Thursday, March 5, 2009

Probability of depression is 20% Really?

Robert Barro Harvard professor and frequent story teller in the Journal Op-Ed section is at it again. To refresh your memory we have seen Mr Barro offer opinions before. He 'discovered' that the US economy works 'best' when the office of the CEA is vacant. He did this when trying to demonstrate that office of the Council of Economic Aadvisors is unimportant because the economist of his choice would not be occupying it that year. We have somewhat hilariously heard him tell us us that the multiplier for government spending is small and perhaps below unity using data from the war years when policy was trying to squeeze everything it could out of the (private) economy to aid the war effort as it expanded its own spending. Barro used that as evidence that Keynesian stimulus does not work. He bridged war-time policy results into a more general conclusion despite the obvious bias. Now he has discovered the market for pessimism.

'See what are the odds of a depression' (link below) in teh WSJ
Barro's answer 20%!

Depression: want some? Read his article
Depressions are unusual events- thankfully. Of course the idea here is that this is conditional probability and his calculation turns on that. The associative event is the sharp drop in the stock market. Since we already know that the stock market has fallen so much, Barro has arrayed data with other periods of sharp declines in peacetime stock markets. He has calculated probabilities of 'depression' using an international data set. The data surely support Barro's probablitiy number but that is not the issue: The issue is this: do you believe their relevance? Mr Barro has a way of getting data to say things he wants them to say whether or not its true.

Peer review?
In this case Barro has lumped the US, a huge economy, in with a group of much smaller countries and more vulerable economies, right off that seems inappropriate. Barro seems to have taken no account of the activist role government has played in this epidsode. He places a zero weight on the unprecedented actions of the Fed and the Treasury and their multi-trillion dollar support effort. That harldy seems appropriate either, does it?

Odds of depression
Frankly the idea that there is a one in five chance of depression right now in the US seems one of the more irresponsible things for an economist to write. Bridging the conclusion to the US from an international data set where other economies would not have had the resources of the US and in circumstances in which their economies would have been starved of capital fleeing from a stock market collapse, hardly seem to place the US in a data set of peers (The US continues to get huge capital inflows). What relevance is there to the US in 2009? I do not doubt that Mr Barro has a supporting set of criteria for his statistical statement. I just wonder if the data have any relevance to the use he has made of them. Often in empirical research it is what you do not control for that gets you in trouble. This would not be the first time that statistics were used improperly. You can go back to most of the pricing of mortgage-backed securities in this cycle for other examples.

Ignore it!
I'd recommend not following the link to Barro's article. It will only frustrate you, worry you, and in the end confuse you, because I would bet dollars to donuts that the odds of the results of this study applying to the US right now are miniscule.

Time to kick the pessimism, if not the pessimists.

1 comment:

The Camera Fanatic said...

Great blog.

I own both the Nuvi 660 and the 760, I'm writing this review for people having trouble deciding between the two as the price difference between the two products at the time of this review is about 100 dollars. I'm not going to focus on the feature differences, as that information can be easily obtained from specifications and online reviews. The 660 was a fine product back in 2005-2006, but the new 760 outdoes the 660 in practically everything, but there are some key usability fixes that make the 760 a better buy for the frequent user.

1. 760 has much better fonts for street names than the 660. This may seem like a trivial update to some, but the 760's fonts greatly improve visibility. The 660 uses all capitalized text for street names on the map, and the font is incredibly cartoonish and unaligned, something like the scribbling Comic Sans font on the PC. The 760 uses your standard Verdana-like font with street names in capitalized and lowercase letters. The fonts on the 760 are smaller, cleaner and surprisingly much easier to read while driving. The maps end up looking professional, and not some cartoony children's video game.

2. 760 has better rendering in 3D map mode than the 660. In the 660 when you are zoomed in under 3D map mode, the roads close to your car are displayed incredibly large, so large that they run into other roads, making the zoom function essentially kind of useless for dense roads. The 760 does not oversize your roads just because you zoomed in to view smaller roads in detail. This fix is very nice for those who drive in places with dense roadways, like New York City.

3. No antenna on the 760 makes hooking up your Nuvi to the cradle one step easier. On the 660 you need to flip up the antenna before attaching the cradle. For people who park their cars on the street overnight, removing the GPS from the cradle for storage in the console or glove compartment is a must, and it's a lot easier hooking up the 760 to the cradle than the 660. It's hard to aim the 660 to its cradle in the dark as you have to align both the bottom edge and the charge port under the antenna. In the 760, the charge port is directly on the bottom of the unit; you can attach it to the cradle with one hand in the dark easily on the 760.

4. It takes the 660 a good 45 seconds on average (sometimes longer than 2 minutes) after boot up to locate the satellite on a cold start. If you have firmware 2.6 installed on the 760, the satellite acquisition time after boot up is between 10-20 seconds. After the firmware update, my 760 also holds a stronger lock to the satellites than my 660, I can get satellite lock inside my house with the 760, whereas I can't get a lock with my 660 (adjusting the antenna does very little).

5. The ability to set multiple ad hoc viapoints on the 760 means it's a lot easier creating alternate routes (very handy to avoid a specific interstate or a high traffic road). Whereas the 660 gives you just one viapoint.

UPDATE: This GPS is currently on sale at Amazon… now is your chance to buy one, if you haven’t already. You can find the product page here: