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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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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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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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.

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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France and Social Welfare Programs

Voters in democratic societies like benefits and don’t like taxes.  The French confront a growing national debt caused by large social programs, the financial crisis, and the European debt crisis.  Voters have protested at the suggestion of cuts in benefits and taxes are high.  Proposals for tax increases are modest and are probably regressive (“Analysis: France needs tough reforms to halt debt spike”).  Like other countries in Europe that we call social welfare states, France has a tax structure that is less progressive than the United State’s tax structure (Piketty and Saez “How Progressive is the U.S. Federal Tax System? A Historical and International Perspective,” Journal of Economic Perspectives, Volume 21, Number 1, Winter 2007).  Piketty and Saez write      

During most of the postwar period, income tax progressivity has been substantially greater in Anglo-Saxon countries than in France and most other continental European less in France than in the United Kingdom or the United States. For example, the top .01 percent of the distribution paid 75 percent of income in taxes in the United States in 1970 and over 90 percent of income in taxes in the United Kingdom; but only 49 percent of this group’s total income went to taxes in France. During most of the postwar period, income tax progressivity has been substantially greater in Anglo-Saxon countries than in France and most other continental European countries. For example, Dell (2006) presents an analysis of Germany, which appears fairly close to France.

This pattern illustrates a general point made by Lindert (2004): countries in which government spending is a fairly high share of GDP have always relied on a mix of taxes that create relatively low distortion, with less progressivity, large exemptions for capital income, and so on. Meanwhile, Anglo-Saxon countries in which government spending is a relatively low share of GDP have historically relied on more progressive taxes.

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NBPA and Kevin Murphy

Steve Aschburner does an excellent job interviewing Kevin Murphy, an economist from the University of Chicago who has been hired to advise the National Basketball Players Association (“Renowned economist Murphy lends smarts to NBPA's cause”).  I wonder how many hours he prepared for the interview and if in part that preparation was motivated by the fear of sounding foolish by asking a world class economist bad questions.

How good is Murphy?  Aschburner quotes Steve Levitt, a John Bates Clark Award winner and the author of Freakonomics who said

Kevin is far and away the smartest guy in the field.  Not only is he widely regarded as the smartest economist on Earth, but he can also fix your refrigerator.

If you are a fan of the NBA and economics you should read the entire article but I have included an answer to one question as a teaser.

NBA.com: Where do you see this landing?

KM: Ultimately what it comes down to is, you get what you can negotiate. It's not what you deserve, what's "right," that ends up carrying the day. But then they ought to be straight up. They ought to say, "We've got the ability to negotiate. We'll hold your feet to the fire and get what we can."

The one thing I don't want to see happen: I don't want to see any lingering bad blood between the two sides. That's not good either. You run the risk that, if it gets too personal, that creates its own set of frictions going forward. I think people on both sides are cognizant of that.

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The Obama Administration’s Pipeline Punt

The Obama administration is scheduled to announce a decision to approve or deny the $7 billion Keystone XL project, a oil pipeline that would ship oil from Canada’s tar sands to refineries in Texas.  Environmentalists, a key Obama constituency, oppose the pipeline in general because it ships oil and specifically because oil from tar sands which generate more carbon in production and refining than other oil.  Labor unions that would build the pipeline, another key Obama constituency, favor that project. 

Reuters and the AP report that rather than fish or cut bait, the administration has decided to punt by exploring a new route for the pipeline.  The review process would push the pipeline decision past next year’s presidential election.  Many view the delay as a win for environmentalists (“Exclusive: U.S. to seek new Keystone route, delaying approval” or “State Department Delays Oil Pipeline From Canada, Orders Developer to Reroute”).

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