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« ETF Update: More Flexibility, More Strategies | Main | Employment Situation Preview: A Risky Outlook »

June 30, 2008



I do not agree with what you wrote really....
please explain in detail a bit more for me ;D



Let me begin by saying how much I appreciate the thoughtful and forceful discussion of this subject.

One of the themes I am working on for my book is what might happen to the newbie investor, checking in on the Internet to get some advice.

The question, as I see it, is whether to use the best available information, or to accept data that does not have any scientific confirmation. It is a fair question, and one that I intend to explore in detail.

I recommend that readers look again at Mike C's comment. Mike often challenges our views, and that is fine, but he seems to have captured the spirit of the article.

RB and Lord -- I agree with your comments. There is a discrepancy between perceptions and official data. What should we make of this? I am a big fan of Mauboussin, and the observations from RB have been on my (overly long) agenda for some time.

The question of perceptions of the public versus reality (is it really reality?) is an enduring one. My view is that it is a trading opportunity, and I expect to continue to make that case.

Lance deserves a separate comment.

Thanks to all.



Lance -

Let me begin by saying that I welcome your participation on my site. While it is nice to get encouragement in my work, I try to learn from those who disagree. I also try to be unfailingly polite to all who participate. I hope you continue to read and comment.

With respect to your general thrust, I have the following observations:

I encourage substantive discussion and comments on the specific content of my articles.

I am far less interested, and find less useful, someone's attempt to give a "grade" to the oldprof. Frankly, I do not care if you think this is good work or not good work. Just stick to the facts. I am writing a book from which many will benefit. Until you become my editor, I am not too interested in whether you like the content or not. I am also mystified about your speculation about "pouting" or whether Barry has a right to be unhappy.

Next, I do not need much help on the "straw man" front. This is a typical weasel move of those who are changing positions. I am perfectly willing to allow readers to read Barry's article and mine and form their own conclusions. And the same goes for comments on how I do links. Get real. I do them the way most people do. Barry has a great method of listing sources and I hope (someday) to catch up. It is difficult to do in the software, and I write at night when my regular work is done. Meanwhile, I try to cite everyone via links.

I enjoyed your comments on the doctors. I completely agree that individual perceptions differ from the measurement of experts. The issue is when, how, and which is right. That is what I am exploring. I suggest that you look again at Mike C's comment. What people perceive as the "cost of living" can differ dramatically from an objective inflation measurement. Would you like to have 1970's health care at 1970's prices? (I would not, since I would not be here!)

Most importantly, I want to consider my characterization of Barry's position. I suggest that you state, in simple terms, exactly what you see as the main point.

I see it as the following: Barry believes that official stats are misleading and should somehow be corrected. He has stated this many times in many different ways. He sees individual perceptions as evidence. It is completely unclear what he is recommending.

I note in passing that in our office we admire Barry's contributions and agree with many of his observations. We are disappointed that he has not engaged in a more collegial fashion, but we understand that he does not come from the academic tradition. To us, he seems very thin-skinned about criticism, while aggressively attacking many pundits.

But to his article. Does he want a new "Boskin Commission"? Does he think that the Fed or the BLS is going to change their method without any comprehensive review? Does he believe that an investor can profit by betting against the Fed or the BLS? The "take another look" conclusion leaves the reader wanting, and it is open to speculation.

I have learned from your comment -- mostly that I should make a clear statement of my own agenda, which will be forthcoming. A hint -- I believe that investors should reject the cottage industry of those criticizing government statistics. It is a losing strategy.

While I could engage in a point-by-point effort to refute your comments, I choose not to do so. My reason is that I have my own agenda and choose to state the case on my own terms. I also do not want to discourage comments.

I suggest only one thing for your consideration -- credentials. It is not the credential that matters. It is what one learns in earning them. I am writing for open-minded readers who want to learn from those who have actually developed models -- over decades of work, those who really understand economics, and those who really study government and know how it works. It is a consistent feature of fund managers that they disparage knowledge they do not have.

I hope that you will embrace these suggestions and continue your comments, however critical you may be of the substance of my arguments. I also have noted your blog and have added it to my reader.




Perhaps it might be useful to frame the argument in Mauboussin's words:

Briefly put, experts can be wrong when the problem is sufficiently complex and the rules are not specifiable. Problems relating to the economy could, perhaps qualify. There is wisdom in the crowds when conditions of diversity, aggregation and incentives are met. Specifically with regards to polls, I'm not certain the first and last qualify. Nevertheless, I wouldn't wager money on it.
I do have issues with hedonic adjustments as I expressed in the oldprof's previous inflation quiz. But that awaits the oldprof's next posting on the Bill Gross issue.


A problem with data is it never stands alone. Instead it must be placed into context with other data to build a composite picture of the world. Since it is always old, subject to revision, and often carries substantial error, even if it is the best starting point, it may not be advisable to not look beyond it. I agree subjective opinion and anecdote is not reliable. It is at most an indication further exploration may be needed. Certainly falling home values, tightened credit, rising prices for necessities of food and fuel, and constraints on wage increases are leaving consumers feeling foul. They may well prefer inflation if it meant their wages kept up. The fact that they aren't is a measure of how successful it has been contained to date. It doesn't make it any less painful though.


"Your article states quite clearly that if the data do not agree with public perceptions, it is time to look again at the data."

"Look again" is what he said, not merely go with public perception, and it is not a bad idea. In fact, it is the essence of good science to look at all evidence, and check beliefs against perceptions which might differ.

In the end looking at the data and how it is compiled, analyzed and presented may show people's perceptions are off. However, to dismiss such evidence out of hand, to not look at what you are claiming in light of the felt experience of those whose opinions you are so cavalierly dismissing is bad science.

Such head in the sand approaches have routinely landed social scientists in intellectual cul de sacs. The harder sciences as well.

For example, doctors used to ridicule the notions of mothers that their children grew "overnight" and instead trusted their handy growth charts with their smooth growth curves. That is, until researchers found out that the mothers were right. Children would grow substantially in one, two and three day periods, and then stop for extended periods of time. It was only when a researcher took their claims seriously, if only in an attempt to disprove them, that this phenomenon was observed.

If you want to claim that people's beliefs about their experiences are mistaken, then you need to carefully analyze the case, with proper attempts to falsify your hypothesis. In fact, it would be more fruitful to actually assume their case was correct and try and see why to discover where the weaknesses in your case lie, even if you are ultimately correct.

You instead just dismiss it because brighter experts have spoken. That is sloppy, just as sloppy as accepting the earnings projections we have heard over the past year and a half, which have turned into a cruel joke.

He also wasn't misunderstood, you claimed something he never said. No reasonable reading would assume he was saying what you claim he was. Nor has Barry ever been one to claim that public perception is necessarily correct. He should be angry and quite irritated. Nor is a link a good excuse. You know as well as any blogger, that only a tiny minority actually click through a link. Most readers accept that the case has been presented fairly. Hopefully the protests against your portrayal will increase the percentage who click through, assuming readers bother to read the comments.

Finally, this statement is absurd:

"Barry Ritholtz offers the rather astounding suggestion that when all of the experts in a field agree, it is time to take the other side."

Leave aside that Barry said no such thing, the idea that all the experts in any field agree is preposterous, and in this particular case is manifestly untrue, even using your overly credentialed and narrow definition of an expert. The list of people in the field of economics who find the data perplexing and misleading is quite large. In fact the debates about the proper way too figure inflation and track unemployment data are quite fierce.

Worse still, you have noted that in the past and elide right over that fact in this post.

Not your best work Jeff, not at all. That you misunderstood him is forgivable, that you pout and smugly tut tut when a simple re-reading in light of the complaints leveled against your post suggests misreading and misunderstanding isn't the real problem.


Barry -- I certainly do encourage everyone to read your entire article, which is why I included the link. In fact, I encourage people to read all of your articles, which I often cite in a complimentary fashion.

I do not agree with your approach to analyzing government data -- always something wrong, and always worse than it seems. Your article states quite clearly that if the data do not agree with public perceptions, it is time to look again at the data. Here is another quote:

"Here's a suggestion: If the professional economists' data states that inflation is contained and unemployment modest, and at the same time the population sentiment is screaming as if neither were the case, perhaps its time we consider that it might be the data, and not the population, that is the source of our dispute."

This is a bad idea.

I offered a number of examples -- and fairly typical ones -- of where public perceptions are way off. They are not a good foundation for developing science. I think this is a fair reading of your suggestion.

Thanks for stopping, but I wish you would try to be more specific in your comments rather than always claiming to be misunderstood. You could try to clarify your point, for example.



VennData, with inflation, inflation at it simplest is an increase in the money supply. Too many people get inflation and prices mixed up. Prices are nothing more than a means for distributing information. Increased prices are a bi-product of inflation.

Barry Ritholtz

Thats not even remotely close to what I was suggesting.

Here' the full article -- I suggest your readers compare it to your post


If one looks at economic forecasting one rapidly comes to the conclusion no such animal exists. Forecasters are backward looking as a whole and merely project past trends. Economists themselves agree they are no good at this. I agree with them. The question is how much one should pay attention to public sentiment. Probably not much either. Actions are more important, but we don't know those until some time in the future. Might they be more relevant at turning points? Perhaps.


Barry R. is really more of an entertainer than a market expert. He's taken a stance (a very bearish stance) and picks the data to fit. The reality is far more complicated. I've seen inflation in some areas and deflation in others. He'd like the lawyer who argues whichever point supports his thesis.

My take is if you like the idea of being bearish, then Barry is your man.



Look like you need to revisit the fallacies of logic because your article is full of it.

Here is some limited samples:

Fallacy of composition: "The Public?"
1. The parts of the whole X have characteristics A, B, C, etc.
2. Therefore the whole X must have characteristics A, B, C.

What is the percentage of "the public" does directly involve in "investment" to make your statement "the general public" to reasonably correct? You don't know?

Fallacy of composition: "The scientist"

Economist is still pseudo-scientist and no where approach the level of the hard science scientist like physicists, chemists. Need proof? What is the track record of economists in prediction? Does this approach the level of hard science yet so I can take their words to the bank?

"When experts and the general public disagree, how do you vote -- with your money?"

When the experts commit errors in their logic and are no better than the "general public", should you trust them? Of course you do, like the Russian said "Trust but verify".


This is what is known as a strawman argument Jeff. Barry is not claiming that the uneducated public understands economics better than economists, or you.

He is claiming that, inchoate as their impressions may be, that they do know what is happening to their own personal living standards better than economists. Economists can be wrong, and economic data as well.

When people go to the store and find it much harder to make ends meet than official data implies, it is time for economists to listen and consider whether they are in fact measuring the "cost of living" in the most realistic way.

You can certainly differ with Barry about whether they are measuring the impact of price changes as ineffectively as he claims without claiming he is using the kind of argument you ridicule above. He has a valid point, which does not make it correct, but it does deserve the kind of response that someone who argues so vociferously for dispassionate analysis should address directly, rather than with an irrelevant rhetorical slight of hand.

Mike C

Insightful post, and I like the fantasy world game analogy.

I too think that when it comes to the economy and the stock market, that going with "general public opinion" probably isn't a good move as public opinion is probably based on a combination of simple heuristics and gut-level "intuition".

I am skeptical that the average Joe is capable of rational, logical analysis. I've discussed crude oil pricing with many people not educated in economics and I am amazed by the number who believe that Exxon Mobil has the ability to manipulate and set the world clearing price for crude oil.

At the same time, many "experts" are hardly any better. Luskin, Kudlow, Lereah, I could go on are all "experts" who consistently demonstrate a lack of expertise, and should be faded most of the time.

With "inflation", I think part of the problem is defining exactly what that means. Is inflation the creation of excessive money and credit, or is it a rise in some basket of prices? Is the latter simply a manifestation of the former, and is it possible that during some periods of time, that inflation shows up somewhere else other then consumer prices (stocks in the late 90s, housing in 02-05, and maybe commodities now?).

I think for the "general public" inflation is what they see on the most regular basis which is food and energy, and I think food and energy occupy much different percentages in calculating "inflation" in terms of the general public perception versus the offical government statistics.


I was reading this got done with the first four points and thought it was going to be a discussion about how we selected the President.

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