Re: Wake Up, America
A friend of mine, whom I love dearly, recommended an Investor's Business Daily (IBD) editorial to me yesterday. I wish that I could tell her that I share her enthusiasm for the article, but I don't think she would want me to be dishonest! :-)
The article begins with the common wisdom that a nation that does not know its history is destined to repeat it. As a preliminary to delivering its bleak news, it places the blame for the current financial crisis entirely on the "Big Government" programs of the Democrats, and in particular on the Community Reinvestment Act (CRA), smearing Senator Obama in passing. Next, it makes a quick aside to identify perceived foreign policy challenges facing the United States in the relatively near term. It then draws parallels between the economy over the periods of 1921-1937 and 1992-2008. Finally, it uses those perceived similarities to justify the claim that the global events of the earlier period and the years immediately following are relevant to the immediate future of the United States, and ultimately to the presidential election.
Regarding the Community Reinvestment Act, which is the favorite conservative scapegoat for the economic crisis, please refer to the reports that I link from my previous post. The key points are that the financial institutions that are affected by the CRA are statistically less likely to engage in subprime lending than those that are not (e.g. Countrywide), and that those institutions are less likely to subsequently sell those mortgages. The IBD editorial is just plain wrong in blaming the CRA for the subprime lending crisis.
The IBD editorial specifically calls out the Clinton administration, which I neither condemn nor fully excuse in the context of the financial crisis. I have read many recent assertions, including one with supporting New York Times article from September 1999, that the Clinton administration pressured Fannie Mae and Freddie Mac to increase their purchases of mortgages from low and moderate income buyers. I have no reason to doubt these assertions other than a current dearth of supporting evidence. I have no more (or less) reason to doubt that in response Fannie Mae and Freddie Mac sought to achieve Clinton's goal by increasing purchases of subprime loans. Their decisions in this regard may have been predictable outcomes, but the IBD editorial's use of the word "forced" ignores the fact that loans to low and moderate income buyers are not synonymous with subprime loans. Furthermore, Clinton left office less than 16 months after the NYT article was published, after which any continuing pressure can only be blamed on some combination of the Bush administration and the Republican-controlled Congress. The IBD editorial alleges that the latter refused to pass Bush's proposals to increase regulation on Fannie Mae and Freddie Mac's subprime lending in 2004, 2005, and 2006 (not mentioning that both houses of Congress were controlled by the Republicans during those years).
The article claims that Fannie Mae and Freddie Mac became "contributors to top members of Congress, including ... Obama." I searched for donors on http://www.opensecrets.org (run by the Center for Responsive Politics), and found that out of a total of $485,748,597 in contributions, Obama had received 140 from individuals employed by Fannie Mae totaling $92,799. Of those, 13 were made before the 2006 general election, totaling $10,400. I also found that 30 Freddie Mac employees had donated a total of $21,900, of which $250 was donated before the 2006 election by 1 individual. I found no contributions to Obama from either a Fannie Mae or a Freddie Mac PAC (http://www.opensecrets.org/politicians/pacs.php?cycle=2008&cid=N00009638). In my opinion, the attempt to suggest that Obama has been significantly influenced by the contributions from Fannie Mae and Freddie Mac is ludicrous.
Based largely on the flawed claims above, the article concludes, "Bottom line: This whole mess was another Big Government program created, designed and run by Democrats." Simply false. In one sense there is both plenty of blame to go around and in another sense there is no single entity to blame because economics is an inherently unpredictable complex system.
Having established the principle that "A Bad Thing Happened That Was The Democrats' Fault, And By The Way Obama is a Democrat," the article lists five perceived serious foreign policy threats facing the United States over the next five years. The difficulty of accurately assessing future foreign policy challenges is on a par with the difficulty of making good investment decisions, which I hear is pretty hard these days, so I won't second guess the likelihood of predicted outcomes. However, I do take issue with the statements of some of the threats.
First, there is extremely little basis for claiming that Iran is "the leading terrorist country in the world." I'm not sure what metric would make sense in judging this type of "leadership," but one inconvenient fact for the editorialist is that Iran is a Shia nation, while Al Qaeda is a Sunni extremist movement (the fundamental distinction between the Sunni and the Shia is a not so minor "detail" that has on occasion escaped both Senator McCain and Governor Palin). In fact, Iran was extraordinarily helpful in capturing individuals who could provide intelligence to the United States in the aftermath of 9/11 (http://www.cbsnews.com/stories/2008/10/07/world/main4508360.shtml). Furthermore, at the time the editorial was written, the already nuclear-armed North Korea was still listed as a terrorist nation.
Also, the article makes several speculative assumptions about Russia's intentions. It is clear that Russia claims interests related to both Georgia and Ukraine. However, it is unclear that their interests in the former extend beyond the regions of South Ossetia and and Abkhazia, both of which are important to Russia's energy exports. Likewise, Russia's interest in Ukraine is focused on the strategically important port of Sevastapol. Russia has stated that they intend to consider cooperating with Venezuela on nuclear technology for peaceful purposes. The claims that Russia seeks to "re-arm Cuba and Nicaragua" are similarly overstated.
The final perceived threat listed in the article is tautologically correct, but of no practical value whatsoever: "Foolish decisions that would result in weakening our ability to defend ourselves." It has always been the case, is now the case, and will always be the case, regardless of any action that we take or fail to take, that foolish decisions could threaten the security of our nation. Now, if somebody could please pass me that magic 8-ball ...
The editorial fails to mention obvious threats such as:
- dependence on foreign oil,
- an unstable nuclear-armed Pakistan that is a growing safe haven for al Qaeda,
- a weak and weakening dollar,
- offshoring of jobs, or
- exponentially rising health care costs that are driving companies and families to bankrupty as well as sapping our military budget and social programs alike.
All of these are threats to our national security of at least the same magnitude as those listed in the editorial. Still, the article's point is that "Bad Things Can Happen In the Near Future," and that is certainly true.
The apparent justification for this article to appear in the Investor's Business Daily comes next. A chart is presented alleging similarity between the performance of the Dow Jones Industrial Average (DJIA) between August 1921 and July 1937 on the one hand and the Nasdaq Composite Index between February 1992 and the present on the other hand. At first glance, the similarity is uncanny. Both indexes begin low and follow exponential growth for approximately eight years before precipitously dropping for another two. Both then rise again to a lower peak six years later followed by a comparatively modest readjustment. The chart shows the DJIA continuing relatively flat for the following five years.
Several questions arise. First, why compare the DJIA and the Nasdaq? Perhaps comparing the DJIA over the same two periods didn't give quite as pretty a chart. More importantly, any index that experienced a large peak followed by a smaller peak six years later would appear similar, except that it would be scaled up or down and shifted up or down. This brings us to the scale of the presented graph. Not scales (plural), scale (singular). If a single scale coincidentally would suffice for both indices over the chosen periods of time, that would perhaps explain why the author(s) make the odd decision to compare the DJIA to the Nasdaq. Unfortunately, that's not the case. Over the chosen periods, the Nasdaq varied from a low of 547.84 to a maximum of 5048.62, while the DJIA varied from a low of 41.22 to a high of 381.17. The chart normalizes both indices to a starting value of 100. If the normalization consisted solely of scaling, the Nasdaq index would appear to peak at 921.55
and the DJIA would appear to peak at 924.72. Instead, the former appears to peak at 800 and the latter appears to peak at 500. The normalization thus included (at least) both scaling and translation. In other words, the only true significant similarity between the two data sets is that the peaks occurred six years apart. The rest of the apparent similarity is an artifact of the deceptive construction of the graph.
With the possibility established that the Past Economy May Predict The Future, the editorial then relates the poor German economy of the 1930's to the rise of Hitler and the Nazi party. The implication is that if the American and global economies follow the same trend, then The Next Really Bad Thing Will Certainly Happen. History is not that simple. There have been many periods in which the economy has been stagnant, and bad things happened during all of them. However, the vast majority of those bad things pale in comparison to Hitler's rise to power. Furthermore, bad things happen during good economic times as well. It takes a lot more than looking at a graph of an economic index to predict major historical events. After all, if it were that simple then things like major foreign policy decisions would be irrelevant, in which case the whole editorial and this response would both be moot.
Nonetheless, as an aside, let's entertain the possibility that economic indices are accurate predictors of major socio-political catastrophes. The article notes that in 1938, the point in DJIA-past time corresponding to Nasdaq-present time, Jews were sent to concentration camps. What aspect of current events most closely mimics that particular atrocity? Perhaps our own practice of incarcerating in secret prisons and denying basic human rights of "enemy combatants"? Hmmm. Perhaps the article does have a point after all.
The editorial goes on to present a number of oversimplified and distorted examples allegedly supporting the notion that "showing weakness or appeasement by negotiating with tyrants is both gullible and dangerous." For example, it's true that the construction of the Berlin Wall began shortly after a failed summit between JFK and Krushchev. However, the article presents no evidence that a better outcome would have resulted from not meeting at all.
Similarly, the description of events leading up to the overthrow of the Shah of Iran is incorrect in several respects. First, U.S. aircraft sales to Iran were not suspended until after the Islamic Revolution (according to the Imperial Iranian Air Force historical website, the aircraft orders were canceled by the Islamic regime). Second, President Carter thought very highly of the Shah. Attributing Iran's nuclear program to the actions of a President who left office 27 years ago boggles the mind. The claim that "while Carter was in office, the Soviets took over a number of countries, including Afghanistan, Angola, Cambodia, Grenada, Mozambique, Ethiopia, South Yemen and Nicaragua" plays fast and loose with understandings of "took over," suggesting erroneously that the Soviet influence went from non-existence to dominance over a relatively short period of time. In fact, several of the listed countries either became solidly pro-Soviet before Carter's presidency or were never solidly pro-Soviet.
The article's criticism of Clinton's handling of al-Qaeda neglects the reality that before 9/11, it was essentially impossible to obtain international support for targeting terrorists within the borders of a sovereign nation. Even now, we face potential criticism for targeting terrorists within the borders of Pakistan.
The authors claim that 12 historians have conducted surveys ranking the Presidents of the United States, and that all of the surveys are "available on the Internet," but they do not name the historians or give sufficient information to locate the surveys. Also, oddly, all 12 of the surveys used by the authors allegedly agree exactly on the rankings of Presidents Reagan (6), Truman (7), Eisenhower (7), Kennedy (15), Clinton (22), and Carter (34). A Google search for "survey ranking presidents" yields about 327,000 hits. The second hit is Wikipedia, which lists results for 12 surveys conducted between 1948 and 2005. Aside from an apparent typographical error in the IBD's reporting of Eisenhower's ranking, the last survey reported by Wikipedia agrees with the IBD editorial's reported rankings. Not surprisingly, none of the other surveys reported agree with the rankings provided by the IBD editorial. Half of them occurred too early to include Clinton in the rankings, and one of them occurred to early to include any of the aforementioned presidents. The surveys that round out the top 10 Google hits are all among those reported by Wikipedia.
The authors then claim that "history shows that our very best, most productive, successful presidents were older." Unfortunately for them, using their apparently preferred Presidential ranking, a slightly negative correlation appears between favorable rankings and age. For example, the second oldest president included in the survey was James Buchanan (ranked 40 -- dead last) (William Henry Harrison was excluded because of his short tenure, along with James Garfield). The third oldest was George H. W. Bush (ranked 21). The fourth was Zachary Taylor (ranked 33). At the other extreme, the youngest president ever is Theodore Roosevelt (ranked 5). It is simply not true that "our very best, most productive, successful presidents were older."
In summary, the article is poorly researched, highly biased, and reaches incorrect conclusions.
The article begins with the common wisdom that a nation that does not know its history is destined to repeat it. As a preliminary to delivering its bleak news, it places the blame for the current financial crisis entirely on the "Big Government" programs of the Democrats, and in particular on the Community Reinvestment Act (CRA), smearing Senator Obama in passing. Next, it makes a quick aside to identify perceived foreign policy challenges facing the United States in the relatively near term. It then draws parallels between the economy over the periods of 1921-1937 and 1992-2008. Finally, it uses those perceived similarities to justify the claim that the global events of the earlier period and the years immediately following are relevant to the immediate future of the United States, and ultimately to the presidential election.
Regarding the Community Reinvestment Act, which is the favorite conservative scapegoat for the economic crisis, please refer to the reports that I link from my previous post. The key points are that the financial institutions that are affected by the CRA are statistically less likely to engage in subprime lending than those that are not (e.g. Countrywide), and that those institutions are less likely to subsequently sell those mortgages. The IBD editorial is just plain wrong in blaming the CRA for the subprime lending crisis.
The IBD editorial specifically calls out the Clinton administration, which I neither condemn nor fully excuse in the context of the financial crisis. I have read many recent assertions, including one with supporting New York Times article from September 1999, that the Clinton administration pressured Fannie Mae and Freddie Mac to increase their purchases of mortgages from low and moderate income buyers. I have no reason to doubt these assertions other than a current dearth of supporting evidence. I have no more (or less) reason to doubt that in response Fannie Mae and Freddie Mac sought to achieve Clinton's goal by increasing purchases of subprime loans. Their decisions in this regard may have been predictable outcomes, but the IBD editorial's use of the word "forced" ignores the fact that loans to low and moderate income buyers are not synonymous with subprime loans. Furthermore, Clinton left office less than 16 months after the NYT article was published, after which any continuing pressure can only be blamed on some combination of the Bush administration and the Republican-controlled Congress. The IBD editorial alleges that the latter refused to pass Bush's proposals to increase regulation on Fannie Mae and Freddie Mac's subprime lending in 2004, 2005, and 2006 (not mentioning that both houses of Congress were controlled by the Republicans during those years).
The article claims that Fannie Mae and Freddie Mac became "contributors to top members of Congress, including ... Obama." I searched for donors on http://www.opensecrets.org (run by the Center for Responsive Politics), and found that out of a total of $485,748,597 in contributions, Obama had received 140 from individuals employed by Fannie Mae totaling $92,799. Of those, 13 were made before the 2006 general election, totaling $10,400. I also found that 30 Freddie Mac employees had donated a total of $21,900, of which $250 was donated before the 2006 election by 1 individual. I found no contributions to Obama from either a Fannie Mae or a Freddie Mac PAC (http://www.opensecrets.org/politicians/pacs.php?cycle=2008&cid=N00009638). In my opinion, the attempt to suggest that Obama has been significantly influenced by the contributions from Fannie Mae and Freddie Mac is ludicrous.
Based largely on the flawed claims above, the article concludes, "Bottom line: This whole mess was another Big Government program created, designed and run by Democrats." Simply false. In one sense there is both plenty of blame to go around and in another sense there is no single entity to blame because economics is an inherently unpredictable complex system.
Having established the principle that "A Bad Thing Happened That Was The Democrats' Fault, And By The Way Obama is a Democrat," the article lists five perceived serious foreign policy threats facing the United States over the next five years. The difficulty of accurately assessing future foreign policy challenges is on a par with the difficulty of making good investment decisions, which I hear is pretty hard these days, so I won't second guess the likelihood of predicted outcomes. However, I do take issue with the statements of some of the threats.
First, there is extremely little basis for claiming that Iran is "the leading terrorist country in the world." I'm not sure what metric would make sense in judging this type of "leadership," but one inconvenient fact for the editorialist is that Iran is a Shia nation, while Al Qaeda is a Sunni extremist movement (the fundamental distinction between the Sunni and the Shia is a not so minor "detail" that has on occasion escaped both Senator McCain and Governor Palin). In fact, Iran was extraordinarily helpful in capturing individuals who could provide intelligence to the United States in the aftermath of 9/11 (http://www.cbsnews.com/stories/2008/10/07/world/main4508360.shtml). Furthermore, at the time the editorial was written, the already nuclear-armed North Korea was still listed as a terrorist nation.
Also, the article makes several speculative assumptions about Russia's intentions. It is clear that Russia claims interests related to both Georgia and Ukraine. However, it is unclear that their interests in the former extend beyond the regions of South Ossetia and and Abkhazia, both of which are important to Russia's energy exports. Likewise, Russia's interest in Ukraine is focused on the strategically important port of Sevastapol. Russia has stated that they intend to consider cooperating with Venezuela on nuclear technology for peaceful purposes. The claims that Russia seeks to "re-arm Cuba and Nicaragua" are similarly overstated.
The final perceived threat listed in the article is tautologically correct, but of no practical value whatsoever: "Foolish decisions that would result in weakening our ability to defend ourselves." It has always been the case, is now the case, and will always be the case, regardless of any action that we take or fail to take, that foolish decisions could threaten the security of our nation. Now, if somebody could please pass me that magic 8-ball ...
The editorial fails to mention obvious threats such as:
- dependence on foreign oil,
- an unstable nuclear-armed Pakistan that is a growing safe haven for al Qaeda,
- a weak and weakening dollar,
- offshoring of jobs, or
- exponentially rising health care costs that are driving companies and families to bankrupty as well as sapping our military budget and social programs alike.
All of these are threats to our national security of at least the same magnitude as those listed in the editorial. Still, the article's point is that "Bad Things Can Happen In the Near Future," and that is certainly true.
The apparent justification for this article to appear in the Investor's Business Daily comes next. A chart is presented alleging similarity between the performance of the Dow Jones Industrial Average (DJIA) between August 1921 and July 1937 on the one hand and the Nasdaq Composite Index between February 1992 and the present on the other hand. At first glance, the similarity is uncanny. Both indexes begin low and follow exponential growth for approximately eight years before precipitously dropping for another two. Both then rise again to a lower peak six years later followed by a comparatively modest readjustment. The chart shows the DJIA continuing relatively flat for the following five years.
Several questions arise. First, why compare the DJIA and the Nasdaq? Perhaps comparing the DJIA over the same two periods didn't give quite as pretty a chart. More importantly, any index that experienced a large peak followed by a smaller peak six years later would appear similar, except that it would be scaled up or down and shifted up or down. This brings us to the scale of the presented graph. Not scales (plural), scale (singular). If a single scale coincidentally would suffice for both indices over the chosen periods of time, that would perhaps explain why the author(s) make the odd decision to compare the DJIA to the Nasdaq. Unfortunately, that's not the case. Over the chosen periods, the Nasdaq varied from a low of 547.84 to a maximum of 5048.62, while the DJIA varied from a low of 41.22 to a high of 381.17. The chart normalizes both indices to a starting value of 100. If the normalization consisted solely of scaling, the Nasdaq index would appear to peak at 921.55
and the DJIA would appear to peak at 924.72. Instead, the former appears to peak at 800 and the latter appears to peak at 500. The normalization thus included (at least) both scaling and translation. In other words, the only true significant similarity between the two data sets is that the peaks occurred six years apart. The rest of the apparent similarity is an artifact of the deceptive construction of the graph.
With the possibility established that the Past Economy May Predict The Future, the editorial then relates the poor German economy of the 1930's to the rise of Hitler and the Nazi party. The implication is that if the American and global economies follow the same trend, then The Next Really Bad Thing Will Certainly Happen. History is not that simple. There have been many periods in which the economy has been stagnant, and bad things happened during all of them. However, the vast majority of those bad things pale in comparison to Hitler's rise to power. Furthermore, bad things happen during good economic times as well. It takes a lot more than looking at a graph of an economic index to predict major historical events. After all, if it were that simple then things like major foreign policy decisions would be irrelevant, in which case the whole editorial and this response would both be moot.
Nonetheless, as an aside, let's entertain the possibility that economic indices are accurate predictors of major socio-political catastrophes. The article notes that in 1938, the point in DJIA-past time corresponding to Nasdaq-present time, Jews were sent to concentration camps. What aspect of current events most closely mimics that particular atrocity? Perhaps our own practice of incarcerating in secret prisons and denying basic human rights of "enemy combatants"? Hmmm. Perhaps the article does have a point after all.
The editorial goes on to present a number of oversimplified and distorted examples allegedly supporting the notion that "showing weakness or appeasement by negotiating with tyrants is both gullible and dangerous." For example, it's true that the construction of the Berlin Wall began shortly after a failed summit between JFK and Krushchev. However, the article presents no evidence that a better outcome would have resulted from not meeting at all.
Similarly, the description of events leading up to the overthrow of the Shah of Iran is incorrect in several respects. First, U.S. aircraft sales to Iran were not suspended until after the Islamic Revolution (according to the Imperial Iranian Air Force historical website, the aircraft orders were canceled by the Islamic regime). Second, President Carter thought very highly of the Shah. Attributing Iran's nuclear program to the actions of a President who left office 27 years ago boggles the mind. The claim that "while Carter was in office, the Soviets took over a number of countries, including Afghanistan, Angola, Cambodia, Grenada, Mozambique, Ethiopia, South Yemen and Nicaragua" plays fast and loose with understandings of "took over," suggesting erroneously that the Soviet influence went from non-existence to dominance over a relatively short period of time. In fact, several of the listed countries either became solidly pro-Soviet before Carter's presidency or were never solidly pro-Soviet.
The article's criticism of Clinton's handling of al-Qaeda neglects the reality that before 9/11, it was essentially impossible to obtain international support for targeting terrorists within the borders of a sovereign nation. Even now, we face potential criticism for targeting terrorists within the borders of Pakistan.
The authors claim that 12 historians have conducted surveys ranking the Presidents of the United States, and that all of the surveys are "available on the Internet," but they do not name the historians or give sufficient information to locate the surveys. Also, oddly, all 12 of the surveys used by the authors allegedly agree exactly on the rankings of Presidents Reagan (6), Truman (7), Eisenhower (7), Kennedy (15), Clinton (22), and Carter (34). A Google search for "survey ranking presidents" yields about 327,000 hits. The second hit is Wikipedia, which lists results for 12 surveys conducted between 1948 and 2005. Aside from an apparent typographical error in the IBD's reporting of Eisenhower's ranking, the last survey reported by Wikipedia agrees with the IBD editorial's reported rankings. Not surprisingly, none of the other surveys reported agree with the rankings provided by the IBD editorial. Half of them occurred too early to include Clinton in the rankings, and one of them occurred to early to include any of the aforementioned presidents. The surveys that round out the top 10 Google hits are all among those reported by Wikipedia.
The authors then claim that "history shows that our very best, most productive, successful presidents were older." Unfortunately for them, using their apparently preferred Presidential ranking, a slightly negative correlation appears between favorable rankings and age. For example, the second oldest president included in the survey was James Buchanan (ranked 40 -- dead last) (William Henry Harrison was excluded because of his short tenure, along with James Garfield). The third oldest was George H. W. Bush (ranked 21). The fourth was Zachary Taylor (ranked 33). At the other extreme, the youngest president ever is Theodore Roosevelt (ranked 5). It is simply not true that "our very best, most productive, successful presidents were older."
In summary, the article is poorly researched, highly biased, and reaches incorrect conclusions.
posted by ManOfManyInterests at 10:38 PM
0 comments
