Thursday, November 8, 2012

What it is

There's a very entertaining Twitter thread today about Nate Silver and his math magic that's developing as a super-nerd parody of the Chuck Norris tough guy jokes of recent years:

“The only reason Nate Silver runs statistical analyses on a computer is so he can laugh when it's wrong.
“Nate Silver does not breathe air; he just periodically samples the atmosphere.”

One wag has also built a Web site that asks "Is Nate Silver a Witch?" (Conclusion? Likely he is -- there is no other plausible explanation for his uncanny ability to accurately predict yesterday's election.)

All this is due to Silver's NY Times blog, FiveThirtyEight, where he applies his extraordinary statistical abilities to political polling in the service of forecasting elections. In the run up to Tuesday's election, a number of Republican politicos accused Silver of a political bias against their guys. They didn't like his forecasts, so they began attacking his neutrality. He was cooking the numbers, they said. Silver's responses basically said "It's the numbers, people, not my wishes." His job is to solve math problems, not to inject opinions into his reports. Still Silver was poked and jabbed for being effeminate --that is, gay -- for inserting bias into the weighting of data from different national and state polls and so forth. (Some really smart stuff about Silver and his disruptive effects on political punditry can be found here.) This is rather typical of in-the-bubble partisanship: people who want to see the world in a particular way badly enough begin to see information that contradicts their beliefs as politically motivated, not as facts. Even when they really are facts. 

Silver's projections about Tuesday's election were nearly perfect.

Today, when an Internet acquaintance mentioned on FaceBook that the US stock market had declined 2% the day after Obama' election, I thought about Silver and his conservative antagonists. My acquaintance is conservative. His implication was that bad-for-business Obama's reelection was at the root of the 2% loss. I've seen several comments today that we're due for another recession, for inflation, for higher unemployment, and for a host of other economic ills because of Obama's fiscal and monetary policies. What is needed is a period of austerity like the Europeans have undertaken to pay down the debt. This is what Romney and Ryan planned to do. Their conservative ideology led them to believe it was the best way to get the country out of the economic doldrums.

So I was moved to look at some data.

My wife and I have some money saved for retirement. Some of it is in a Vanguard total market stock index mutual fund (VTSMX). Some of it is in a Vanguard European stock fund (VEUSX). Both funds track an index, and are not actively managed. That is, they reflect the health of the total markets they follow, and not the skill or luck of a manager. Both funds recorded five-year highs on December 3, 2007. Both then declined and later tumbled in value at the time of the Lehman bankruptcy and world-wide credit collapse in September of 2008. Later on, both hit five-year lows on the same day: March 2, 2009. Both have rebounded as the world's economy has begun to recover.

The Euro fund lost 65.3 % of its value between the end of 2007 and the beginning of March 2009. Ouch. The US fund lost 54.4% over the same period. Ouch again. These were terrifying losses.

Since that time, things have improved, but they haven't improved equally for the two funds. As of this afternoon, the US index is up 200% from its low, bringing it within 95.7% of its historic high. The Euro fund, however, has grown 165% -- impressive, but less so than its American counterpart. At today's close it was worth only 57.3% of its peak value.

America, where the Obama administration stimulated the economy, did better in this metric than Europe. It's Europe where austerity is the policy. In effect, we have a macro experiment underway: austerity vs stimulus. I've made more money from the stimulus than from Europe's austerity. Yet we continue to live with a persistent myth that tightening the budget is good for business. I can see no evidence.

It's essential that we not let theories about who's winning in the polls and about the realities of economic recovery impede our understanding of the facts we must navigate.

If Nate Silver says "You wanna bet?" the right answer is no.

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