To heck with facts… and the scientific method.

1. February. We don't need no stinkin' scientific method. From A Random Thought on the Scientific Method:

In response to this post, climate model skeptic Rick Stryker writes (in ALL CAPS no less):

JUST BECAUSE A MODEL DESCRIBES THE EXISTING DATA DOESN'T MEAN THAT IT WILL DESCRIBE DATA THAT HAS NOT BEEN OBSERVED

So far we're in agreement; in fact I'm going to repeat this point to my econometrics class. He then continues:

You see, in science, you don't prove the theory by showing that it describes the existing observations. You prove the theory by showing that it predicts data that haven't been observed.

Well, gee, if this is the standard for proving or disproving hypotheses, either generally, or in econometrics, we're not going to get very far. In this view, I won't see our sun go nova, so might as well call it a day — science can't proceed until we get the data! But this is the sort of nihilistic worldview that pervades the global climate change deniers.

For a more succinct critique, see below:

 

2. April. The non-informative index from ALEC and Arthur Laffer in Rich States, Poor States. From State Employment Trends: Does a Low Tax/Right-to-Work/Low minimum wage Regime Correlate to Growth – An Econometric Addendum:

The previous post on state employment trends sparked some debate regarding the generality of the negative correlation between the ALEC-Laffer “Economic Outlook” ranking and economic growth, as measured by the Philadelphia Fed's coincident index. One reader argued four observations were not sufficient to make a conclusion, and I concur. Here, without further ado, is the correlation for all fifty states.

Figure 1: Ranking by annualized growth rate in log coincident index 2013M01-2014M03 versus 2013 ALEC-Laffer “Economic Outlook” ranking. Nearest neighbor nonparametric smoother line in red (window = 0.7).

Source: Philadelphia Fed, ALEC, and author's calculations.

If a higher ALEC-Laffer ranking resulted in faster growth, then the points should line up along an upward sloping 45 degree line. This is not what I see.

3. June. The abominable minimum wage. From More Curious Correlations:

Some argue that minimum wage hikes cause labor crises [1] or recessions [2] [3]. Is this true?

Source: [1].

This graph is at first glance highly persuasive. But then I realized the graph plots the minimum wage divided by the average level of compensation, so it's tracking a ratio. Hence, average compensation (which declines during a recession) is also imparting some of the movement in the ratio. That prompted me to wonder what minimum wage increases look like in relation to recessions. Here is the relevant graph.

Figure 1: Log first difference of real minimum wage (blue), and NBER defined recession dates (shaded gray). Deflation uses CPI-all.

Source: BLS, NBER, and author's calculations.

It certainly seems like plenty of recessions don't follow increases in the minimum wage. But to test formally, I undertake some Granger causality tests (remembering that Granger causality is merely temporal precedence). Using four leads and lags, I find that I can reject the null hypothesis that recessions do not cause minimum wage changes, at the 10% significance level. On the other hand, I cannot reject the null hypothesis that minimum wage increases do not cause recessions.

What about the weaker proposition that minimum wage increases induce noticeable decreases in employment? The Employment Policies Institute (not to be confused with the Economic Policy Institute) has been a vociferous advocate of this view. [4] A recent study by Professor Joseph Sabia [5] documents negative impacts of minimum wage increases. I have repeatedly asked for Professor Sabia's data set in order to replicate his results, to no avail. Using the Meer and West dataset, I have found little evidence of the purported negative effects (see here). However, the Meer and West dataset is freely available, and anyone with the requisite skills can replicate my results.

Update: Eight months after initial request, I still don't have Professor Sabia's data, but he did email me to tell me revised version will be soon published, listing data sources, etc. I still have no idea of the robustness of his results.

4. July. Only the undeserving poor get food stamps and Medicaid. From On the Characteristics of Those Covered under Some Government Programs:

A reader writes:

“…SNAP and Medicaid. These are programs for People Who Do Not Work.”

Is this statement true?

SNAP

From SNAPtoHealth:

Stigma associated with the SNAP program has led to several common misconceptions about how the program works and who receives the benefits. For instance, many Americans believe that the majority of SNAP benefits go towards people who could be working. In fact, more than half of SNAP recipients are children or the elderly. For the remaining working-age individuals, many of them are currently employed. At least forty percent of all SNAP beneficiaries live in a household with earnings. At the same time, the majority of SNAP households do not receive cash welfare benefits (around 10% receive cash welfare), with increasing numbers of SNAP beneficiaries obtaining their primary source of income from employment.

Medicaid

According to Garber/Collins (2014):

Prior to the waiver approval, working parents up to 16 percent of poverty were eligible for Medicaid…Currently, working parents under 33 percent of poverty and individuals ages 19 and 20 under 44 percent of poverty are eligible for Medicaid.

Now it is true that, as CBPP notes, many working poor do not qualify for Medicaid under the old provisions (and in states that refused to expand Medicaid):

In the typical (or median) state today, a working-poor parent loses eligibility for Medicaid when his or her income reaches only 63 percent of the poverty line (about $12,000 for a family of three in 2012). An unemployed parent must have income below 37 percent of the poverty line (about $7,100 in 2012) in the typical state in order to qualify for the program.

The irony is that Medicaid expansion would eliminate disincentives to earn income through working. As outlined here, most of the beneficiaries of a Medicaid expansion in those states that have not yet taken the offer would be working poor — between nearly 60 to 66% in Virginia, Missouri and Utah.

5. July. Still in search of hyperinflation and/or dollar collapse. From An Exchange Regarding Asset Price and Inflation Implications of Fiscal and Monetary Policies in the Wake of 2008:

This is not the most erudite debate, but it pretty much sums up matters.

(h/t Vinik/TNR)

Reality check: Figure 1 below depicts the evolution of the nominal trade weighted dollar, inflation and Treasurys.

Figure 1: Nominal trade weighted value of the US dollar – broad currency basket, 1973M03=100 (blue, left scale), CPI 12 month inflation (red, right scale), and ten year constant maturity Treasury yields (teal, right scale). Inflation calculated as log differences. NBER defined recession dates shaded gray. Dashed vertical line at 2009M02, passage of American Recovery and Reinvestment Act.

Source: Federal Reserve Board for exchange rate, FRED, NBER, and author's calculations.

By my viewing, the dollar has not collapsed. It's about 7.6% weaker than when quantitative easing began, while inflation and the interest rate are both lower. I think it incumbent on the Santelli's of the world to explain the intellectual underpinnings for their Weltanschauung.