Conventional Wisdom, Part II

February 9, 2009

A relevant passage from Nassim Taleb’s The Black Swan:

Show two groups of people a blurry image of a fire hydrant, blurry enough for them not to recognize what it is.  For one group, increase the resolution slowly, in ten steps.  For the second, do it faster, in five steps.  Stop at a point where both groups have been presented an identical image and ask each of them to identify what they see.  The members of the group that saw fewer intermediate steps are likely to recognize the hydrant much faster.  Moral?  The more information you give someone, the more hypotheses they will formulate among the way, and the worse off they will be.  They see random noise and mistake it for information.

Absorbed in the hourly twists and turns on cable, pundits form conventional wisdom based on noise (in both senses of the word). The daily squabbling, however, has barely any significance over time


Conventional Wisdom Proved Wrong

February 9, 2009

Gallup’s latest:

Despite the pundits’ rush to declare the Republicans victorious and the White House embattled, the public backs the president over the stimulus.  Once again, entangled in the echo chamber of Washington, the talking-heads reach the wrong conclusion.

One of the administration’s greatest strengths is that they do not get bogged down in the mud and slush of twenty-four hour spin.  They disdain conventional wisdom; accepting it would have stifled Obama’s candidacy from the start.  Freeing themselves from the clutter of tactical, day-to-day posturing, the Obama team focuses on strategy, laying the groundwork for a broader picture.

In the meantime, their supporters fret, their critics delight — this was a recurring theme during the primaries.  Why doesn’t Obama fight back?  He’s weak.  No one like that could make it to the White House.

But ultimately, the grand plan reaches fruition.  In this case, Obama has established a reputation of reaching across the aisle; even his critics acknowledge this.  When the administration tackles future problems — the bank bailout in the immediate future, Afghanistan and Iraq, entitlement reform — he can make a much more effective case, as people will view his actions through an authentic and conciliatory image.  By strategically plotting his course, Obama preserves his core political identity.

Worst Decade in Market History

February 7, 2009

Another data point, the same message:

In the last 82 years — the history of the Standard & Poor’s 500 — the stock market has been through one Great Depression and numerous recessions. It has experienced bubbles and busts, bull markets and bear markets.

But it has never seen a 10-year stretch as bad as the one that ended last month.

Over the 10 years through January, an investor holding the stocks in the S.& P.’s 500-stock index, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation, as is shown in the accompanying chart.

Here’s the relevant graph from The New York Times.

Comic Relief

February 3, 2009
Political Cartoon
(Via The Economist)

More on the Stimulus

January 31, 2009


Here’s a heat map that shows state-by-state allocations for the portions of the Economic Recovery and Reinvestment Act for which we could establish where the money is going (numbers from the Center for American Progress).  The darker a state, the more money it receives.

The average state receives $1707 per person, and the $825 billion package is spread out fairly evenly over the country.  There are, however, two places that benefit particularly well from the bill:  Alaska fetches $2550 per person, more than three standard deviations above the mean, and DC gets $2821 a head, nearly 4.2 standard deviations above the mean.

With this bill, Alaska continues its tradition of reaping bounty from federal coffers.  The state received $506.34 per capita in earmarks last year, according to Taxpayers for Common Sense, the highest in the country.  Number two was Hawaii at $226.86, less than half of Alaska’s tally.

Complete stimulus figures state-by-state after the jump.

Read the rest of this entry »

Inauguration Twitter Excitement

January 31, 2009

A fantastic visualization of the Twitter buzz surrounding Obama’s inauguration.  The number of tweets steadily increases starting Monday morning, and then Tuesday at noon, the map explodes with activity.

The CBO’s Perspective on the Stimulus

January 28, 2009

An excerpt from CBO Director Douglas Elmendorf’s testimony before Congress:

In the absence of any changes in fiscal policy…the shortfall in the nation’s output relative to its potential would be the largest—in terms of both length and depth—since the Depression of the 1930s.

And perhaps even more important, since economists from across the ideological spectrum already agree on the need for a stimulus, Elmendorf estimates the bill’s impact:

[O]utput would be between 1.3 percent and 3.6 percent higher at the end of this year, higher by a similar amount at the end of next year, and 0.5 percent to 1.4 percent higher at the end of 2011…[T]he number of jobs would be between 0.8 million and 2.1 million higher at the end of this year, 1.2 million to 3.6 million higher at the end of next year, and 0.7 million to 2.1 million higher at the end of 2011.

Essentially, Obama could accomplish his goal of saving/creating three to four million jobs through this package alone.

One more point:  Republicans have argued that the bill will not do enough to spark the economy, and as an alternative, they’re pushing billions more in tax cuts.  The CBO calculated the multiplier effect for a variety of policy options and found that direct purchases by the federal government are one-and-a-half to two times more effective than well-targeted tax cuts.  Well-targeted tax cuts are what the Obama administration originally included in the package – tax cuts targeting the lower socioeconomic brackets where no one can afford to save the money.  Less-well-targeted tax cuts are what the Republicans offer: see Mitch McConnell’s middle-class tax cut.