Posts filed under “Bad Math”
Since the economy’s been more or less chugging along like The Little Engine That Could, those with an agenda are having a harder and harder time finding ways to be critical of its performance under Obama.
Two of their favorite laments are the Labor Force Participation Rate (LFPR) and the U-6 Unemployment Rate.
What is probably my most comprehensive piece on the LFPR is here, published in May 2014. Bill McBride, over at Calculated Risk, has also done some work on this file (see here and here). (Bill is one of the best economic bloggers out there, and I have a ton of respect for his work and am thrilled to have gotten to know him a bit over the years.) LFPR out of the way, let’s move on.
U-6 is a comprehensive measure of unemployment that goes beyond the headline (U-3) number. For the record, BLS has several such measures. Here they are:
- U-1, persons unemployed 15 weeks or longer, as a percent of the civilian labor force;
- U-2, job losers and persons who completed temporary jobs, as a percent of the civilian labor force;
- U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
- U-4, total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers;
- U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
- U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.
U-3, as mentioned above, is the “headline” number that most media outlets pick up on. Or at least they did, until it started to decline precipitously (it’s now 5%) and they turned to U-6 to advance their dystopian vision about how Obama has ruined everything.
The more inclusive U-6 rate clocked in most recently at 9.8%. However, in a vacuum, with no context, that number by itself is of limited (or no) value. The fact of the matter is that it’s now down to 9.8% from a high of just over 17% shortly after the crisis.
But wait, there’s more.
Remember the so-called “Bush Boom”? (Well, neither do I, but supposedly it happened.) Anyway, during Bush’s two term presidency, U-6 averaged 9.2%. That’s correct. After a shallow recession in 2001, from which we got virtually no recovery whatsoever, U-6 was at or over 10% for 11 consecutive months from January through November 2003, not finally getting under 10% for good until April 2004.
I don’t recall Rick Santelli saying a single word about that. Rick, were you on CNBC during that stretch?
The labor market continues to heal, and that’s reflected in a variety of employment releases. Those who continue to harp on U-6 and/or the LFPR are really grasping at straws at this point.
Regarding my Fantasy Football betting column this week, check out this from McKinsey via Sports Business Daily: ■ The top 11 players paid on average $2 million in entry fees and profited $135,000 each. They accounted for 17 percent of all entry fees. The winningest player in our sample profited $400,000 on $3 million in entry fees. ■…Read More
Today I am going to indulge in a pet peeve of mine, one that I hope you will find helpful. It’s about a bias called denominator blindness and it is the scourge of anyone who has even the most rudimentary understanding of mathematics in the real world. A quick definition: Denominator blindness is the failure…Read More
As they say in poker, If you’ve been in the game 30 minutes and don’t know who the patsy is, you’re the patsy. – Warren Buffett By now, you may have heard about the insider trading scandal at the two biggest fantasy sports companies. DraftKings employees, based on the bets they saw laid down by…Read More
University of Chicago behavioral economist on stock markets, NFL drafts and the importance of trust Douglas Clement | Editor, The Region Published October 3, 2013 | September 2013 issue Interview conducted July 17, 2013 We are rational, self-interested optimizers: Homo economicus. So the neoclassical model of economics has held for over a century. It has been a fruitful…Read More
@TBPInvictus here. We have interesting experiments going on in the state of Kansas and the city of Seattle. Herewith a brief update on both. Thanks to the following Tweet, I was made aware of the fact that – as you can see – the state of Kansas, under Sam Brownback’s awesome tax cuts, recorded the…Read More
Its early in this potential correction, but let me remind you of Buffett’s interesting (1997) comments: “If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but…Read More
@TBPInvictus here: The New York Post ran a piece on Netflix (NFLX), written by Claire Atkinson, that was, to put it charitably, interesting. And by interesting I mean that it painfully misstated the very simple mathematics of stock splits. The piece implied that NFLX is wildly overvalued. I have no problem with that. Not that…Read More
This must be the “new normal” everyone’s talking about. Where a cyclical low in the unemployment rate, to the the low 5 percent range, is met with a courtly high stock market and talks of an impending rise in rates. Sure there is a feeling in some pockets of the economy that “things” are much…Read More
About a year ago, we discussed what happens “When Correlations Lie.” Delving into the classic logical fallacy that correlation implies causation, we looked at equities and a variety of supposedly related factors, including gross domestic product, rising interest rates, earnings surprises, new financial products and the “death cross” involving daily moving averages. All were classic coincidences of…Read More