Cavalcade of Endogeneity: The Market Monetarist does Micro Edition

So on the Market Monetarist blog, I recently saw one of the worst examples of the correlation implies causality fallacy ever by a supposed professional economist.

There is a graph presented of a raw correlation between an index of property right protection in a country and an index of "environmental performance"

Look for yourself, here's the graph:

and then the hammer drops:

"So there you go. The one graph version of Free Market Environmentalism – if you are concerned about the environment you should really primarily concern yourself about the protection of property rights"

That is just a stunning leap from the graph.

Might we dare to think there is a third factor, I dunno, maybe income, that is causing both of these indices?

Or try it this way, if I presented a graph that showed government spending was positively correlated with environmental performance, would the Market Monetarist then conclude that big government was the way to protect the environment?

If not, why not? Why would my analysis be any worse than this?

Oklahoma gettin' smarter, North Carolina gettin' dumber

Cool graph from a group called City Report showing how young educated people are flowing into selected urban areas.

Here the increase in young people with BAs or better in on the vertical axis and the increase in total population is on the horizontal:

As you can see OKC has the second largest increase in young educated people and that increase is large given its overall population growth. Charlotte NC and Raleigh NC are getting relatively dumber as their overall population is growing faster than their young and educated population (Atlanta and Dallas too!).

Interestingly New Orleans, Buffalo and Pittsburgh are losing overall population while gaining a decent amount of young and educated people, while Detroit and Cleveland are stinking in both dimensions.

I guess all those Mungowitz-educated  Duke students are not staying in NC!

Hat-tip to The Upshot!

Frequent Fed Failure Foolishness

If you start with the conviction that the Fed can perfectly control the real economy, then any protracted slump is, ipso facto, a Fed failure.

Hence we see blogposts like "This one figure shows why Fed policy failed".

Here's the figure in question:

The blogpost argues (awesomely I might add) that the graph shows failure in two ways. First because the increase in the Fed balance sheet was "temporary".

Now people, let me point out that it is April of 2014. So all the unshaded part of the graph is in the future! And as you can see, the latest projection of when the Fed's balance sheet returns to its pre-crisis trend is in 2021. And it's quite likely that future projections (if anyone is so nuts as to continue to make them) will push this date further into the future.

So the idea that a graph of things that have not happened can show the Fed failed is pretty weak sauce.

And, even if it does go down like that, we are still talking 14 years of super-sized balance sheets as too short a time to get people to "rebalance their portfolios"

The second reason the graph shows failure is because the asset purchases were so large! (I am not making this up).

The blogpost argues that in lieu of actual policy, the Fed should have just credibly committed to policy actions if needed and this would have raised velocity making the required purchases much smaller or even not needed at all:

"Had the Fed credibly committed from the start there never would have been the need for all the subsequent LSAPs."

But of course we know from econ 101 that the Fed cannot credibly commit! To anything, least of all to letting inflation run above its own desired level in order to top up nominal GDP from its recessionary shortfall.

People, repeat after me:

1. Not all recessions are prima facie evidence of Fed policy failures.

2. Not all Fed predictions / projections actually come to pass.

3. When you hear some one telling you all the Fed needs to do is "credibly commit", RUN!