Fun With Charts: Discussing The Krugman Charts
Cullen Roche | May 21, 2015 01:57AM ET
Someone sent me an email this evening with some details on the Paul Krugman response to James Montier which I discussed here . I had previously stated that the Krugman response was lacking meat. But it’s actually worse than that. It’s actually highly misleading and appears intentionally so.
In the post Dr. Krugman tries to show how much interest rates matter by comparing the Fed Funds Rate with Housing Starts. He shows a chart and declares that there appears to be a strong correlation. Except, as this emailer notes, he appears to have shifted the chart to make it appear as though there’s a correlation where there isn’t one.
Here’s the Krugman chart:
And here’s the version that would have originally shown up when the data is pulled from FRED:
See what was done there? The period in the early 1960’s was removed and so was the period from 2000 on. In other words, out of a 55 year time period Dr. Krugman decided to remove 20 years worth of data because it fit his argument better. For those keeping track that’s removing almost 40% of an entire data set just because the data didn’t fit the narrative. And when you add those years back in you get a result that shows a very weak correlation:
I can understand why he might remove the period from 2008 on. But why remove the 1960’s data and the early 2000’s? After all, the 2000’s were the period of Alan Greenspan’s famous “conundrum” where interest rates appeared to have no correlation with the housing market. That’s not just an important part of this discussion, it’s a critical part given that it includes the housing bubble and is outside of the mythical Liquidity Trap era….
Get The News You Want
This is why people often complain about economics. When economists take a data set and just blatantly alter it to fit their argument it doesn’t do much to help build credibility for their work. Especially when you do it within a post that basically declares economists are smarter than everyone else who says they might not have the whole world figured out.
NB – James Montier wrote an important paper discrediting an important modeling technique used by many economists. And it deserves a better response than “I am super smart and here’s one [altered] chart to prove it”.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.