and yet more fantastical pseudo public policy analysis
January: Unicorn promises from the Governor of Wisconsin To quote, “Missed it by *that* much”. From Only 93,200 Net New Jobs Needed in January 2015 to Hit Governor Walker’s 250,000 Jobs Target:
According to WI DWD statistics released today.
Figure 1: Wisconsin private nonfarm payroll employment (red), and linear trend implied by Governor Walker’s 250,000 net new private sector jobs pledge (gray). Dashed line at beginning of Walker administration. Governor Walker recommits to 250,000 net new jobs in August 2013. Source: WI DWD, Milwaukee Journal Sentinel, and author’s calculations.
Since average net job creation in Wisconsin under Governor Walker has been 3.3 thousand, with a standard deviation of 4.7 thousand, the likelihood that the target will be achieved is low.
But then, as a government official wrote to me on May 16, 2012: “The adminstration assumed that the jobs gains would be back loaded — ramping up with time.” So perhaps the ramp will be extremely steep this month!!!
As it turned out, the miraculous surge did not occur, and by my best estimates, the 250K new jobs promise of August 2013 will only be achieved by March 2018, earliest March 2017 using 90% confidence band.
February: More unicorn promises: From Governor Jeb Bush on the Desired Trend in Real GDP:
From Bloomberg, a quote from the Governor’s speech in Detroit:
… I don’t think the U.S. should settle for anything less than 4 percent growth a year–which is about twice our current average.
I applaud the Governor’s aspirations. Here is a plot of what real GDP would have looked like had we had 4% annual growth (log terms) since 1967Q1 (in red), and if we’d had it under the administration of G.W. Bush (green).
Figure 1: Real GDP, in bn. Ch.2009$, SAAR (blue) and under 4% growth starting from actual level in 1967Q1 (red), and starting from actual level in 2001Q1 (beginning of G.W. Bush administration) (green). Growth rates calculated as log differences. Source: BEA 2014Q4 advance release, and author’s calculations.
Well, if 500,000/month job creation is the norm (as Governor Mitt Romney asserted), why wouldn’t 4% growth be the norm? Just because it hasn’t happened yet, doesn’t mean it can’t.
February: Mendacious data plotting From The Measurement and Display of Data Series:
What are these series?
They are log GDP for the first terms of the most recent seven presidencies, SAAR, normalized to the quarter of inauguration.
Figure 2: Nominal GDP, billions of $, SAAR, normalized to quarter of inauguration of first term for Obama (blue), GW Bush (red), Clinton (green), GHW Bush (black), Reagan (teal), Carter (purple), Nixon (chartreuse). Source: BEA (2014Q4 second release), and author’s calculations.
Some would object that using nominal GDP is misleading. In defense of reporting nominal magnitudes, reader Ironman writes:
It is our practice to always present nominal data because it is the data that doesn’t change as a result of inflation adjustments, which are always arbitrary in practice and are always in need of being updated, since almost all readers prefer that kind of information to be presented in terms of constant, current day dollars. Since we provide the relevant links to all original data sources, anyone who wants to confirm our numbers can get them and not wonder how they have been adjusted. Our readers are a pretty sharp bunch and are pretty capable of adjusting the nominal data to account for whatever measure of inflation they might like to consider, whether CPI-U, GDP deflator, etc.
Here for comparison is real GDP.
Figure 3: Real GDP, billions of Ch.2009$, SAAR, normalized to quarter of inauguration of first term for Obama (blue), GW Bush (red), Clinton (green), GHW Bush (black), Reagan (teal), Carter (purple), Nixon (chartreuse). Source: BEA (2014Q4 second release), and author’s calculations.
If you can do deflation, and the relevant graphing, in your head…you are a better man than I!
April, let’s outsource the science… From No Time for Scientists – Wisconsin Edition:
With apologies to Mac Hyman …and Andy Griffith
Leaders at the Department of Natural Resources (DNR) are proposing elimination of the Bureau of Science Services within the department.
In a Feb. 25 email, Scott Hull, a section chief in the Bureau of Science Services, asked Mark Aquino, director of the agency’s Office of Business Support and Science, for clarification on remarks made by Secretary Cathy Stepp on a radio show about possible budget cuts and personnel changes for the bureau.
In his Feb. 26 response, Aquino informed Hull that the agency “will go through some form of organizational change that will result in not having a Bureau of Science Services, in an effort to address the legislative perception of research not being well aligned with program needs.”
The agency’s Bureau of Science Services has recently drawn criticism from state Sen. Tom Tiffany, R-Hazelhurst. Tiffany criticized a bureau report on environmental concerns surrounding the now-defunct plan from Gogebic Taconite to build an open-pit iron mine in northwestern Wisconsin. He said the report was biased against the mine.
Tiffany also told the Milwaukee Journal Sentinel that he was not supportive of the bureau doing research related to climate change because the science behind global warming is still “theoretical.”
According to the article, supporters of the Governor’s proposed cuts to the DNR Science Bureau argued that some of the scientific analysis could be undertaken by UW. To me this seems highly unlikely to occur given impending cuts to state funding of the UW system, in addition to the fact that the type of research conducted by DNR is substantially different from basic research conducted at the University (as discussed in the article).
June: And no time for tenured professors either. From Assessing the Rational Agent Response to Elimination of Tenure in Wisconsin State Statute:
Thinking about “Exit, Voice and Loyalty” in Wisconsin
The Joint Finance Committee motion to remove tenure from state statute. Winners of the most competitive research awards the University of Wisconsin–Madison provides to its scholars have made a statement, found here.
We are especially concerned about provision 39 of the omnibus motion, which authorizes the Board of Regents to terminate faculty appointments for reasons of “program discontinuance, curtailment, modification, or redirection.” This is a profound departure from current policy, which allows termination of faculty appointments only for just cause after due notice and hearing, or in the event of a fiscal emergency. If passed into law, this provision would greatly weaken any guarantees of tenure provided by the Board of Regents. In essence, state statute would say that tenure at the University of Wisconsin does not mean what it means at every other institution: a guarantee that university administrators cannot arbitrarily dismiss faculty who have earned tenure through research, teaching, and service.
I have seen some individuals (as far as I can tell, typically not involved in knowledge generating sectors of the economy) who asserted that a move to weaken the protections of tenure would eliminate “dead wood”, and reduce costs.
It strikes me that it is useful to consider a rational agent model of individual decision-making, in response to weakening of tenure protections relative to other academic institutions, in assessing the plausibility of such arguments.
First, agents would make the relevant cost-benefit calculations. As costs (from uncertainty) rise, those agents with the highest value of outside options (relative to costs of moving) would move. On average, one would guess that the most accomplished would then tend to move.
Second, the idea of compensating differentials (look at any intro economics textbook) is relevant. If uncertainty is higher, then rational agents — particularly those coming from outside, perhaps as new hires — would tend to demand a higher salary relative to what otherwise would be the case.
Third, the removal of tenure protections could be taken as a signal by state leaders (in the legislature, in the executive) that the contributions by those involved in the academic enterprise are not valued. If leadership at the state level attempts to stifle dissent, then loyalty is reduced, and exit becomes a more attractive option. (Some will recognize this idea from Hirschman.).
So, if one’s objective were to drive out the most academically successful professors, raise cost per unit output of teaching/research (recalling UW brings in billions of dollars of Federal and other grants), and demoralizing the university faculty, then the JFC’s motion is the optimal route.
August: Prejudice against logs continues! From To Log or Not to Log, Part I:
Reader Mike V castigates me for over-use of logs.
I’m not at all averse to logs, but they have a time an a place. You are trying to point out relatively small changes in income over a short time-series – not the nearly exponential changes in the S&P 500 over the last 100+ years.
Let me provide some examples of where it’s useful to use logs. First, consider the dollar’s value over the course of a year and a half (somewhat less than 100+ years).
Source: Federal Reserve Board via FRED.
Now let’s consider trough to peak, and peak to trough, changes. From July 15, 2008 to March 9, 2009, the dollar appreciated 23.34%, using the formula (Q2-Q1)/Q1. From March 9 to December 2, 2009, the dollar depreciated 17.10%, using (Q3-Q2)/Q2. Dollar up by 23.34%, down by 17.10% — one might think the dollar was up overall by 6.24%. But in fact, using the base period formula (Q3-Q1)/Q1, the dollar is up by 2.24%.
One advantage of using changes in log terms is that additivity is retained, as Jim mentioned in an earlier post; using a log approximation of log(Q2/Q1), one finds the appreciation is 20.98%, the depreciation is 18.76%, the net change is 2.22%. And this is exactly what one gets looking directly at the log change from July 15, 2008 to December 2, 2009.
August: From “Global warming is a total, and very expensive, hoax!”:
Here’s some data: Global surface anomaly, year-to-date (June):
If one dismisses the Trump thesis that global climate change is a Chinese plot (6 Nov 2012) (I guess he saw one too many Frankenheimer movies), then perhaps we pay attention to what econometric models suggest. Here’s one by Jim Stock, et al., which concludes:
The results of this analysis indicate that observed temperature after 1998 is consistent with the current understanding of the relationship among global surface temperature, internal variability, and radiative forcing, which includes anthropogenic factors that have well known warming and cooling effects. Both of these effects, along with changes in natural variables must be examined explicitly by efforts to understand climate change and devise policy that complies with the objective of Article 2 of the 1992 United Nations Framework Convention on Climate Change to stabilize “greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference in the climate system.”
August: I don’t even know how to characterize this. From Governor Walker on Responding to the Chinese Economic Situation:
“Americans are struggling to cope with the fall in today’s markets driven in part by China’s slowing economy and the fact that they actively manipulate their economy,” the Wisconsin governor said in a statement. “Rather than honoring Chinese President Xi Jinping with an official state visit next month, President Obama should focus on holding China accountable over its increasing attempts to undermine U.S. interests.”
Does this mean Governor Walker believes the Chinese aimed to undermine the US economy by deliberately engineering a stock market collapse? I guess if one believed Chinese policymakers were incredibly cunning and devious, this makes some sort of sense. Pursuing this thought, does this imply Governor Walker believes the US Government should force the Chinese government to reflate the Chinese stock market?
Here is Governor Walker in 2013, speaking about opportunities for Wisconsin-China relations:
“This [Wisconsin Center China] strengthens our relationship with China and provides Wisconsin businesses the resources and assistance to pursue export opportunities in this growing market,” Governor Walker said. “Through the years, Wisconsin has built a strong trade relationship with China, and the opening of the Wisconsin Center China will help Wisconsin businesses continue to strengthen our trade relationships and grow export opportunities.”
September: Republican presidential candidate Scott Walker, again! From Countering the Manitoba Menace:
Or, “President Obama, build up this wall!”
From Fox News:
Walker said in an interview that aired Sunday that building a wall along the country’s northern border with Canada is a legitimate issue that merits further review.
Republican candidates for president have often taken a get-tough approach on deterring illegal immigration, but they usually focus on the border with Mexico. Walker was asked Sunday morning on NBC’s “Meet the Press” whether he wanted to build a wall on the northern border, too. Walker said some people in New Hampshire have asked the campaign about the topic.
“They raised some very legitimate concerns, including some law enforcement folks that brought that up to me at one of our town hall meetings about a week and a half ago. So that is a legitimate issue for us to look at,” Walker said.
This is an interesting idea. Consider the distance that would need to be fenced in, or otherwise secured. The US-Canada border stretches over 5500 miles. Merely securing the contiguous 48 border with Canada requires putting barriers over 4000 miles.
One estimate places the total cost at $18 billion, using the average cost estimate of $5.1 million/mile. The article cites “a report by the U.S. Department of Homeland Security to Congressional committees in 2009, which examined the construction costs of building fences on the Mexican border in 2007 and 2008.” Since the details weren’t presented, it’s hard to tell if that estimate includes costs associated with design and procurement of the land used for the wall. Other estimates of per-mile cost of building are presented in this Congressional Research Service report (pages 16-24). In addition, there is a maintenance issue, so that the present value cost is much higher than the build cost. From the CRS report:
The Corps of Engineers estimated that Sandia fencing costs per mile would range from $785,679 to $872,977 [in constant 1997 dollars] for construction and $953 to $7,628 per mile yearly for maintenance. Additionally, the Corps of Engineers study notes that the Sandia fence would possibly need to be replaced in the fifth year of operation and in every fourth year thereafter if man-made damage to the fence was “severe and ongoing.” For this reason, in the study the Corps of Engineers noted that the net present value of the fence after 25 years of operation, per mile, would range from $11.1 million to $61.6 million.
To convert to 2014 dollars, one can multiply by 1.48 (the 2014 CPI level is 47.5% higher than it was in 1997).
There are two questions that come to me. The first is the cost-effectiveness of building a physical barrier that impedes pedestrians. I suspect that the benefit-cost ratio is very, very low. The second is whether it’s still a bad idea. After all, spending to build something that is useless is akin to Keynes’s example:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
[Book 3, Chapter 10, Section 6 pg.129 “The General Theory..”]
Of course, it would be even better if the spending were on something useful like investment in human capital and the like. However, the Governor seems to have an aversion to such types of expenditures that augment potential output. 
October: I don’t know how to characterize this, either. From What’s a Debt Limit?:
From Marketplace, an interview with Ben Carson:
Ryssdal: All right, so let’s talk about debt then and the budget. As you know, Treasury Secretary Lew has come out in the last couple of days and said, “We’re gonna run out of money, we’re gonna run out of borrowing authority, on the fifth of November.” Should the Congress then and the president not raise the debt limit? Should we default on our debt?
Carson: Let me put it this way: if I were the president, I would not sign an increased budget. Absolutely would not do it. They would have to find a place to cut.
Ryssdal: To be clear, it’s increasing the debt limit, not the budget, but I want to make sure I understand you. You’d let the United States default rather than raise the debt limit.
Carson: No, I would provide the kind of leadership that says, “Get on the stick guys, and stop messing around, and cut where you need to cut, because we’re not raising any spending limits, period.”
Ryssdal: I’m gonna try one more time, sir. This is debt that’s already obligated. Would you not favor increasing the debt limit to pay the debts already incurred?
Carson: What I’m saying is what we have to do is restructure the way that we create debt. I mean if we continue along this, where does it stop? It never stops. You’re always gonna ask the same question every year. And we’re just gonna keep going down that pathway. That’s one of the things I think that the people are tired of.
Ryssdal: I’m really trying not to be circular here, Dr. Carson, but if you’re not gonna raise the debt limit and you’re not gonna give specifics on what you’re gonna cut, then how are we going to know what you are going to do as president of the United States?
Carson: OK, let me try to explain it in a different way. If, in fact, we have a number of different areas that are contributing to the increasing expenditures and the continued expenditures that are putting us further and further into the hole. You’re familiar I’m sure with the concept of the fiscal gap.
Ryssdal: Why don’t you explain that a little bit, though.
Carson: OK, well, the fiscal gap is all of the unfunded liabilities that the government owes. Medicare, Medicaid, Social Security, all the departmental programs, all the agency and sub-agency programs extending into the future, which is a lot of money, versus the amount of revenue that we expect to collect from taxes and other revenue sources. Now if we’re being fiscally responsible, those numbers should be fairly close together. If we’re not, a gap begins to occur. We bring that forward to modern day today’s dollars, and that’s the fiscal gap, which sits at over $200 trillion and is continuing to grow. Now the only reason that we can sustain that kind of debt is because of our artificial ability to print money, to create what we think is wealth, but it is not wealth, because it’s based upon our faith and credit. You know, we decoupled it from the domestic gold standard in 1933, and from the international gold standard in 1971, and since that time, it’s not based on anything. Why would we be continuing to do that?
I must confess the lack of comprehension is breathtaking. Dr. Carson would be well advised to read this post.
The entire interview is here.
December: A suprisingly popular policy proposal (at least popular amongst one group). “Donald Trump Calls for Barring Muslims From Entering U.S.”:
That’s the headline from the NY Times. Given this development, I’m going to save Donald Trump some time in writing up the legislation. Here is some handy-dandy text borrowed from the Chinese Exclusion Act of 1882.
An Act to Execute Certain Treaty Stipulations Relating to Muslims
Whereas, in the opinion of the Government of the United States the coming of Muslims to this country endangers the good order of certain localities within the territory thereof: Therefore,
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That from and after the expiration of ninety days next after the passage of this act, and until the expiration of ten years next after the passage of this act, the coming of Muslims to the United States be, and the same is hereby, suspended; and during such suspension it shall not be lawful for any Muslim to come, or having so come after the expiration of said ninety days, to remain within the United States.
SEC. 2. That the master of any vessel who shall knowingly bring within the United States on such vessel, and land or permit to be landed, any Muslim, from any foreign port or place, shall be deemed guilty of a misdemeanor, and on conviction thereof shall be punished by a fine of not more than $500 for each and every such Muslim so brought, and may be also imprisoned for a term not exceeding one year.
SEC. 3. That the two foregoing sections shall not apply to Muslims who were in the United States on the XXth day of XXXX, XXXX, or who shall have come into the same before the expiration of ninety days next after the passage of this act…
Although public policy debates have descended to a depressingly low level, my best wishes for a more informed, less-resentment-filled, New Year to all!