Monday, May 31, 2010

Robert Samuelson would not make a good statistician

Robert Samuelson is taking considerable heat for this column in the Washington Post complaining about the way we measure poverty. Dean Baker and Mark Thoma posted detailed and highly critical responses that listed several problems with Samuelson's argument. Both of them, however, skipped over at least one serious statistical flaw in the column.

Here's the quote from Samuelson:
Second, the poor's material well-being has improved. The official poverty measure obscures this by counting only pre-tax cash income and ignoring other sources of support. These include the earned-income tax credit (a rebate to low-income workers), food stamps, health insurance (Medicaid), and housing and energy subsidies. Spending by poor households from all sources may be double their reported income, reports a study by Nicholas Eberstadt of the American Enterprise Institute. Although many poor live hand-to-mouth, they've participated in rising living standards. In 2005, 91 percent had microwaves, 79 percent air conditioning and 48 percent cellphones.
The fallacy here is closely related to the phenomena of the wrong-way coefficient. You fit a model and you see a statistically significant variable with the wrong sign. For a fairly silly example, you build a model predicting how long it takes travellers to get from New York City to DC and you find that the indicator for being searched by a uniformed officer has a negative coefficient which would suggest that being searched somehow shortens your travel time. The explanation for this counterintuitive result is that there's a relationship between this variable and one or more of the other variables in your model. In this case there's a strong correlation between being searched and flying vs. driving.

For people living in residences with functioning kitchens, good ventilation and a land line, getting a microwave, an air conditioner and a prepaid cellphone clearly represents an increase in well being. If, however, there is an inverse relationship among the poor between having a stove/having a microwave, or ventilation/AC or land line/cell, then the high incidence rates could easily indicate a lower standard of living.

For an example of how not having a stove could make having a microwave more likely, check out this story from NPR:
So many immigrants, homeless people and others of limited means living in single-room occupancies (SROs) have no kitchens, no legal or official place to cook. To get a hot meal, or eat traditional foods from the countries they've left behind, they have to sneak a kind of kitchen into their places. Crock pots, hot plates, microwaves and toaster ovens hidden under the bed. And now, the latest and safest appliance, the appliance that comes in so many colors it looks like a modern piece of furniture: the George Foreman Grill. It is, quite literally, a hidden kitchen.
For me, a George Foreman grill would be a luxury purchase, but not having one doesn't mean I'm worse off than the next guy I see pushing a shopping cart with all of his belongings down the street.

Network TV -- now entering their fourth decade on death's door

Brian over at Ultrasonic Remote sends this latest obituary for network television based on this:
YouTube’s viewership now exceeds that of all three networks combined during their “primetime” evening time slot, with more than 2 billion views per day, Google announced Sunday.

There are a lot of statistical flaws in the article but the one that jumped out at me was the bit about "all three networks." This is a particularly embarrassing variation on an old fallacy. Articles on the decline of network viewership have often failed to take new networks into account, for example comparing CBS/ABC/NBC viewership in 1980 and 1995 then concluding that the difference represented people going to cable.

You can see how someone would make that mistake. It seems to be an apples-to-apples comparison even though it's not.

But in a discussion limited strictly to 2010 viewership, talking about "all three networks" is just weird.

The economics of rock and roll part III -- Gimme (tax) Shelter

From APR's Marketplace:
The image may be rebellious and unkempt, but the reality is that the Rolling Stones are very smart when it comes to money. On worldwide earnings of $150 million last year they paid just 1.5 percent in tax.

The details have emerged under Dutch law. The band's financial advisers apparently have offices in a Dutch tax haven. The lightness of the Stones' tax burden is not a surprise, says former rock musician Neil MacCormick:
NEIL MACCORMICK: They're a big machine. They've probably learned the hard way, and learned on the road how to protect their money.
He says world tours are usually organized according to tax rules, with a band rarely appearing for longer than 30 days in each country.

The economics of rock and roll part II -- quality control and brown M&Ms

This one has been passed around a lot but it's a nice example of a clever solution to a business problem and it bears repeating.

From Snopes:
The legendary "no brown M&Ms" contract clause was indeed real, but the purported motivation for it was not. The M&Ms provision was included in Van Halen's contracts not as an act of caprice, but because it served a practical purpose: to provide an easy way of determining whether the technical specifications of the contract had been thoroughly read (and complied with). As Van Halen lead singer David Lee Roth explained in his autobiography:
Van Halen was the first band to take huge productions into tertiary, third-level markets. We'd pull up with nine eighteen-wheeler trucks, full of gear, where the standard was three trucks, max. And there were many, many technical errors — whether it was the girders couldn't support the weight, or the flooring would sink in, or the doors weren't big enough to move the gear through.

The contract rider read like a version of the Chinese Yellow Pages because there was so much equipment, and so many human beings to make it function. So just as a little test, in the technical aspect of the rider, it would say "Article 148: There will be fifteen amperage voltage sockets at twenty-foot spaces, evenly, providing nineteen amperes . . ." This kind of thing. And article number 126, in the middle of nowhere, was: "There will be no brown M&M's in the backstage area, upon pain of forfeiture of the show, with full compensation."

So, when I would walk backstage, if I saw a brown M&M in that bowl . . . well, line-check the entire production. Guaranteed you're going to arrive at a technical error. They didn't read the contract. Guaranteed you'd run into a problem. Sometimes it would threaten to just destroy the whole show. Something like, literally, life-threatening.

The economics of rock and roll

Tyler Cowen passes on the following sharp observation from Mick Jagger on the upheavals in the music industry:

...people only made money out of records for a very, very small time. When The Rolling Stones started out, we didn’t make any money out of records because record companies wouldn’t pay you! They didn’t pay anyone!

Then, there was a small period from 1970 to 1997, where people did get paid, and they got paid very handsomely and everyone made money. But now that period has gone.

So if you look at the history of recorded music from 1900 to now, there was a 25 year period where artists did very well, but the rest of the time they didn’t.

Jagger, of course, studied economics at LSE and is known to be a fan of Hayek.
I ran this by the music historian Brad Kay, who confirmed that Jagger had his facts right. Thanks to Tyler for posting this and more thanks to Gut(?) who commented:
He is also the primary datapoint for the observation that economists do it with models.

Elegance and Economics -- a choice comment from Paul Krugman

From "How did Economists Get It So Wrong?" (September 2nd, 2009):

Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.

And in the wake of the crisis, the fault lines in the economics profession have yawned wider than ever. Lucas says the Obama administration’s stimulus plans are “schlock economics,” and his Chicago colleague John Cochrane says they’re based on discredited “fairy tales.” In response, Brad DeLong of the University of California, Berkeley, writes of the “intellectual collapse” of the Chicago School, and I myself have written that comments from Chicago economists are the product of a Dark Age of macroeconomics in which hard-won knowledge has been forgotten.

What happened to the economics profession? And where does it go from here?

As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. The renewed romance with the idealized market was, to be sure, partly a response to shifting political winds, partly a response to financial incentives. But while sabbaticals at the Hoover Institution and job opportunities on Wall Street are nothing to sneeze at, the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.

Sunday, May 30, 2010

Distributed computing

In medical research, data privacy is paramount. So it is unlikely that we'll be taking advantage of things like cloud computing anytime soon.

However, even if I could, I doubt that I would in the absence of brutally complete back-ups (which would rather eliminate any space savings). Because the world is broken up into two groups of people: those who have lost data due to crashes and those who are yet to do so. When you are in the former group, it seems the height of insanity not to be as a careful as possible about keeping data safe.

Heck, I dislike how the SAS program editor does not have an autosave feature. I've lost code because I walked away from the computer for a meeting and windows decided that was an ideal time for an auto-update. In that sense, the static environment of using the computer as a tool is at war with the dynamic vision of computer developers.

I wonder if, at some point, we'll branch off into two streams? Computers are cheap enough that you no longer need one platform for everything and I mostly use the internet at work for downloading articles (a function that slowly updated libraries could pretty much handle).

It is an interesting thought.

Friday, May 28, 2010

"How is model-based macroeconomic forecasting possible?"

There's an interesting discussion of economic forecasting over at Worthwhile Canadian Initiative. The post and the responses raise some points I've been wondering about myself. It's good to see people inside the field addressing them.

"Baby Steps to New Life-Forms"

The latest from Olivia Judson.

What Auteur Theory and Freshwater Economics have in common

(the first draft is the dominant genre of the internet. Between the roughness of this essay and my extensive ignorance of criticism and economics, I'm sure there is plenty of room for improvement here. If any readers have suggestions for taking this to the next level please let me know.)

(you might want to read this New York Times piece by Paul Krugman before going on -- it's the best primer I know of for this debate.)

We'll define freshwater economics as the theory that economic behavior (and perhaps most non-economic behavior) can be explained using the concepts of rational actors and efficient markets and auteur theory as the idea that most films (particularly great films) represent the artistic vision of a single author (almost always the director) and the best way to approach one of those films is through the body of work of its author. Both of these definitions are oversimplified and a bit unfair but they will get the discussion started.

At first first glance, these theories don't seem to have much in common, but as we step back and look at them in general terms, fundamental similarities start to emerge in their styles, their ecological niches and in the way they've been received.

Compared to their nearest neighbors, film criticism and economics (particularly macroeconomics) are both difficult, messy fields. Films are collaborative efforts where individual contributions defy attribution and creative decisions often can't be distinguished from accidents of filming. Worse yet, most films are the product of large corporations which means that dozens of VPs and executives might have played a role (sometimes an appallingly large one) in determining what got to the screen.

Economists face a comparably daunting task. Unlike researchers in the hard sciences, they have to deal with messiness of human behavior. Unlike psychologists, microeconomists have few opportunities to perform randomized trials and macroeconomists have none whatsoever. Finally, unlike any other researchers in any other field, economists face a massive problem with deliberate feedback. It is true that subjects in psychological and sociological studies might be aware of and influenced by the results of previous studies but in economics, most of the major players are consciously modifying their behavior based on economic research. It is as if the white mice got together before every experiment and did a literature search. ("Well, there's our problem. We should have been pulling the black lever.")

Faced with all this confusion, film scholars and economists (at least, macroeconomists) both reached the same inevitable conclusion: they would have to rely on broader, stronger assumptions than those colleagues in adjacent fields were using. This does not apply simply to auteurists and freshwater economists. Anyone who does any work in these fields will have to start with some sweeping and unprovable statements about how the world works. Auteurists and freshwater economists just took this idea to its logical conclusion and built their work on the simplest and most elegant assumptions possible, like Euclid demonstrating every aspect of shape and measure using only five little postulates.

(Except, of course, Euclid didn't. His set of postulates didn't actually support his conclusions. The world would have to wait for Hilbert to come up with a set that did. The question of whether economists need a Hilbert will have to wait for another day.)

Given that we have two similar responses to two similar situations, it is not all that surprising to see that both schools of thought have followed similar paths and have come to dominate their respective fields. I don't think that anyone would argue that any institution has had more impact on economics than the Chicago school over the past fifty years and I doubt you could find a theory of film that comes close to the impact of auteurism over the same period.

This dominance was achieved despite serious criticisms and counter-examples. When the writer William Goldman (Butch Cassidy and the Sundance Kid, Princess Bride, many, many, many others) heard about auteur theory, his reaction was "What's the punchline?" The sentiment was echoed by many writers who pointed out that many of the elements that the critics discussed were determined, explicitly or implicitly in the script. On related grounds, others pointed out how many of the creative decisions were made in preproduction often before the director was hired (John Huston said that a film was mostly finished once you had the cast and the script). Others talked about films that were "saved in the editing room," a common Hollywood expression for films that are radically changed for the better in post-production, usually after having been taken away from the director. Many (including Goldman) argued that films were the sum of many individual contributions and that changing any of them would result in a different movie.

Critics of classical economics question the realism of the school's postulates. They suggest that the proposed 'homo economicus' would have to be a cross between a lightning calculator and a high-functioning psychic. They point to findings from behavioral economics that show individuals failing to act according to neoclassical principles and historical cases where neoclassical models failed to predict economic events.

Both schools of thought partially address these complaints by arguing that their critics are trying to apply their ideas in cases where the necessary conditions don't hold. For auteurists, conditions included technical competence, recognizable style and a sufficient body of work. For freshwater economists, conditions included symmetry of information, a sufficient pool of buyers and sellers, a lack of externalities and freedom from government influence. These conditions did not refute the criticisms but they did provide defensible positions.

There is nothing unusual, let alone improper about proponents of a theory laying out conditions that have to be met before their concepts can be applied. (I could have written essential the same paragraph about Keynesians or deconstructionists.) What makes this notable is the disconnect between this approach and the way lay people use these ideas.

The dominance of auteurism and the Chicago School is, if anything, greater when you venture outside of academia. Most financial journalists, pundits and politicians take the power of market forces as a given and the vast majority of movie reviewers routinely assume that the director is the author of the film they just saw, but in both these cases with very few exceptions, the lay people using these theories have no idea that the conditions of the previous paragraphs even exist.

The problem with auteurism is compounded by the fact that most reviewers have no idea what a director actually does. This was certainly not true of the original French critics who popularized the theory (who were, themselves, directors) or of its primary American proponent, Andrew Sarris, (who went to great pains to discuss exactly and also set out the definitive list of the conditions I referred to).

Today most reviews will use the possessive form of the director's name then proceed to discuss everything about the film but the direction. The strange result of all this is that directors are both the most overrated and under-appreciated of movie makers. They are given credit for the work of everyone else while their own contribution is generally ignored.*

Obviously, the stakes are higher for economics but the disconnect is just as big. Open up any op-ed page or tune in any news conference and you are likely to find someone using freshwater arguments in situations where any serious freshwater economist would tell you they don't apply. For example, it is easy to pundits and politicians who believe we should let the market forces handle global warming instead of having a carbon tax, despite the pro-tax position of economists like Laffer, Cowen and Mankiw. It isn't that these laymen are consciously disagreeing with these experts; they simply don't know that using taxes to address externalities is a fundamental part of the philosophy they think they are espousing.

Finally, both schools had clear winners and have been aggressively promoted by those winners. Directors were the big winners in auteur theory; they gained power and prestige which in an industry that knows how to reward those attributes. It may not have been entirely a coincidence that the original auteurist critics had their careers as directors enhanced by the rise of the theory.

In economics, there is no question that the rise of freshwater ideas and approaches have been advanced considerably by institutions like the American Enterprise Institute and the Heritage Foundation, nor is there any question that much of the funding for these institutions came from companies that directly benefited from the dominance of freshwater economics.

Do these schools deserve their positions of dominance? That's a question for people above my pay grade. I'm just pointing out that widely separated disciplines can be surprisingly similar when you take things to a high enough level.


* For a view of how little influence some directors have on actors' performances check out these comments by Robert Mitchum (cutter in this context means film editor).

note: The Paul Krugman link at the top was added 5/31/10.

Journal Reviewing

How often do you review?

In the latest early releases from the American Journaol of Epidemiology, the editors discuss the concern of authors who submit heavily but do not accept requests to review articles. This situation is a classic case of the "Tragedy of the Commons"; the credit for reviewing is small (and typically anoymous). If nobody reviewed then the peer-review system would break down. However, the cost of any one person removing themselves from the reviewer pool is small compared to the benefit (for that person) in being able to focus on their own research projects.

Even worse, it is hard to know if the person who refuses at journal X might be a common reviewer at journal Y. Is the person who refuses refusing because they already do a lot of reviewing for another journal? Heck, I have reviewed for the American Journal of Epidemiology and I've never had a paper accepted there!

Female Science Professor once assembled a list of why people might see reviewing as a rewarding experience. It is an interesting list but maybe not completely convincing that the benefits outweigh the costs.

On the other hand, it is somewhat insirational that this system works despite everything that is working against it. Maybe science still has a critical mass of idealists left?

It's rather a nice thought.

Recursion humor

I think Mr. Gardner would have appreciated this. From Stanley Stories:

One less giant

Martin Gardner
(October 21, 1914 – May 22, 2010)

From Mark Thoma, two links and a damned good observation

First Thoma links to this:
How to prevent huge teacher layoffs, by Christina D. Romer, Commentary, Washington Post: The emergency spending bill before the House would address the education crisis facing communities across America -- and the jobs of hundreds of thousands of teachers are at stake. Because ... state and local budgets are stressed to the breaking point..., hundreds of thousands of public school teachers are likely to be laid off over the next few months. As many as one out of every 15 teachers could receive a pink slip this summer...
Then this:
Bill on jobless benefits, state financial help scaled back, by Lori Montgomery, Washington Post: Under fire from rank-and-file Democrats worried about the soaring national debt, congressional leaders reached a tentative agreement Wednesday to scale back a package that would have devoted nearly $200 billion to jobless benefits and other economic provisions...
Which he follows with the following observation:
The deficit hawks generally talk about the fate of our children when making the case to reduce the deficit, but at a time like now when the recession is pressuring school budgets, how are kids helped by reducing their educational opportunities?
It used to be fun reading Molly Ivins skilfully mocking hypocritical politicians trotting out the "What about the children?" line. Now she's gone. They're still here.

And I'm depressed as hell.

Thursday, May 27, 2010

DIY-U

In a recent post, Dead Dad wrote about DIY-U. And he's right -- most academic training (especially in areas like Epidemiology) benefits greatly from an institutional framework. But there is another angle that I think is worth thinking about -- school should not be the only place from which you derive learning. There are huge advantages to being well read and interested in a wide range of subjects. It's not an optimal strategy to take a degree in every area you have any kind of interest in.

So let us try and take the good part of this bad idea -- lifelong learning is something that it is important to begin early and never really stop doing!