, the idea that different races might inherently have different abilities due to breeding patterns is set to piss off a lot of people. Especially people in charge. But the evidence keeps stacking up.

There goes political correctness! Poof.

Anonymous MendoScot August 30, 2012 12:42 PM  

Since there is a whiff of math in the air...

...La Griffe du Lion has a new article up describing a technique to disaggregate Hispanic/non-Hispanic contributions to white violent crime statistics, and concludes that the difference between the two groups is negligible.

The reference to X-ray crystallography appeals to the chemist in me, but I think where he goes astray is in using the Hasidim as his example group for regional constancy - since they are by definition behaviourally homogenous. I don't think you can make the same claims, for instance, for the strong black middle class in Atlanta and the black underclass in Detroit. Specifically, the Hispanics can be split into Iberian and Mesoamerican descendants, whose behaviour would be expected to differ.

That would seem to render his model invalid, but my aging math skills are not sufficient to know whther it is still possible to deduce whether he would then be over or under estimating the group contributions.

Anonymous Idle Spectator August 30, 2012 3:43 PM  

I think he might be right...

Notice he is measuring VIOLENT crime.

Hispanics are:
- Less educated with less human capital
- Have more children out of wedlock
- Commit petty crimes like traffic violations, DUI, theft, and drug offenses at greater rates

I really don't see them as very violent on average. You have the gangs and poverty, but Hispanics are basically apathetic to things, even voting. They're no where close to blacks, trust me on that one.

I don't have any math to back this up though.

Specifically, the Hispanics can be split into Iberian and Mesoamerican descendants, whose behaviour would be expected to differ.

This is really hard, because you have a gradient. If you look at Mexico, the Iberian concentration is highest in the Federal District with Mexico City, and the highest mesoamerican is in Oaxaca. I might have to look that one up again.

I'd have to think about this a lot more.

Anonymous 691 August 30, 2012 5:46 PM  

Power just came back after 26 hours in the dark. Luckily the worst part of the storm passed to the east of us.

Why do I have to prove my case every single time?

First, I never asked you to prove it. Stating a fact is not the same as making a demand.

All I intended to point out is that citing deficit levels, which are a relative quantities, when talking about austerity, which often deals with absolute quantities, is a potential bait-and-switch. It's clear upon further elaboration that you were not doing this.

Secondly, I don't need you to prove everything to believe you. I expect that you understand the distinction I'm making and I read your economics writing because you know the subject better than I do. But I do appreciate when you elaborate on your thinking.

Anonymous 691 August 30, 2012 5:53 PM  

I note that there is a difference between "hypothetically possible", which is true of the purported 3x multiplier, and "logically possible", which would require some evidence of that hypothetical 3X multiplier in order to be valid.

I guess this boils down to a language disagreement. I use "logically possible" to refer to what you call "hypothetically possible". I would probably use the phrase "consistent with the data" where you use "logically possible"

I believe that my usage is actually more standard. Consider the Wikipedia pages on logical possibility

A logically possible proposition is one that can be asserted without implying a logical contradiction. This is to say that a proposition is logically possible if there is some coherent way for the world to be, under which the proposition would be true. Thus, "the sky is blue" (and all other actually true propositions) is logically possible: there exists some logically coherent way for the world to be such that it is true, viz., the way that the world actually is. But this "way for the world to be" need not be the way the world actually is; it need only be logically coherent. So, for example, the false proposition the sky is green is also logically possible, so long as we are able (as we indeed seem to be) to conceive of some logically coherent world in which the sky is green. Philosophers generally consider logical possibility to be the broadest sort of subjunctive possibility in modal logic.
Logical possibility should be distinguished from other sorts of subjunctive possibilities. For example, it may be logically possible for the universe's physical laws to be different from what they actually are. If it is, then many things that we would normally consider to be demonstrably impossible can be logically possible: for example, that travel might be possible at speeds faster-than-light or that escape from black holes is not impossible. Many philosophers, then, have held that these scenarios are logically possible but nomologically impossible (impossible under the actual laws of nature).
These propositions are also to be contrasted with logically impossible propositions, i.e., propositions which could not possibly be true under any circumstances in any universe because they are formal contradictions. While it is logically possible for the sky to be green, it is not logically possible for a square to be circular in shape.[1] Some combinations of physical laws are also known to result in contradictions. For instance, if a given universe's physical laws are invariant through time, then the law of conservation of energy holds in that universe. This is a consequence of Noether's theorem, which can be proven mathematically. Thus, a universe whose physical laws do not vary with time and which does not exhibit conservation of energy is not logically possible.


and subjunctive possibility

Logical possibility is usually considered the broadest sort of possibility; a proposition is said to be logically possible if there is no logical contradiction involved in its being true. "Dick Cheney is a bachelor" is logically possible, though in fact false; most philosophers have thought that statements like "If I flap my arms very hard, I will fly" are logically possible, although they are nomologically impossible. "Dick Cheney is a married bachelor," on the other hand, is logically impossible; anyone who is a bachelor is therefore not married, so the sentence involves a logical contradiction.

In particular, there is no requirement that there be evidence in support of the proposition. I'm not a logician, but I don't think that evidence is a meaningful concept in logic, except that evidence can be turned into a propositional statement with modalities.

Anonymous FrankNorman August 31, 2012 6:59 AM  

Idle Spectator August 30, 2012 12:08 PM
They're trying to bury the story. The finally grungingly admitted that every person of European descent has some Neanderthal genes a few years ago. In case no one has noticed, the idea that different races might inherently have different abilities due to breeding patterns is set to piss off a lot of people. Especially people in charge. But the evidence keeps stacking up.

There goes political correctness! Poof.


Since when did the PC-brigade give a hoot about evidence? The more the facts stack up against them, the more of a "bigot" they'll consider anyone who notices.

The Mongols could be burning down the very city a diehard liberal lives in, and she'd still wag her finger at anyone who dared imply that some non-European cultures aren't peaceful or civilized, and tell them to stop saying such prejudiced things!

Anonymous Idle Spectator August 31, 2012 4:33 PM  

Since when did the PC-brigade give a hoot about evidence? The more the facts stack up against them, the more of a "bigot" they'll consider anyone who notices.

The thing is, they don't control the narrative anymore. K-12 schools, academia, and the legacy media are all in flux or dying. They keep trying, but more and more people are screaming "bullshit!" The irony is after they completed their long march through the institutions, those same institutions are now dying in influence.

The fact we are talking on this blog that did not even exist prior to 2003 is proof of that. That's why the PC-guardians are acting more and more shrill. They know their time in the sun is almost up. They are not going to get a pass any more for just showing up.

The Mongols could be burning down the very city a diehard liberal lives in, and she'd still wag her finger at anyone who dared imply that some non-European cultures aren't peaceful or civilized, and tell them to stop saying such prejudiced things!

You are not going to convince them. You just have to outlast or outbreed them. The fact that the truth is on our side about how the world really works helps. Our societies will be functional, their's will not be.

Anonymous Luke September 02, 2012 2:33 AM  

Idle Spectator said:

"ou are not going to convince them. You just have to outlast or outbreed them. The fact that the truth is on our side about how the world really works helps. Our societies will be functional, their's will not be."

Agreed. Classic article on this:

http://www.newamerica.net/publications/articles/2006/the_return_of_patriarchy

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