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Brooks Wilson's Economics Blog: January 2012

Monday, January 30, 2012

It’s the Horse Race

George Mason University’s Center for Media and Public Affairs announced a study covering 118 stories by NBC, CBS, ABC and Fox on the Republican primaries between January 1 and January 10 (“Study: TV News Bashes Romney, Boosts Horse Race”).  I found the experimental methodology interesting and a finding a depressing.

The press release covers their methodology which is designed to create a statistical control and an examination process that can be replicated.
The Center for Media and Public Affairs (CMPA) is a nonpartisan research and educational organization which conducts scientific studies of The Center for Media and Public Affairs (CMPA) employs content analysis to study news coverage. "Content analysis" is a social scientific method for producing an objective and systematic description of communicative material. In order to be scientific, such analysis requires explicit rules and procedures that minimize a researcher's subjective predispositions. Categories and criteria are rigorously defined and applied consistently to all material. Each system must be reliable, meaning that additional researchers using the same criteria should reach the same conclusions. Because it is both systematic and reliable, content analysis permits the research to transcend the realm of impressionistic generalizations, which are subject to individual preferences and prejudices... 

CMPA researchers have honed their skills on a wide variety of projects since 1987, making them among the best trained and most experienced at news media content analysis. Researchers examine news stories on a statement-by-statement level, recording all overt opinions expressed by either the reporter or other individuals quoted in the story. Each opinion is catalogued according to the source of the comment, the target, and the issue under discussion. Researchers do not assign overall positive and negative scores to entire stories, since such an approach fails to fully account for the nuances within each story. Individual statements are logged into a computerized database, allowing statistical analyses to fully describe the relationships among news sources, time periods, the focus of coverage and the tone of coverage.
Depending on the length and breadth of the study, CMPA's codebooks (which contain the categories and rules for coding) range from 100 to 300 pages long and include 20 to 50 different analytic variables. Research assistants are trained for between 150 and 200 hours before they begin work on a project. During the training process, researchers code sets of stories, and their work is compared to that of previous coders until a minimum reliability level of 80% is reached for all variables. That means that the new coders must reach the same conclusions as their counterparts at least four out of five times. For most variables, the level of agreement is much higher.
The story compares the number of positive to negative content of stories by each network for each candidate but that is not the part interested me. You will have to follow the provided link if this part of the story interests you. 

The researchers found that 105 major topics of the stories covered the campaign as a “horse race” and only 16 on the policies of the candidates. I assume that the news organizations know best how to maximize their audience and am left to conclude that their viewers would rather know about today’s poll, mudslinging, name calling and money raising than the candidates issue positions and the likelihood that these they would achieve their stated objectives. That is a sad conclusion.

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Saturday, January 28, 2012

GDP Growth for 2011

The Bureau of Labor Analysis released its estimate of GDP growth yesterday; fourth quarter growth for 2011 was 2.8%, slightly below projections and 1.7% for the year.

The graph “GDP Growth: 1970-2011” gives some historical context to the current recession. The orange line plots GDP growth from 1970 through 2011 and the green dashed line plots average growth for the same period. Because I used annual data rather than quarterly and recessions are normally defined by quarterly data, the graph smoothes out the depth of some recessions. The yellow boxes represent recessions and the length of the boxes, their duration. The black vertical lines represent the end of one presidency and the beginning of another.

One insight from the graph is that the current recession is the deepest during the time frame and that the 1982 recession was the second biggest.
The second graph, “GDP Growth Following Three Recessions,” shows the GDP growth beginning with the first year of negative growth and following the subsequent nine years. The Great Depression (1929-1939) was clearly the longest and deepest, followed by the recession of 2008 and 1982. 

The Great Depression and the 2008 recession were both financial crises. Work by Reinhart and Rogoff, This Time Is Different: Eight Centuries of Financial Folly, concludes that financial crises are the most enduring. Not only is the fall in growth larger, but the subsequent growth more shallow. The second graph supports their conclusion. 

Next year’s growth statistics will be interesting. Will growth accelerate, more closely mirroring growth following the Great Depression, or will it continue to tract under the recovery following the 1982 recession? 

The graphs leave many more questions unanswered than answered. Does policy encourage recovery and if so what type? Rather than focusing on GPD contraction and growth, why not focus on movements in the unemployment rate? How do recessions impact sovereign debt? Asking a good question is exciting, searching for its answer, invigorating, and finding an answer, satisfying.
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Thursday, January 26, 2012

Rogoff on Capitalism

Most economists agree with Greg Mankiw’s sixth principle of economics, “markets are usually the best way to organize economic activity.  Kenneth Rogoff, a coauthor of This Time Is Different: Eight Centuries of Financial Folly, illustrates economists trust in capitalist markets.

I am often asked if the recent global financial crisis marks the beginning of the end of modern capitalism. It is a curious question, because it seems to presume that there is a viable replacement waiting in the wings. The truth of the matter is that, for now at least, the only serious alternatives to today’s dominant Anglo-American paradigm are other forms of capitalism.

Read “Is Modern Capitalism Sustainable?” to learn Rogoff’s alternatives to Anglo-American capitalism, their weaknesses and strengths. 

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Tuesday, January 24, 2012

An Energy Revolution?

Hydraulic fracturing, a process that allows drillers to extract natural gas from shale formations, is reshaping markets for energy.  The U.S. Energy Administration reports that natural gas production from hydraulic fracturing increased 48 percent in 2009 to 3,383,532 billion cubic feet from the previous year.  The EA does not report more recent data but producers claim that production continues to grow. 

The price of natural gas has fallen as the its supply increased and its the demand decreased due to the world wide recession and warm winter temperatures in the U.S., benefiting consumers of natural gas and products derived from it like electricity.

Electricity Production 2008-2011 megawatts

Natural gas fired power plants are an important consumer of natural gas and the consumers of the electricity derived from it are indirect consumers.  The supply of electricity from these plants can be stated as an equation without functional form, E=S(P, PI) where E is electricity production, P is the price of electricity and PI is the price of inputs, and as a graph.  As the price of inputs falls, the production of electricity increased from S08 to S11 and as incomes fell and winter temperatures rose demand fell from D08 to D11.  The combined increase in supply and decrease in demand caused prices to fall from $87 per megawatt hour to $39 (“Electricity Declines 50% as Shale Spurs Natural Gas Glut: Energy”). 

Natural gas plants are now the cheapest producers of electricity.  They are also the cheapest to build.  As might be expected, electricity producers have abandoned some plans to produce electricity with other fuels such as coal, nuclear and wind and are developing plans to build natural gas plants.

The switch to natural gas may have important environmental consequences.  As a fuel, it produces significantly less carbon per megawatt of electricity than coal but more than nuclear or wind.  Natural gas does not produce nuclear waste and uses much less surface land than wind, preserving the landscape. 

The Obama administration has not been a friend of natural gas production proposing many regulations that producers claim could halt new production but President Obama believes that greater reliance on natural gas production could be an area of compromise between Democrats and Republicans and will call for cooperation in promoting its production (“Obama to tout natural gas benefits in State of Union”).  For years, the federal government under both Democrats and Republicans has promoted the production of alternative fuels such as ethanol, wind, and solar.  Again, the wisdom of markets surpassed that of the wisest government planners.  Markets are usually the best way to organize economic activity.

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