Tag: books

Gladwell and the Igon Value

I can’t honestly say I dislike Malcolm Gladwell’s books or even Gladwell himself.  How can you possibly develop a dislike for a genuinely curious dilettante who writes entertaining pop social science?  But to call him even a minor genius is to considerably overrate the man:

The themes of the collection are a good way to characterize Gladwell himself: a minor genius who unwittingly demonstrates the hazards of statistical reasoning and who occasionally blunders into spectacular failures….  An eclectic essayist is necessarily a dilettante, which is not in itself a bad thing. But Gladwell frequently holds forth about statistics and psychology, and his lack of technical grounding in these subjects can be jarring. He provides misleading definitions of “homology,” “saggital plane” and “power law” and quotes an expert speaking about an “igon value” (that’s eigenvalue, a basic concept in linear algebra). In the spirit of Gladwell, who likes to give portentous names to his aperçus, I will call this the Igon Value Problem: when a writer’s education on a topic consists in interviewing an expert, he is apt to offer generalizations that are banal, obtuse or flat wrong.

The ironic thing is that mass popularity of the sort that Gladwell enjoys is not only not evidence of surpassing brilliance, it is almost always precisely the opposite.  To be able to belabor the obvious to the clueless masses in an interesting manner is a useful gift, to be sure, but it helps to be closer to their average level of intelligence, not farther away.  I find it very strange that most people intuitively understand there tends to be an inverse relationship between brilliance and mass popularity when it comes to popular music and popular television shows, but not popular books.  Regardless of whether one is talking about Gladwell, Dawkins, Rowling, or Brown, their appearances on the bestseller lists is no more indicative of literary accomplishment than the consistent chart-topping of Britney Spears or 50 Cent is indicative of musical greatness.

Don’t get me wrong and think this is some sort of sour grapes or something based on the failure of my latest book to make its mark on the bestseller lists.  (It won’t, so long as the recovery theme remains in effect throughout the mainstream media.  In fact, I suggest that we can track the public perception of the state of the economy by how well the book is selling.)  Now, I love the Sports Guy and I’m delighted that The Book of Basketball actually hit #1 on the NY Times Bestseller list.  But as much as I happen to enjoy the Sports Guy’s writings and find them entertaining,  don’t believe that BoB or any of the present #1 bestsellers written by Mitch Albom, John Grisham, or Joel Osteen are particularly well-written or brilliant books.

Returning to Gladwell, Steve Sailer twists the knife: “Should I pause before I publish and apply reality tests to Dr. Frink’s theory … Nah! Dr. Frink is a wonderful genius! This time I’m clearly not overlooking any problems with the basic idea of my article.”  The amusing thing is that as with Paul Krugman and his claim that half of all U.S. banks failed in 1931, the error is a long-standing one.  In this case, Gladwell first introduced the concept of the Igon Value to an unsuspecting world six years ago.

As one of Sailer’s commenters notes, a Bertrand Russell quote would appear to be more than a little applicable here: “A stupid man’s report of what a clever man says is never accurate because he unconsciously translates what he hears into something he can understand.”

Errata

In any book full of statistical minutia, it’s highly probable that the author will make the occasional dumb mistake. Sometimes it’s a typo, sometimes it’s a failure of research, sometimes it’s a misstatement, and sometimes it’s just an inexplicable error. This doesn’t make you feel any better when you catch your own dumb mistakes, or worse, have to rely upon other people catching them for you. But this historical howler, I have to confess, makes me feel rather better about my own 1931-related error. It also may help explain my low opinion of certain mainstream economists for those who think I show insufficient lack of respect for fame and professional credentials. And while I’m inclined to give authors the benefit of the doubt when it comes to statistical citations, I’m not sure this one can be considered an excusable error, especially since it was made by an economist who has often written about the Great Depression as if he knows a great deal about it.

“Back to bank runs: in 1931, about half the banks in the United States failed. These banks were not all alike. Some were very badly run; some took excessive risks, even given what they knew before 1929; others were reasonably well, even conservatively managed. But when panic spread across the land, and depositors everywhere wanted their money immediately, none of this mattered: only banks that had been extremely conservative, that had kept what in normal times would be an excessively large share of their deposits in cash, survived.”
– Paul Krugman, The Return of Depression Economics, p. 100 (1999)

I found myself wondering if he’d figured out his tremendous mistake or if anyone had bothered to point it out to him at some point in the ten years between editions. Fortunately, I also happen to have his revised edition. The answer: apparently not.

“Back to bank runs: in 1931, about half the banks in the United States failed. These banks were not all alike. Some were very badly run; some took excessive risks, even given what they knew before 1929; others were reasonably well, even conservatively managed. But when panic spread across the land, and depositors everywhere wanted their money immediately, none of this mattered: only banks that had been extremely conservative, that had kept what in normal times would be an excessively large share of their deposits in cash, survived.”
– Paul Krugman, The Return of Depression Economics and the Crisis of 2008, pp 96-97. (2009)

If you should happen to consult RGD, you’ll see that 2,293 of the 20,367 banks in the United States failed. That’s 11 percent, which is not even close to “about half”. You can also check Banking and Monetary Statistics 1914-1941 or Friedman and Schwartz’s A Monetary History of the United States 1857-1960 if you don’t wish to take my word for it. The problem is that repeating this erroneous historical “fact” twice in ten years isn’t merely an error, it tends to suggest that Krugman really doesn’t know all that much about the Great Depression, and even worse, hasn’t read Milton Friedman.

RGD $1.99

While I wasn’t able to make the ebook available for free, you can get the PDF for only $1.99 at Scribd immediately. The Kindle version will also be $1.99 when Amazon finally gets around to updating their database and makes it available. Even if you’re waiting for your hardcover to arrive, you might still like to check out the Scribd preview, since it features three four-page sections that cover the comparison of present and historical bank failures, the “global savings glut” and the failure of the monetarist predictive model, and five of my suggestions for what can and should be done on the macro scale. I always prefer to have both the book and the ebook myself, and thanks to the low ebook price and the Amazon discount you can get both the hardcover and the PDF for less than the cover price of the former alone.

Today looks like a busy day. I had three radio interviews yesterday and five today; it was gratifying to discover how keenly interested people are in the subject matter. Granted, the national show was focused on money matters, that being the name of the show, but regardless, it was remarkable to observe the divergence between the reactions of the Wall Street-based financial media and the talk radio hosts to yesterday’s “surprising” GDP report. Speaking of today’s radio shows, one of them is The Barry Farber Show. I’ll be on from 8PM to 9 PM Eastern and his producer said that he’d very much welcome callers with questions about the book in the second half-hour. The number is 800-336-2225 if you’ve got an economics related one that I haven’t addressed here already and the show has an Internet live stream available.

RGD on Lew Rockwell

The Return of the Great Depression

It can quite reasonably be said that at no point in economic history has technical knowledge ever been less relevant to being a good economist than today. Mainstream economics is in complete disarray. In the UK, economists are reeling in shock as their predicted third-quarter recovery has failed to appear, while in the USA, Nobel-winning Keynesians are first calculating the need for a $600 billion stimulus, then turning around and declaring a $787 billion stimulus is insufficient. A report from the Kiel Institute entitled The Financial Crisis and the Systemic Failure of Academic Economics has concluded that a “reconsideration” of the “basic premises” of standard macro and finance models is required due to their inability “to provide any insight into ongoing events.” And even the venerable Economist has been wondering aloud where economics went wrong.

Garbage in, garbage out. The truth that is known to every computer programmer is finally beginning to penetrate the economic elite. Keynesian models have failed. Monetarist models have failed. Neo-Keynesian and Post-Keynesian models have failed. The only known concepts that have not completely failed – yet – are the financial instability hypothesis of Hyman Minsky, Richard Koo’s concept of a balance-sheet recession, and the credit-focused cycle theory of the Austrian School.

Mr. Rockwell, the chairman of the Mises Institute and a great champion of both Austrian economics and human liberty, was kind enough to ask me to personally introduce RGD to his readership. This is an article I wrote specifically lewrockwell.com for the official launch of the book today, and I’d encourage you to check it out. I have to admit, I was a bit taken aback to hear the host quote the opening sentence of it during my interview on The Rob Johnson Show.

Falsifying RGD

I’ve been asked to consider the possibility that the thesis of my latest book, The Return of the Great Depression is incorrect. If I were the Mogambo Guru, this would of course be the correct occasion to respond with nothing more than the Mighty Mogambo Snort of Derision (MMSoD) followed by a verbose and entertaining rant involving pitchforks, firearms, indignities performed upon the corpses of deceased central bankers, and gold, but as I am merely an Internet Superintelligence with a tendency to take things literally even when they are clearly intended as metaphor, sarcasm, or irony, sometimes for the purposes of illustration but more often for my own amusement, I shall consider the question of what would indicate that I am incorrect and we are not in the early stages of a massive worldwide economic contraction.

As it happens, I have gone into some detail in examining the possibility that I am wrong in the book itself by cataloging the six plausible scenarios, five of which are presently part of the present economic discourse. While the five scenarios that range from Saint Bernanke and the Green Shoots to Great Depression 2.0 each have their public advocates who are listed by the scenario they are forecasting, I have yet to discover any economist who is genuinely convinced that we are headed for the sixth scenario: Fallout 4 Live.

Since a significant part of my conclusions are based on Austrian theory with a much-lesser nod to Minsky’s financial instability hypothesis, the first indication that I could be wrong is related to bank credit. Austrian theory teaches that either the money supply and/or bank credit has to contract; as Mises puts it: “[T]he moment must eventually come when no further extension of the circulation of fiduciary media is possible.” So, an sustained increase in either TOTLL or total credit market debt would be the first and strongest sign that either a) the depression is coming to an end or b) Whiskey Zulu India, the hyperinflation scenario, is coming to pass. TOTLL is presently down 8.2% from its peak one year ago, while TCMD was very slightly down in the second quarter; we are still waiting for the third quarter results.

The second sign will be rising property tax revenues, particularly at the state and local level. While it is easy for governments to play games with statistics, it is much more difficult for them to falsify their tax revenues. The document “State Finance in the Great Depression” is useful on this score. “After the Depression began, local government property tax collections did not again reach the 1927 level until 1944. For states, it took until 1952 to reach the 1927 level, although in the interval, states had reduced their reliance upon the tax.” Since state and local governments now already derive their revenue from a much broader range of taxes, it is unclear if one can use aggregate tax revenues as a similar indicator, but the collapse in cumulative tax revenues from declines in sales and income taxes suggests that this may be the case.

“Among the worst cases is Indiana where revenue collections were 8 percent below forecast, or $254 million lower than expected, leading state budget officials to speculate revenue could fall $1 billion by the end of the fiscal year.”

Most economists will be looking primarily at the GDP figures, and indeed, a positive report above three percent will probably be widely cited as evidence that the recovery has arrived, although anything south of the 3.3% growth expected by the mainstream consensus will likely sink the markets. But the current numbers are considerably juiced by the summer housing and automotive subsidies and the “positive” aspects of the improvement from the second quarter were entirely the result of a) government spending, and b) Americans buying fewer imports, neither of which is a legitimate sign of economic growth. But, I would regard two quarters of economic growth of four percent growth without any substantial government programs propping up consumer spending to be a legitimate sign of recovery. The fact that it is looking increasingly likely that the home buyer’s credit act will now be extended to April 2010 does not inspire great confidence in the legitimacy of the GDP numbers for the third and fourth quarters. I will be analyzing the Q3 Advance report on the RGD blog later for those who happen to be interested. (UPDATE: the BEA is reporting 3.5% growth for Q3, of which almost half, 1.7%, is from “motor vehicle output”. In other words, from additional government-subsidized debt.)

Finally, it is important to remember that GDP is an artificial construct intended to provide a means of modelling Keynes’s general theory which is predicated first and foremost on employment. The very concept of a “jobless recovery” is a contradiction in economic terms. As with GDP, U3 and U6 are subject to government statistical shenanigans, but unemployment is a little harder to disguise, so regardless of how the BLS plays around with the consistency of the “labor force” in order to make the rate look lower, seeing the Employment/Population ratio move back above the 60% would also be a strong sign of genuine economic recovery. Note that we are presently at 1984 rates of employment-to-population.

A fifth indicator that I am incorrect and the hyperinflationary scenario is unfolding instead of the debt-deflationary one is a rapid increase in the price of gold. Please note that this is not an economic recovery scenario, it is only a different form of the massively contractionary one. I believe that gold, being a form of money, can benefit from deflation. So, $1,075 gold is not conclusive, especially since it’s still lower than the $1,425 inflation-corrected 1981 peak. But only inflation could possibly account for the sort of rapid rise in price that would be projected to take it above, say, $5,000 per ounce, and if there is hyperinflation, the gold price can safely be expected to exceed that by a considerable margin.

Finally, physical shipments of goods are a necessary and relatively objective measure of economic activity. The Baltic Dry Index is a daily average of international shipping prices and it was at 11,771 at its peak in 2008. It is presently below 3,000 but rose as high as 4,291 in May, so any move above 5,000 would be an initial indication that an economic recovery is underway. Above 10,000 would appear to be positive proof that the economy was completely back on track, barring the hyperinflationary scenario, of course.

In summary: 1) Increasing bank credit and overall debt. 2) Rising state and local property tax revenues. Possibly increasing aggregate tax revenues as well. 3) Consecutive quarters featuring four-percent plus GDP gains not created by government spending, reduced imports and consumer spending subsidies. 4) Employment to population ratio over 60 percent. 5) Rapidly increasing price of gold over $1,500 per ounce. 6) The Baltic Dry Index exceeding 5,000. If anyone else has any suggestions, please feel free to list them.

More powerful than CSPAN

I thought this note by Derbyshire might amuse the Dread Ilk who participated in the yesterday’s Amazon launch of RGD:

Yesterday’s airing of the Derb-Colmes knockdown on C-SPAN lifted WAD up into 400-something on Amazon sales rankings.

It’s certainly testimony to the relative power of the Internet vs cable media anyhow. Speaking of media, I’m on with Jerry Hughes now if you’d like to listen in.

RGD: release the hounds

This is the official starting gun for the Amazon book bomb for The Return of the Great Depression. If you’re interested in buying it, either for yourself or for someone else, I’d encourage you to order a copy from Amazon in the next 12 hours. Its initial ranking was 19,795 overall and 50 in Economic History, so that’s the starting point. If you’re keeping track of the ratings as well as your fantasy team, feel free to post them here as they change on an hourly basis. I think 1,000 and 10 would be an excellent objective; anything above that would be a smashing success.

By way of encouragement, I’d like the Dread Ilk to be the first to know about the dedicated book site, which was developed for RGD by WorldNetDaily. In addition to featuring a collection of my WND columns related to the economic crisis dating back to 2002, it also has some economic prediction trackings – including a rather nice one in 2008 that I’d completely forgotten – scheduled events, reviews, and an economics blog where I will be posting daily. The official publication date isn’t until Thursday, but I believe that WND intends to announce the book site tomorrow. Some additional content, such as YouTube videos, will likely appear on the site in the relatively near future. I also plan to make some of the spreadsheets I used in producing the charts for the book available for download from the site as well.

I very much appreciate the encouragement that people here have shown throughout the writing of RGD and I hope that you will find that it does not disappoint you. It is not a massive book, but it is most definitely a data-rich one. And we should probably all hope that it is a massively incorrect one.

UPDATE – Thank you very much if you participated in the Amazon launch last night. It was a huge success and significantly exceeded my hopes for it by reaching #90 overall and #5 in Economics. You even made it the #1 Mover and Shaker on Amazon! I appreciate the confidence you have shown in the book and will look forward to hearing your thoughts on it after it arrives and you read it.

RGD book bomb tomorrow

Are you in? It’s precisely 26 hours away… 12 noon to 12 midnight central. WND mentioned the book in an email last week, which resulted in RGD shooting all the way up to #13 in Economics – two positions above our favorite Nobel Prize winner’s latest – so it will be interesting to see how things go tomorrow. Whether you’re buying the book tomorrow or not, stop by as I’ll be providing a sneak preview of the site where I’ll be doing daily economics-only blogging for the next few months. This will not have any affect on the blogging here as what will be posted there is going to be the more wonkish sort of thing with which I seldom see fit to annoy everyone here.

In other words, we’re talking pure chart-and-spreadsheet porn for the stat sickos. You know who you are. And on that edifying note, I will leave you with Jonah Goldberg’s verdict on the book.

“Vox Day is a punk rock Jeremiah who knows how to use a spreadsheet. In The Return of the Great Depression, he aims his voracious mind at our economic predicament and makes a powerful and well-documented case for why Faulkner was right: The past is never dead. It’s not even the past.”
—Jonah Goldberg, author of Liberal Fascism

RGD: the second review

Chad the Elder of the Fraters Libertas reviews RGD:

Let me start by passing on a shocking piece of information: Vox Day is not an economist. That may lead some to discount his views on matters economic, but in this case it proves to be beneficial. He approaches the subject as an outsider and is not wedded to any particular school of economic theory from his background. This allows him to be rather dispassionate in his analysis and also forces him to be more vigorous in his research since he doesn’t come into it with a great deal of experience.

It also makes The Return of the Great Depression a more understandable and entertaining read than your average economic tome. That’s not to say its been dumbed down or overly simplified. Vox takes on some rather weighty and complicated economic topics. But, as he previously did in The Irrational Atheist, he does so in his own unique voice (Vox’s vox?). Even while explaining the inner workings of the money supply or the components that make up GDP, he maintains his straight-shooting style infused with the mix of cynicism and sarcastic humor that readers of his blog have come to expect.

I have to admit, after the complete, utter, and admitted failure of mainstream economics to foresee or forestall the present crisis, or to present potential solutions beyond increasing the amount of debt-funded spending, I would think that not being a credentialed economist would be seen as a strength rather than a weakness these days. If the basic theory is bad, learning more sophisticated ways of playing with it is not going to help you understand anything.

RGD: reviews

Right Condition reviews The Return of the Great Depression:

Once in a while, a book comes along that shakes so many of your core beliefs that you are left questioning either the integrity of what you have read or your own knowledge. In this particular case, I had the privilege of a sneak peek at The Return of the Great Depression by Vox Day and with most certainty can state, it is the latter. RGD as it shall be referred to from now on, as can be inferred from its title makes a very compelling case as to the state of our economy and where this nation is potentially headed. However do not be misled by its name, for this is much more than a prophecy, it is principally and foremost an economic text diligently spending the majority of its efforts in explaining why we are standing on the edge of a precipice.

Chad the Elder of the Fraters Libertas reviews RGD:

Let me start by passing on a shocking piece of information: Vox Day is not an economist. That may lead some to discount his views on matters economic, but in this case it proves to be beneficial. He approaches the subject as an outsider and is not wedded to any particular school of economic theory from his background. This allows him to be rather dispassionate in his analysis and also forces him to be more vigorous in his research since he doesn’t come into it with a great deal of experience.

It also makes The Return of the Great Depression a more understandable and entertaining read than your average economic tome. That’s not to say its been dumbed down or overly simplified. Vox takes on some rather weighty and complicated economic topics…. if you want to read an informative, thoughtful, and even sometimes entertaining book on the current economic situation, you can’t go wrong with The Return of the Great Depression.