No sooner does this morning’s “Uncertainty” piece go up when someone emails me this “quantified” version of uncertainty.

The claim is made that “Nick Bloom and Scott Baker of Stanford University and Steve Davis of the University of Chicago” have figured out how to measure uncertainty:

 

 

Sadly, no.

This is merely an index of how often uncertainty (related to policy) gets mentioned in newspapers. They also include other elements (number of temporary provisions in tax codes and variance in inflation and federal spending forecasts).

Note how much uncertainty there was in 2000 and 2007 — periods of low uncertainty where investors were not rewarded for the risk they took . . .

Category: Digital Media, Investing, Psychology, Quantitative

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Uncertainty Quantified (Not)”

  1. powerpenguin says:

    I am a little confused by your logic…certainly, 2000 and 2007 were periods of low uncertainty, that is at least partly WHY investors were not rewarded for the risk they took.

  2. powerpenguin says:

    On second thought, I think there is a difference in definition of uncertainty; I mean public uncertainty, and I think by “uncertainty” you mean “probability your investment will perform as you think it will.”

    Perhaps the derivative of the above chart would be more useful, in that case? Sign shifts in their chart do seem to precede otherwise unexpected events.

  3. philipat says:

    Doesn’t this also relate back to the ongoing Correlation versus Causation debate?

  4. Rob Lewis says:

    This index is worthless. Counting news stories mentioning policy uncertainty might be instructive if not for the well-organized, well-financed campaign by the right wing to promote this meme to the status of “conventional wisdom.” The corporate media are only too happy to play along.

    Since the real factors holding the economy back (historic wealth concentration, misguided austerity programs, failure to invest in infrastructure, massive job offshoring, among others) are inconvenient for the right, the only thing they have left is the nonexistent “confidence fairy.” Surveys of actual businesses have demonstrated beyond doubt that by far the main deterrent to expansion and job creation is simply a lack of customers.

    Worthless.

  5. end game says:

    Baker and Bloom, two Stanford Republicans, decided to attempt to tie “uncertainty” to the Obama Administration, and then claim that this uncertainty was the primary cause of the terrible economy (using a “post hoc ergo propter hoc” logical fallacy) instead of the true cause, the global financial crisis and the too-small fiscal stimulus response. To get an idea of their true intentions, read the eighth paragraph here: http://www.bloomberg.com/news/2011-10-06/policy-uncertainty-is-choking-recovery-baker-bloom-and-davis.html First, they make the understatement of the century: ” No doubt, the crisis presented policy makers with difficult choices in 2008 and 2009.” Ya think? They then go on to identify what they claim is the real cause: “harmful rhetorical attacks on business and “millionaires…” These aren’t academics; they are political operatives. The Heritage Foundation will be phoning them for job offers any day now. Baker and Bloom’s phony index is actually a tautology; economic uncertainty causes lots of news stories about economic uncertainty (one of their factors) which causes economic uncertainty. Another factor is “uncertainty about expirations of tax provisions” and “forecaster disagreement about government purchases”. Their intent is to show uncertainty soaring from 2008-2012, coincident with the Obama presidency, and then infer a causal link to the economy. What they hope no one will point out is that uncertainty about expiration of tax provisions and government purchases are equally caused by Republican congressional opposition to Democratic proposals as they are by the Democratic proposals themselves. Gene Epstein, an economist with Barron’s, a Rupert Murdoch publication, has taken up the cause and wrote that he plans to beat the drum about the uncertainty index as much as possible from now to the election, saying ominously that the index is at all time highs now that Obama is president… and completely ignoring the global financial crisis and near-deflationary spiral that Bernanke is desperately trying to combat.

  6. Wait — two economists who said something incredibly dumb are actually paid political right wing hacks?

    You don’t say . . .