The next article in my old series on economic fallacies from SwiftEconomics.com.

Next in Lies, Damned Lies and Statistics Series: Part 4: Iraq War Casualties
Previous in Lies, Damned Lies and Statistics Series: Part 2: Income Stagnation
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Anyone who’s read my posts can tell I have pretty strong libertarian leanings. So in this post, I’m going to try to remain fair and take on a common libertarian statistic. In the documentary film, Fiat Empire, libertarian congressman Ron Paul restates an oft-cited fact by libertarians, “If you study monetary history, throughout thousands of years, paper money has been tried many, many times and it never succeeds. It always ends badly.” (1)

A fiat currency is simply a currency that isn’t backed by any underlying asset. Fiat currencies derive their value solely from the ratio of money to goods in the economy. If that ratio gets out of whack (say the government prints too much money), the currency will become worth less than the paper it’s printed on. Ron Paul and many libertarians, especially those who ascribe to Austrian economics, believe in the gold standard (where each unit of currency is backed by gold, a proposal I have a lot of sympathy for). And since every fiat currency that has ever existed has failed, all the more reason we should go back to the gold standard. Now, the statement that every fiat currency has failed is completely true. It’s also completely meaningless.

First we have to boil down what these libertarians are actually talking about here. A failed fiat currency is one that hyper-inflates. There are certainly numerous examples of this throughout history. The most famous example is Weimar Germany in between the two World Wars. In 1914, 4.2 marks were worth 1 dollar. In 1923, 4.2 trillion marks equaled one dollar! In case you were wondering, this is bad for an economy. Other examples include the Romans, who experienced severe runaway inflation near the end of their empire, France in the late 18th century, Hungary after World War II, many Asian countries during the Asian Financial Crisis of 1997 and Zimbabwe today. (2)

The moral of the story is all fiat currencies hyper-inflate, while those backed by gold don’t (they can however suffer from high inflation in the short term). (3)  As I said, these libertarians are correct. As the Daily Reckoning puts it: “EVERY fiat currency, since the Romans first began the practice in the first century, has ended in devaluation and eventual collapse.” (4) There are two caveats to their argument, though: 1) if the fiat currency was ended for another reason, say the country was conquered and the currency replaced, then those examples are obviously ignored and 2) if the currency is still around today*, it also doesn’t count, because the currency will presumably fail in the future. The problem with this assessment is simple: What else can happen to a currency?

The answer to that question is nothing. The only possible exception would be the hypothetical hyper-deflation. This isn’t even worth talking about though, since it has never happened in the history of the world and would have to get so out of hand that one unit of currency was worth everything on the planet (otherwise you could just print more or cut the currency up into smaller pieces, like when a stock splits). Other than such an absurd scenario, there are only three options for a fiat currency: hyperinflation, ended by another means or it still exists. So while this statistic/fact is completely true, it’s also akin to saying the sky is blue (and about as useful for determining monetary policy).

There are plenty of reasons to support the gold standard. Gold standards reduce inflation and prevent governments from taxing the population in a hidden way. This thereby makes it more difficult for governments to wage wars or reward their friends in the private sector. The “fact” that every fiat currency has failed (excluding the two obvious caveats) does nothing to help the argument, though. It sounds like it conveys something, but in actuality, it conveys absolutely nothing.
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Lies, Damned Lies and Statistics Series
Part 1: A Primer
Part 2: Income Stagnation
Part 3: All Fiat Currencies Fail
Part 4: Iraq War Casualties
Part 5: Female-Male College Gap
Part 6: Male-Female Wage Gap
Part 7: Roger Maris’ Asterisk
Part 8: Women Do All the Work but Men Keep All the Money
Part 9: The BMI
Part 10: A College Degree is Worth One Million Dollars
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*Every currency in the world today is a fiat currency.
(1) Ron Paul, Fiat Empire, Matrixx Entertainment, 2006, http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=41426337
(2)  “Toilet Paper Money,” Whiskey and Gunpowder, 4/17/2007,  http://whiskeyandgunpowder.com/toilet-paper-money/#hidehttp://seekingalpha.com/article/127585-the-gold-standard-and-inflation
(3) Stephen Yu, “The Gold Standard and Inflation,” 3/24/2009, http://seekingalpha.com/article/127585-the-gold-standard-and-inflation
(4) Nick Jones, “Fiat Currency – Using the Past to See the Future,” The Daily Reckoning, http://dailyreckoning.com/fiat-currency/

And here is the next article I wrote for SwiftEconomics on economic statistics and their misuse. (Also turned into a book, by the way.)

Next in Lies, Damned Lies and Statistics Series: Part 3: All Fiat Currencies Fail
Previous in Lies, Damned Lies and Statistics Series: Part 1: A Primer
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The quote above is from Michael Moore’s cleverly titled book Dude Where’s My Country. The chapter entitled “Horatio Alger Must Die” (Horatio Alger wrote stories for working class people during the Gilded Age, with the morale that with hard work you can make it) highlights the common myth, in its extreme neo-Marxian form, supported by bogus statistics, that real income for the average American has stagnated since 1970 (or sometimes 1980 depending on who’s complaining).

Certainly things have gotten bad with the recent recession, but was it really that bad all along for regular folks? Michael Moore would have you believe that incomes are stagnant and there is simply no way you’re going to move up. So get angry about it, maybe start a blog and type out said anger for all the world to see, but the most important thing you can do is give up. Unless, of course, you want to become a documentary film maker (or open a McDonald’s franchise next to said documentary film maker), who gets filthy rich explaining how it’s impossible to become filthy rich in this country, unless of course, you’ve been born into such filthy richness.
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The rich have certainly gotten richer, but that doesn’t necessarily mean they’ve gotten richer at other people’s expense. The pie can get bigger after all (if you somehow doubt that, compare living standards in the 19th century to now, or just look at the following graph).

The income increase rises further to 62%, when you include government subsidies. (3) The key lurking variable is household size, though. We cannot assume variables are unchanged over long periods of time. The percentage of households made of married couples dropped from 61.9% to 44.4% over those years. (4)  As Thomas Sowell concludes, “The household thing is really a tip off. Whenever I see someone using household income, they’re trying to make things look bad.” (5)

Even among single heads of households, men’s average income rose 12.6% and women’s average income rose 34.5% from 1969 to 1996. (6) This is despite the fact the average number of workers in a single headed household, whose income fell below the median, was only 0.286 in 1996 (0.757 for those above median). It’s very difficult for someone’s income to rise when they are not working. (7)

In addition, as strange as it sounds, income is not always a great way to look at overall improvement in standard of living. Income statistics usually do not include transfer payments (such as social security or welfare), taxes or job benefits (401K’s, health insurance, etc.). They also often lump together part-time and full-time workers. Moreover, income statistics show people who graduate in the middle of the year, retirees, interns, wealthy business owners or investors having an off year and those between jobs, as poor. Honestly, of course college students are poor; it’s an investment in one’s future (at least they told me it was). Real consumption per person, on the other hand, increased 74% between 1980 and 2004, which, while affected by the increase in debt financing in the last 40 years, certainly indicates an improvement. (8)
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Furthermore, incomes are not only going up, there is flexibility between classes. A snapshot of income tells us little about whether a person, or group of people, is actually poor. I, after all, would be considered in the bottom 20% of incomes right now, despite having a college degree and having come from an affluent family. Again, from Thomas Sowell, “A study of income tax returns showed that more than four-fifths of the individuals in the bottom 20% of tax returns in 1979 were no longer there by 1988.” (9) Given that many in the bottom 20% are young or between jobs, this should not be surprising.
OK, so the income stagnation myth and its corresponding statistics are shattered. But there’s one more argument left, which I’ll let Paul Krugman make:

This may be the most discombobulated argument I’ve ever heard. First, it relies simply on the fact that there is an argument about it to prove it must be a problem, a strange offshoot of the “Appeal to Authority” fallacy. There was also, for a long time, a major argument over whether or not bloodletting was a legitimate medical procedure. Obviously that must mean getting your bleed on after coming down with the swine flu has at least some validity, right? Something is either right or wrong, it doesn’t matter if there’s an argument about it.

In addition, many of the things he mentioned (Internet, phones, etc.) don’t show up in income data. Yes Paul, do think about the early 1970’s. Think of the things that didn’t exist in 1970, such as personal computers, the Internet, cell phones, GPS, DVD’s, hybrid cars, beta blockers, CT scans, Guitar Hero, etc. Or compare the houses and cars and phones and appliances and the like, from then and now. There has been a tangible rise in the standard of living not seen in incomes statistics simply because everything is better than it used to be. I mean, if nothing else, getting rid of shag carpets and plaid pants would show a “convincing” rise in the median family’s standard of living.

Things have certainly gotten bad lately [circa 2009] and there’s been plenty of corporatism and way too much credit showered upon the middle and lower classes of society. However, this does not mean we’ve been creeping toward banana republic status for the last 30 to 40 years. I would hesitate to say that about the last two years with all the bailout mania (read corporatism). Still, long term income stagnation is nothing more than a statistical illusion.

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Lies, Damned Lies and Statistics Series
Part 1: A Primer
Part 2: Income Stagnation
Part 3: All Fiat Currencies Fail
Part 4: Iraq War Casualties
Part 5: Female-Male College Gap
Part 6: Male-Female Wage Gap
Part 7: Roger Maris’ Asterisk
Part 8: Women Do All the Work but Men Keep All the Money
Part 9: The BMI
Part 10: A College Degree is Worth One Million Dollars
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*St. Louis Federal Reserve District States include Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.
(1) Michael Moore, Dude Where’s My Country, Pg. 145, Warner Books Inc., Copyright 2003
(2) Thomas Sowell, Economic Facts and Fallacies, Pg. 125, Basic Books, Copyright 2008
(3) U.S. Bureau of Census, “Changes in Median Household Income: 1969 to 1996,” Current Population Reports, P23-196, Pg. 1
(4) Ibid, Pg. 6
(5) Thomas Sowell, “Thomas Sowell – Is “Income Stagnation” an Economic Myth?,” Retrieved 8/16/09, http://www.youtube.com/watch?v=WrtoSx-NbLQ
(6) U.S. Bureau of Census, “Changes in Median Household Income: 1969 to 1996,” Current Population Reports, P23-196, Pg. 7
(7) Ibid., Pg. 5
(8) Alan Reynolds, Income and Wealth, Pg. 57-59, Westport: Greenwood Press, Copyright 2006
(9) Thomas Sowell, The Vision of the Annointed, Pg. 44, Basic Books, Copyright 1995
(10) Paul Krugman, “Paul Krugman on Income Inequality,” Retrieved 8/16/09, http://www.youtube.com/watch?v=EBsB1VqTeSY

​My new article for Mindy Jensen's website 1500Days (i.e. 1500 Days to Freedom) is  up. It's called "Wealth Versus Stuff" and makes the case that stuff just isn't that important. Not only can collecting more and more and more expensive and more expensive stuff be a waste of time and energy. It also is a waste of money. 

Drop all the stuff. It gets in the way of life and financial freedom. Minimalism is a much better way to go.

My new article for BiggerPockets is up, which is effectively a book review of Mark Manson's The Subtle Art of Not Giving a F*ck. It wasn't an easy book to quote from given the massive volumes of profanity contained within. But it's a very important book.

I've discussed the importance of minimizing the amount of material stuff you have in your life but Mark Manson takes it to the logical next step, to minimize the number of things you care about. (And care about those things/people more.) As he puts it,

I then relate this concept to entrepreneurship and real estate,

Near the end, Manson quotes Mark Twain in what is easily one of my (new-found) favorite quotes, 

I go into much more depth in the article. Check it out!

Here's the first post in what was my longest series for SwiftEconomics.com. I break down all of those lies, damned lies and statistics (and by the way, I turned it into a short book too if you're interested). The first post is a primer on the subject as well as a bit on income inequality (and how's it's misused). Enjoy!
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Next in Series: Part 2: Income Stagnation
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In my younger days I used to take every statistic I heard for granted. They were simply divine facts showered upon me by some metaphysical, knowledge fountain of truth. The idea that statistics are somehow infallible is almost ingrained in all of us from an early age. They relay a fact, and you can’t argue with a fact, can you?
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Statistics are everywhere, from polling to science to sports to economics. They make up one leg in any sound, logical argument. The other two components are a theory and at least one example. All three of these are important, yet all three can, and often are, faulty or manipulated. The last two we know can be incorrect, the first is trickier.

Let’s start with theory. By definition, since multiple theories can describe the same phenomena, they can not all be correct. Keynesian economics and Austrian economics both describe how an economy functions; either one can be correct or they could both be wrong, but they both cannot be right. Therefore, we know to look for logical fallacies and alternative explanations to undermine each theory’s conclusions.

Examples are important, but they can be just as misleading. In fact, sometimes they are all but useless. One recalls Al Gore showing a picture of an elderly lady in a 2000 presidential debate and describing how she was struggling financially, thus the need to put social security in the much maligned “lock box.” One has to ask whether this case really representative of the other 300 million some Americans. Healthcare reform proponents give examples of patients who were turned down for care and later died or suffered debilitating illnesses. Healthcare reform opponents discuss cases where rationed care caused patients to die waiting in line. Examples can prove just about anything (or more appropriately, just about nothing). Take the example of one very particular person and even the state lottery may seem like a wise investment. Usually, examples are meant to do little more than put a human face to the problem at hand; tug at the heartstrings, so to speak. Most people are affected by these sorts of examples, but most people can also see what’s going on when they step back from the issue.

Statistics are often seen as infallible, though. Unfortunately, the truth is statistics are often very difficult to gather and compute in a methodologically sound way. Furthermore, there are a host of reasons a particular group may want to fudge these numbers. If anything, I hope this series will shine some light on how statistics can be flawed, and perhaps raise some healthy skepticism.

For example, I remember local commercials being run, back when I was a young lad, which said several thousand people in my community go hungry every night. That sounded horrible and made me want to donate money to help feed them. According to Thomas Sowell, however, the statistic was “…determined [by] how many people were officially eligible for food stamps then subtracting those who in fact received food stamps.” (1) The absurdity of this methodology need not be elaborated on, but I’m going to do so anyways. I was recently unemployed and therefore eligible for food stamps. I guess I was going hungry every night without even knowing it! And this is how these things commonly go. Regardless of the motives, if you can find, or create a statistic, especially a shocking one, you have added a lot of substance to your argument. And if the subject of this statistic is sensitive, all the better. Who, after all, is going to criticize you for trying to feed starving people?

It’s not just that many statistics are derived from faulty methodology, like the previous example, often the conclusions a statistic supposedly reveals are drenched with logical fallacies. Common ones here include post hoc ergo propter hoc (since event b followed event a, event a caused event b). Or in a similar vein, assuming correlation equals causation. For example, life expectancies have gone up rapidly in the last century, which coincides with global warming. Thereby, global warming increases life expectancies. This one is obviously wrong, however, in other cases people will use statistics to come to just as egregiously incorrect conclusions; the only difference is they “sound” right.

With any correlative relationship, it is critical to look for what statisticians call the ‘lurking variable.’ In other words, an alternative explanation for whatever outcome took place. Take the fact that income inequality has increased in the United States since 1980 (there is actually some dissent to this view among economists, (2) and income stagnation is a statistical myth, to be discussed in the next entry of this series). Obviously, the increased inequality was caused by Ronald Reagan, the Washington Consensus and other politician’s decisions to liberalize the economy. Paul Krugman and Noam Chomsky have certainly said so.
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Was it really though? Immigration policies were also loosened drastically in the 1960’s, causing many more unskilled laborers to enter the country thereby depressing labor markets, especially at the lower end of the spectrum. Many more women entered the workforce as well. Given that men and women will usually marry people who are of similar education and income potential: i.e. typically an affluent man marries an affluent woman, a poor man marries a poor woman. When you put two high earners together (say $50,000/year) and two low earners (say $20,000), income inequality increases in real terms (the combined income is now $100,000 to $40,000 or the difference increases from $30,000 to $60,000), although percentage wise, it stays the same. (3)

Technological changes can bring this about as well. Musicians used to have a fairly safe profession. There were gigs all over the place. Then some asshole invented a way to record music and all of a sudden the celebrity culture was born. On the one hand you have Beyoncé and Justin Timberlake making tens of millions of dollars. On the other, you have some down-and-out garage band trying to sell CDs they burned at home, after a concert they played in some hole-in-the-wall bar on a Friday night to a bunch of disinterested yuppies. Innovation and technology are great, but they can create inequality, and we’ve had plenty of innovation in the last century. (5)

Finally, the degree to which our economy has been liberalized has been greatly exaggerated (see here and here). Government spending is actually higher as a percentage of GDP now than it was in 1979, (6) significantly undermining Krugman’s and Chomsky’s conclusion. But alas, a discussion on income inequality deserves another article entirely. The point here is that there are a multitude of factors that can influence any given statistic, poll result, trend or Gaussian bell curve. Even when the explanatory variable appears to describe what the statistic appears to show, be careful… Be very careful.

It is with that spirit that I will delve into an array of statistics many of us simply take for granted. Have incomes stagnated over the past 30 years? Do all fiat currencies hyperinflate? What is the real death toll in Iraq? Is the gap between the number of women and men going to college a major problem? Do women really earn only 75 cents on the dollar for the exact same work as a man? Should Roger Maris have had an asterisk next to his name for his record-breaking 61 home runs in 1961 (since broken multiple times, albeit with an assist from HGH)?

There are plenty of other statistics out there begging to be undermined. And feel free to email me if there’s a questionable one you’d like my two cents on. The point here is not to say that all forms of argument are flawed or that we can’t really know anything. This is not literary deconstruction applied to statistics.* The point is to emphasize that like theories and examples, statistics are fallible, very fallible indeed.

Mark Twain, as he so often did, put it best: “There are three kinds of lies; lies, damn lies and statistics.”**
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Lies, Damned Lies and Statistics Series
Part 1: A Primer
Part 2: Income Stagnation
Part 3: All Fiat Currencies Fail
Part 4: Iraq War Casualties
Part 5: Female-Male College Gap
Part 6: Male-Female Wage Gap
Part 7: Roger Maris’ Asterisk
Part 8: Women Do All the Work but Men Keep All the Money
Part 9: The BMI
Part 10: A College Degree is Worth One Million Dollars
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*Deconstructionists basically go through a document or argument and then try to play it against itself to prove it is actually self-contradictory. They do this in some inane attempt to prove that reality is a social construct and there is no such thing as truth or logic. Ironically, using logic to prove there is no logic is just kinda, sorta begging the question (hey, perhaps they’re using some sort of postmodern mysticism to prove there’s no logic).

Deconstructionists are typically leftists. They often reinterpret old texts to fit some political agenda. Deconstructionists can discover that a late 18th century book on basic economics is actually a series of logical contradictions designed to oppress the poor at the behest of bourgeoisie. Or a mid-19th century book on the science of botany is actually a social construct designed to keep women pregnant, barefoot and in the kitchen. Of course, we could then just deconstruct the deconstructions to prove that these leftist interpretations are actually a social construct. Then we could deconstruct the deconstructions of deconstructions to discover that the discovery that the leftist interpretations are social constructs is also nothing more than a social construct, reductio ad absurdum. In summary, deconstructionism is itself self-contradictory and is little more than uppity, elitist, intellectual nonsense.

**OK, British Prime Minister Benjamin Disraeli was the first to say this. But nobody cares who he is, so we’ll just go with Mark Twain.

(1) Thomas Sowell, The Vision of the Annointed, Pg. 45-46, Basic Books, Copyright 1995
(2) One dissenter to this view is Alan Reynolds of the Cato Institute. See Alan Reynolds, “Has U.S. Income Inequality Really Increased, Cato Policy Analysis no. 586, January 8, 2007, Cato Institute, http://www.cato.org/pub_display.php?pub_id=6880
(3) For a longer discussion on alternative causes for growing income inequality, see Brink Lindsey, “Nostalgianomics: Liberal economists pine for days no liberal should want revisit,” Reason Magazine, June 2009, http://www.reason.com/news/show/133222.html
(4) Annual Flow Report, March 2009, Office of Immigration Statistics, Department of Homeland Security, http://topforeignstocks.com/wp/wp-content/uploads/2009/08/gc-growth.JPG
(5) For a discussion on how technology can increase inequality, see Nassim Nicholas Taleb, The Black Swan, specifically pg 26-37, Random House Publishing Group, Copyright 2007
(6) Christopher Chantrill, “US Government Spending as a Percent of GDP,” US Government Spending.com, Retrieved 8/14/09, http://www.usgovernmentspending.com/index.php

So the Patriots give up 3 points to the team that would now place 10th on the all time list of highest scoring NFL teams in history. (527 points, or 32.9 points per game.) I mean, look at these stats:

- Points: 3
- Yards: 260
- 3rd Downs: 3/13
- Sacks: 4 for 31 yards

And one very key interception:

ESPN has the temerity to claim this was the "greatest defensive performance in Super Bowl history" based on the average points per game of the opponent during the regular season versus the Super Bowl (in this case, 29.9 points). 

On a side note, while this performance definitely makes a case for "best ever," ESPN doesn't even put the 2000 Ravens in the top 10. Ummm, ESPN, the Ravens defense outscored the Giants in that game 7-0. They also gave up only 152 yards and forced five turnovers. You know, what else could they have done?

Regardless though, it was an amazing defensive game. Which makes you wonder why Julian Edelman was named the MVP.  I mean sure, 10 catches for 141 yards is great. But can we give the award to someone on the defense that put up the "greatest defensive performance in Super Bowl history?"

Two candidates would be great:

-  Dont'a Hightower: 2 Sacks, 2 Tackles, 1 Pass Defended
- Stephon Gilmore: 5 Takles, 3 Passes Defended and that above, very critical interception

The Super Bowl really should have an Offensive MVP and Defensive MVP award like the Pro Bowl. And the League itself should have position awards like College; quarterback, running back, receiver, offensive lineman, defensive lineman, etc. Right now, the MVP just goes to the quarterback with the best stats on one of the top five teams.

Either way, even though he didn't play that well, Tom Brady (and his amazing potty mouth) are something else. Nice trips to the Super and six wins. That's more Super Bowl wins than Peyton Manning, Drew Brees, Brett Favre, Aaron Rodgers and Dan Marino combined. Unreal Tom, unreal.
 

My latest article for American Thinker is up and this one is on the "Feelings Checkers" who have come to blight our nation. Indeed, it's a topic I've written about before.

This time, I start with their "feelings check" of a good-ole Donald Trump (who is by every means a man who should be fact checked, as he does tend to say false things). But the way they treat him is utterly ridiculous. I start off with The Huffington Post's treatment of him during the election,

And then I go after CNN and Politifact. Check it out.