Posts filed under “Really, really bad calls”
“The debate about the CPI was really a political debate about how, and by how much, to cut real entitlements.”
-Greg Mankiw, chairman of George W. Bush’s Council of Economic Advisers from 2001-2003
I’ve been meaning to get to the absurd argument put forth last week by Michael J. Boskin in the WSJ, titled “Don’t Like the Numbers? Change ‘Em.”
Fred Sheehan saved me the trouble with a brutal takedown of Boskin here.
For those of you who may be unaware, Boskin is the economist/weasel/fraud who helped to officially distort the CPI, making it more or less worthless as a measure of inflation. The Boskin Commission was an act of fraud, a backdoor method to suppress Social Security cost of living adjustments (COLAs). To be blunt, it was an act of cowardice. Rather than man up and say “fix this, its broken, we can’t afford it” the commission took a different route — they fabricated a series of nonsense adjustments that artificially lowered CPI by 1.1%.
The Boskin Commission’s massive government falsehood allowed former Fed Chair Alan Greenspan to take rates to absurdly low levels, as the official CPI data showed no inflation, despite double digit price increases.
As such, he is one of the contributors to the financial collapse.
The specific fraudulent methods of the Boskin Commission are laughable. That the Economics profession failed to kick him out of its membership is as much an indictment of the profession as it is about Boskin.
My two favorite pieces of Boskin intellectual fraud are substitution and hedonic adjustments.
Hedonic adjustments are addressing the improvement in quality as a form of deflation. For example, the price of a new car in the U.S. had risen from $6,847 in 1979 to $27,940 in 2004. Using hedonic adjustments, the government calculated the price of a new car had risen from $6,847 in 1979 to $11,708 in 2004.
These adjustments wildly distort not only CPI data but GDP as well. Bill Fleckenstein calculated that the hedonic adjustments of faster computer chips and dropping costs massively jacked up the productivity data and GDP data from 1995-2002.
Substitution is a nonsensical approach that adjusts inflation for consumer behavior. When steak prices rise, consumers “substitute” cheaper proteins such as hamburger or chicken. Thus, Boskin states, the consumer is spending no more than they previously were, and is not suffering inflation.
The reality is that consumers have been priced out of steak due to price increases. Oh, and somehow, the decrease in quality does not get hedonically adjusted when it raises inflation.
As I said, the Boskin Commission was a massive fraud. Fred Sheehan has more here . . .
Frederick Sheehan is the co-author of Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve. His new book, Panderer for Power: The True Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, was published by McGraw-Hill in November 2009. He was Director of Asset Allocation Services at John Hancock…Read More
I have to call foul on a surprisingly foolish article in today’s NYT. Less than a month into 2010, it is already a leading candidate for the dumbest article of the year. It reads like it was written by the PR firm for a group of VCs and Palo Alto law firms.
There were numerous ignorant comments in the article, but this is the one that actually made me laugh out loud:
“Newer restrictions, like those on executive compensation, have made I.P.O.’s even less attractive to some entrepreneurs, said Doug Collom, a partner at Wilson Sonsini Goodrich & Rosati, a Silicon Valley law firm. “Lawyers now have a profound significance in the boardroom,” he said.”
WTF is this idiot talking about? Last I checked, none of the Silicon Valley tech firms had received TARP money during the bailouts. The exec comp restrictions this dimwitted Wilson Sonsini lawyer mentioned came with the nearly trillion dollar taxpayer bailout/subsidy for insolvent banks and the incompetent execs who ran them into the ground — not dot com start ups.
What a tool.
I cannot figure out who is more responsible for this brain dead exercise in ignorance and spin — the writer who (re)typed it from a press release, or the editor who let this nonsense slide by.
Here’s some more stupidity:
“In the last two years, only 18 tech start-ups have gone public, compared with 143 in the two years prior. The Sarbanes-Oxley Act of 2002, which tightened corporate governance and accounting rules, has taken a lot of the blame.”
Astonishingly, the article fails to note the massive decrease in IPOs across all sectors due to the recent turmoil. Even more amazingly, the author somehow fails to deploy so much as one single word regarding the total collapse in the markets, or the simple fact that investors have seen precisely zero gains over the past 11 years.
Quite bluntly, I am embarrassed that this is what passes for Journalism today.
UPDATE: January 18, 2010 3:02pm
Here is a chart of IPOs going back about 3 decades. Note after the 1987 and 2000 and 2008 crashes, the IPO numbers plummeted. I do not know what the actual impact of Sarbanes Oxeley was on IPOs, but the data shows that after SARBOX passed, the number of new IPOs actually went up.
I am NOT suggesting there is a correlation between SARBOX and any subsequent increase in IPOs; I am merely pointing out that blatherings of those mentioned above is factually incorrect, and belied by actual data.
Have a look at these two charts, courtesy of Jim Bianco. They show the number, and the dollar amount raised in IPOs; There appears to be no correlation with SARBOX, but a huge correlation with market crashes.
IPOs by Deal Volume 1991-2010
IPOs by Dollars (billions) 1991-2010
More charts after the jump.
For Many Start-Ups, a Spot on the Nasdaq Is No Longer the Goal
CLAIRE CAIN MILLER
NYT, January 17, 2010
Excel Spreadsheet for IPOs anbd secondaries, Bianco Research
Equity IPO And Secondary
Some Factoids about the 2009 IPO Market
Jay R. Ritter, Cordell Professor of Finance
University of Florida, Jan. 14, 2010
In today’s Barron’s, Mike Santoli very politely and quietly, using language suitable for a family dinner, calls Charles Biderman out for his clueless commentary about secret government cabals: “One conspiracy theory gaining undeserved traction on Wall Street lately holds that the Federal Reserve or another government entity might — or must — have been a…Read More
My publisher writes: Anyhow, I have a favor—Ben Stein has written a book for us, Little Book of Investing Dos & Don’ts — I’m wondering if I sent you some chapters you could write a sentence or two for the back jacket… I told them to read my prior Ben Stein posts: Farewell To Ben…Read More
Category: Really, really bad calls
There’s been a lot of chatter lately about secret cabals and the plunge protection team. I notice it seems to be coming primarily from those folks who missed the rally off of the lows. Rather than admit their errors, they are rationalizing them with discussions of secret government equity buyers. I addressed the PPT in…Read More
This is simply infuriating: “The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show. AIG said in a draft of…Read More
In a post yesterday, my west coast pal Paul discusses how the Chicago School of Economics Circling the Theoretical Drain: “In the current issue of the New Yorker there is an alternatively depressing and fascinating piece (Letter from Chicago) by John Cassidy about how the Chicago School of economics – monetarism, rational expectations, efficient market…Read More
One of the memes I’ve heard recently in the climate debate is that there is no scientific consensus — that there is actually strong disagreement. The main basis of this argument is that 31,486 dissenting scientists have signed a petition against the belief that Global Warming is man made at the PetitionProject.org. I don’t want…Read More
Economics Nobel laureate and Columbia University professor Joseph E. Stiglitz has what very well be the best year end piece I have seen to date; “The best that can be said for 2009 is that it could have been worse, that we pulled back from the precipice on which we seemed to be perched in…Read More