To The Point

Here Eugene Fama, the man who more or less invented the Efficient-Market Hypothesis, pithily defends it against an attack from George Soros, a famous hedge fund manager.

EFF: All the evidence I know says that market predictions are unbiased. It's understandable, however, that hedge fund managers are immune to this evidence since it's a threat to their existence.

Poor Debating Tactic

My least favourite thing to hear in any argument is 'your whole system rests on 'stupid assumption x, and thus any conclusion from your system can be rejected'. It is commonly heard in debating economics, in the form "well, economics says X, but economics assumes people are completely rational and self-interested, this is ridiculous, and thus X is refuted in favour of my theory".

Sometimes arguments like this make sense - some systems do have basic assumptions which render them invalid. But usually it is just a way of dishonestly avoiding argument, especially in arguments that have two characteristics to some degree:
a) You feel smarter than the person you are debating
b) You can't quite grasp their argument but as a consequence of 1), don't want to admit it. Thus you change the focus.

I was reminded of this when reading this Ayn Rand quote in an essay:

“[t]he entire apparatus of Kant’s system . . . [rests as] on a single point: that man’s knowledge is not valid because his consciousness possesses identity”

Perhaps unsurprisingly, Rand is wrong.

If You're So Smart...

Scott Sumner makes an excellent point:

Whenever I read opinion pieces by almost any macroeconomist— Keynesian, monetarist, new Classical, Austrian, etc, there is almost invariably a point where alarm bells go off. At some point the economist will make an assertion that seems to me to be in conflict with the EMH. And after that point I have trouble taking anything they say seriously. I keep thinking “If you’re so smart . . . ”

What Sumner implies is more likely is that the market is working from the same data as you, and it has priced in the probability of your predictions already. It's more than a little hubristic to think that you've figured out something that no-one else can understand.

Also, if you think you're aware of a weakness in financial markets, be it regulatory or just some failure of the market to price something correctly - why aren't you rich?! If you're totally confident of your model, before you tell anyone (or even after, if you don't think they'll believe you), use it to make money! Whether or not you actually do this, I think this is a good internal confidence check, and perhaps you should use the results to determine how strongly you advocate for your desired remedy.

Update: Arnold Kling responds, saying that Sumner presents a false dichotomy between believing in the EMH and being rich:

But one can believe that the markets are wrong and still not get rich. The markets can be right. Or, the markets can be wrong in ways that you did not expect. As an investor, the prudent approach may very well be to act as if markets are efficient. Load up on those stock index funds and those inflation-indexed Treasury securities, and be done with it.

Surely if you consistently bet that the markets are wrong and it turns out they're right, you should reconsider the EMH! If the market is wrong in ways you did not expect, then unless someone expected it, that isn't necessarily an argument against the EMH. It may have been that whatever information the market needed to make the correct call just wasn't there. The EMH doesn't mean that markets are omniscient, simply that they price all available information. If Barack Obama abolished lending at interest, the markets would plunge. This wouldn't be evidence against the EMH.
I also don't think that the market has to be perfectly efficient for Sumner's point to stand. If the market were arbitrarily or randomly inefficient, demonstrating this still wouldn't help you make money off it.

Here's a thought: if it became common knowledge that the market was informationally inefficient in some systematic way (animal spirits, etc), would the market price that and cancel it out? Is the only thing precluding us from a more efficient market a lack of scholarship?

Should we have higher taxes in the long run?

At the Financial Times website they are running a cool feature - lead writers will pen pieces on this topic and readers are encouraged to leave comments. The best comments will be brought up into posts. When I have read a few more of the posts I will add my thoughts.

Check it out here.

Dead Men Tell No Tales

This is not actually true. These dead men continue to tell much in way of tales through their work even hundreds of years after their deaths.
Brian Leiter ran a poll on The 10 "Most Important" Philosophers of the Early Modern Period:

1. Immanuel Kant

2. David Hume

3. Rene Descartes

4. John Locke

5. Gottfried Leibniz

6. Thomas Hobbes

7. Baruch Spinoza

8. George Berkeley

9. Adam Smith

10. Francis Bacon

Thomas Reid was 11th, Blaise Pascal 12th. Henry More languished at 27th. Full rankings here. Rousseau was accidentally left off the list, I suspect he would have performed well, even though I am not a big fan of his.

I personally would have rated Adam Smith higher in influence than "tree in the forest" Berkeley, "God is everything but also looks a lot like nature" Spinoza and "the world is the best possible and also made up of tiny monads" Leibniz. Supply and demand certainly isn't as wacky and interesting as all those other ideas, but it appears to have lasted somewhat longer and been more influential. I also would have picked Hobbes to one-up Leibniz, if not Locke. I suspect I have a political philosophy bias however.

More to the point, the question was who was the "most important", so other criteria like influence on other philosophers at the time would likely complicate things more than I am really capable of assessing. Perhaps the answerers were also sceptical of conflating philosophy with economics, even though at the time this was the done thing. In this case Smith looks decidedly less impressive, although his more philosophical ideas have been getting some play from highly reputable sources of late.

Anyway, congrats to Kant.

Nude from the ankle down

In searching for a picture for my previous post, I came across an article from the Orlando Sentinel, about an apparent fashion of going barefoot in situations where it used to be inappropriate.
The picture attached to the article is a man talking to a class in bare feet - the caption:

UCF philosophy professor Mason Cash, a native of New Zealand, brought the tradition of going barefoot from his native country.

Initially, I thought this was one of those clichéd examples of Americans not knowing much about foreign cultures and making slightly racist faux pas. Perhaps they are confusing us with the hobbits from Lord of the Rings. But later on:

In his fifth year at UCF, Cash is originally from Gisborne, New Zealand, where people donning shoes are in the minority.

If he's from Gisborne, that probably explains it. Although to be honest, even in sunny Gisborne it's surely not more than 50-50. However he is a philosophy professor, so the subset of philosophy professors from Gisborne has probably quite a high incidence of bare feet.

Student's Re-Distribution

Although most associate them with advocacy, the biggest function performed by student unions in New Zealand is redistribution of wealth, and for the most part not very well or fairly.

In 2002 (the last available online figures) the Victoria University Wellington Students' Association (VUWSA) spent a paltry $3000 on organised advocacy, while spending, for example, over $100,000 on funding clubs and another $163,000(*) on providing them with a free place to meet in the Student Union Building. Many of these clubs charge membership fees already. While the union is busy complaining how poor we students are, only just over $20,000 went to helping needy students with food banks, etc, making up about a quarter of a percent of VUWSA's budget in 2002.

Is there any good reason for wealth redistribution within students?

There doesn't seem to be a prima facie reason to fund clubs. Perhaps there is a small positive externality to the rest of students from having a successful sporting club at a university. I suspect the overwhelming majority of the benefit goes to students that are actually members of the club; most people surely realise that Conrad Smith playing rugby at OBU doesn't mean I'm any good. Furthermore most clubs clearly have no demonstrable benefit to the rest of the students - a popular (to use) example is the sci-fi club, who appear to watch science fiction and eat pizza. I can confirm the existence of this club as I have seen their signs in the Student Union Building, although I cannot confirm their activities. But it seems that such clubs (even if this one has had its functions exaggerated) have entirely private benefits, and there is no reason to force the rest of the students to fund these individual pursuits.

What about redistribution towards disadvantaged groups? This doesn't appear to fit in with the 'all students are poor' narrative of NZUSA and the local student unions - it would be like complaining the unemployment benefit isn't big enough, and thus instituting a tax on minimum wage earners to pay for it. However if we accept that some students are reasonably well-off (as we should) it doesn't seem that unreasonable. Most university students do come from advantaged backgrounds and can afford to pay. However, even if disadvantaged students beg every week, they are unlikely to eat over $100 of free bread from the VUWSA food bank, which is what they pay in fees. Consumption of welfare services isn't means-tested but based on want - those who show up get the food, no questions asked (I understand). Presumably there is a correlation between need and want, but it seems there are going to be plenty of other factors involved - how much free time you have, whether or not you know the people in the student union, whether or not you feel accepting handouts is below you, etc. None of these seem obviously proportionally related to how much you actually need the transfer, and in the case of free time, there is probably an inverse relationship, or a correlation with prosperity! This seems like a highly inefficient way to help poor students, especially compared with the Government's ability to do so through allowances and loans (whether or not you think they do so sufficiently at the moment).

If student unions truly cared about students they would abolish all intra-redistributory funding. The best way to help students would be to give them the majority of their union fee back and let them buy their own food, pay for their own clubs, and choose their own representatives.

There are other roles that student unions perform, the highest-profile being advocacy for lower fees. I plan to write on this later in the week. Also yes, the title is a statistics joke. Joke broadly defined.

(*) This also provides offices for the student magazine and VUWSA themselves.

Ahmadinejad the Anti-Colonialist

The President of Iran Mahmoud Ahmandinejad recently caused a bit of fuss at the UN summit on racism. The charge: anti-semitism, which should apparently have no place at a multilateral discussion of this kind. The speech was called "vile and hateful" by Washington and "unsavory" and "obnoxious" by the UN High Commisioner for Human Rights. Even the mild-mannered Ban Ki-Moon found it "very troubling", displaying the kind of understatement befitting the world's top diplomat.




I take issue with the universal condemnation of Ahmadinejad. Though I agree he is no saint, much of the vitriol directed his way seems to be motivated by a one-eyed support of Israel which I believe is a monumental stumbling block to progress in the region.


Let's have a look at some of things he actually said:

Following the Second World War, they resorted to military aggression to make an entire nation homeless under the pretext of Jewish suffering...In fact, in compensation for the dire consequences of racism in Europe, they helped bring to power the most cruel and repressive racist regime in Palestine.

Not the most tactful use of language I agree. But of course, this is deliberate. The atrocites perpetrated against Jewish people in the second world war and throughout Western history are indeed horrific. But I sympathise with the hundreds of thousands of Palestinians who were forcibly ejected from their land and remain oppressed to this day. They would surely feel like they are innocent victims of historical redress, and slaves to a colonial power which continues to deny them autonomy.

This is a highly contentious point, but I believe it is defensible. But the Western extablishment seems unwilling to peer beyond their partisan support of Israel to at least consider this contratrian view. I have little time for this sort of empty condemnation, which serves only to alienate Iran and polarise discourse on the issue.

Furthermore, check this out:

Ladies and gentlemen: What are the root causes of US attacks against Iraq, or invasion of Afghanistan? Was the motive behind the invasion of Iraq anything other than...to expand their sphere of influence, seeking the interest of giant arms manufacturing companies, affecting another culture with thousands of years
of historical background, eliminating potential and practical threats of Muslim countries against the Zionist regime?

This is nothing more than a version of the standard liberal critique of Bush foreign policy. But Ahmandinejad said it. So it must be obnoxious and vile I guess.

Israel has been vigourously defended and protected for more than sixty years years now by a Western orthodoxy that fails to acknowledge the scope of the problem and the multiplicity of blame for the deadlock. It is time to seriously consider voices from the other side. Ahmandinejad is no crackpot, his ideas truly represent a legitimate narrative of the middle-eastern tragedy.

Sultry New Look

If you are reading this in RSS, you will not have noticed that I have changed the template of the blog to create what I hope is a seductive, fresh new look. Future changes may be coming over the next few days.

Shephard Smith drops the F-Bomb

And a flippin' good call it is too.




Via Andrew Sullivan.

Coercion (longish)

Paul Walker's excellent response to a previous post of mine was structured along the following lines - even if private property is an interruption of liberty (which I argued it was) it still leads to more total liberty. Thus someone interested in maximising liberty should still support it (to what extent?).
I responded that it is necessary to distinguish between maximising liberty and maximising good consequences. But of course for this we need a more rigorous definition of what constitutes liberty. The whole 'positive and negative liberty' debate is pretty heavily done, so I thought a fresh approach would be to focus instead on its antithesis - coercion.

What does it mean to be coerced? Consider three situations.

The Robber: Harold keeps all his money in a safe at home (perhaps because he expects deflation). Robber Robin breaks into Harold's house, and threatens to shoot him unless he unlocks his safe and gives him all his money.

The Slave: In a slave-owning society, a particular slave is whipped every day without fail. One day his owner says to him that he will stop the whipping for one day if the slave goes to fetch a pail of water. This example was invented by Robert Nozick, who you may have heard of in another context.

The Debtor: Bill lends his books to Ann but then he needs them back. For some reason, Ann refuses to return them. She then hears about a particular concert she wants to attend, and suggests to Bill that he can have the books back if he buys her the concert ticket. This example comes from Timo Airaksinen.

Broad Concepts
Here's a basic descriptive idea of coercion. There are other theories than descriptive ones, we'll cover those shortly. Imagine you have two agents, A and B, with B the dominant agent. Only actions Q and R are open to A (although R may constitute 'doing nothing', or 'not doing Q', or some variant).
A is coerced to Q iff:
1) B threatens A to perform Q, perhaps by imposing negative consequences for A if he/she performs R
2) In light of 1), A strictly loses when performing either Q or R
3) B gains from A performing Q.

By these broad concepts the robber is obviously coerced, and it seems like the debtor is also coerced. But is the slave? It seems that the owner is not threatening to do anything. If anything, he's promising something good for the slave. Rewarding people for good behaviour doesn't seem like coercion. You might respond that a lack of punishment isn't quite the same morally as an actual reward. This may be, but a potentially more powerful response comes from splitting into normative and descriptive coercion theories.

Normative and Descriptive Coercion Theories
The distinction between normative and descriptive coercion is first found in Nozick(1969). Normative coercion theories state that whether or not someone is coerced can be determined by appealing to morality - whether or not their human rights have been violated. So you aren't coercing someone to do something if you have some right to make them do it. Descriptive theories are those that rely purely on empirical evidence - we can determine whether or not coercion has occurred by deciding whether the victim was under some form of psychological duress or something similar. Nozick supports the concept of normative coercion (as an accurate description, not as a hobby!) but some modern philosophers differ.

Under a normative framework, Nozick argues that the slave is in fact coerced - because his human rights are violated. Likewise with the other two examples. He argues then that the normative explanation is a better one for helping us understand coercion.

There have been responses to this position and it is far from concluded. See, for example, Airaksinen(1988) and Carr(1988) (1988 was a good year for coercion!).

However I want to conclude with an application. Is taxation coercive? Under a descriptive framework it seems only coercive if the taxpayer loses from paying tax. If you are better off after paying your tax (and receiving the benefits of Government services, if any) you wouldn't need to be coerced into paying your tax - the fact that you are threatened seems irrelevant. In a descriptive sense it seems then that the only people who are coerced into taxation are those people (if any) who lose out from the Government taxation.
Does it matter if you're mistaken about whether you will benefit?

Under a normative framework it becomes more opaque. Does the Government have a right to tax you? That is the classic question of political legitmacy and redistributive justice, and I will not touch it here. However (and as Nozick correctly realised), what a normative model of coercion does for us is show that with respect to taxation, in order to show it to be coercive we have to engage with arguments of distributive justice. Nozick went on to attempt to do this in his famous book, but I feel many libertarians are content to assume that a threat equates to coercion, in any situation (and is thus wrong). This, I believe, is unsupportable.

Update: Sorry for any RSS readers that might have got to read this twice, but because I started writing this a few days ago it came up buried towards the bottom of the page, which was unhelpful. Thus I re-posted it.

Update 2: Brad Taylor responds here.

Sticky, Yet Efficient Wages

At Not PC they argue that labour markets always clear, and that the only reason they are not right now is because of Government action. They link to a paper which basically gives a supply and demand analysis of the labour market, which obviously backs their conclusion.
Government action does not help, but there are plenty of persuasive reasons why labour markets might not clear, aside from union agitation and ill-considered regulation.

Consider, for example, what is called efficiency wage theory. This is predicated on the relatively simple notion that productivity is in many cases causally related to wages - as your wage goes up you work harder (c.f. the other way around). This might be because it encourages workers to stay thus reducing transaction costs for the employers, because it reduces adverse selection, and so on. This means that when setting wages, firms not only have to consider the quantity of labour their wages will attract, but its quality. So long as the marginal cost of declining productivity is greater than the marginal benefit of hiring more workers, firms will pay at above market-clearing wage rates.

This might not happen all the time. But it is at least a plausible explanation for why the labour market might not always clear.

Here is a book on efficiency wage theory, available online and including a chapter co-authored by Joseph Stiglitz.

GM Food and the Greens

At Frogblog, frog says that:

GE crops are no where near to delivering on their promise...
And we want to bring these genetic failures onto our shores? For what purpose? To what end? If conventional breeding technologies are far outstripping genetic technologies, are cheaper and more readily deployable, why should New Zealand go down this path at all? It’s not like we’re world leaders or anything like it. Keep it in the lab, I say!

If so, then why do are we even considering banning it? If it doesn't work, surely nobody would want it?

Or are big corporations only self-interested when it suits you ideologically?

PS: I am writing a longer post on the philosophy of coercion which I will publish in the next few days, but it is taking longer than anticipated.

Prison Privatisation Fallacies

I have been meaning to discuss this for a while.
At Frogblog, Metiria Turei wrote a relatively long post proclaiming that 'Private prisons are not cheaper'.
She argues that the cost of running the prisons is relatively similar whether they are run publicly or privately, and because private prisons must return a profit, they will provide an inferior service.

With respect, I don't think Ms Turei understands how the tender process works. If private prisons are providing a poorer service at the same price, they simply won't get the tender. As I understand it Corrections will still be competing for the tenders so unless the Government simply fail to do their research (which musn't be discounted) it is impossible for things to get worse. This is something to keep in mind when told how much more poorly private prisons are run. If this is actually the case then under National's scheme they will cease to exist. In this light, I don't see what the problem is.

For the record, of all the cases for privatisation, prisons seem to be one of the weakest.

Private Property and Liberty Maximisation

Nor again, can even the enforcement of contracts be fairly said to be a realisation of freedom; for a man seems, strictly speaking, freer when no one of his volitions is allowed to cause an external control of any other.

Henry Sidgwick, in The Method of Ethics.

It is often assumed by defenders of largely unregulated private property that theirs is the system that takes liberty the most seriously - indeed the system with the most freedom of agency. On the other hand, some are pure consequentialists and are ostensibly disinterested in liberty except as a tool to maximise utility. However most are not, and even those who claim to be often use highly loaded language with respect to their positions, perhaps revealing non-consequentialist intuitions. Milton Friedman for example claims to be a consequentialist libertarian (here, 1:45 minutes in,) however, for example, his most famous book is called Capitalism and Freedom (as opposed to, say, 'Capitalism and Happiness'). This is to me hardly the mark of a pure consequentialist. That is a topic for another post, however.

However I think many people forget to consider the flip-side, that private property is in itself a highly coercive institution. This is highlighted in the Sidgwick quote given at the start. Consider two situations. In Country A, the Government passes a law prohibiting people from boarding trains on Sunday. This is obviously a restriction on people's liberty, presuming that they were choosing to board trains on that day previously. In Country B however the Government is more laissez-faire and makes no such law. Despite this, the owner of the trains decides that in accordance with his religious principles, his trains will not run on Sunday.
From the perspective of the passengers of the train, the situation is identical (assume that the citizens themselves have identical demand for the trains between the two countries). They would like to ride the trains and are unable to do so because someone has told them that they cannot.

It seems to me that it is inconsistent to claim that one of these situations is an abrogation of liberty and one is not. Perhaps in B less liberty is violated, because in A the Government places restrictions on both the customers and the owner, while in B only the customers are so restricted (as the owner is free to sell tickets whenever he likes). However my general claim (and also Sidgwick's) if were actually concerned with the maximisation of individual liberty, we would not support the institution of private property. Indeed the very principle of private property is that the owner of the property is permitted to restrict the liberty of others to do what they want with it! The case can be drawn even more clearly by considering ownership of land. Are we really expected to believe that it makes a difference to liberty whether an individual or the Government tells us not to travel on a particular area of land?

The key thing to draw from this is not that we should abolish private property, it that there are such things as legitimate restrictions of people's free choices. I believe private property to be clearly one of them. Thus the goal of liberty maximisation is a misguided one, at least as it is crudely understood by many. This is hardly a killer blow to libertarian philosophy - for example Robert Nozick was one of the most vociferous critics of the idea, critiquing it as a 'utilitarianism of rights'. But we should be sceptical of, dare I say it, the Ron Paul libertarians, who claim to opposed to the initiation of force in all circumstances, but in supporting private property support one of the greatest initiations of force there is.

Update: Edited the post slightly for clarity.

Money for Votes

David Farrar has some statistics of advertising budgets and votes received from the last general election. Like any young male, I immediately thought that some statistical analysis would be informative. At risk of turning this into an all stats, all the time blog, here are my musings.

Below is the plot of all parties, sauf the Bill and Ben party and Legalise Cannabis. B&B would skew the stats because unlike many of the other parties they host a popular TV show, and Legalise Cannabis (to my knowledge) are more of a single-issue lobby group than a political party, so perhaps don't target actual votes with their advertisement in quite the same way as the others.
There's not much to see here. Unfortunately the data is so spread out that it's difficult to make any conclusions. The r squared for the linear regression seems to be pretty high, but that must be because of the lower values, because visually the residuals look pretty large for the more successful parties other than the one the trendline is jabbing in the middle-right, which is Labour.

This is basically just the minority parties - by which I mean super-minority, i.e. not even in Parliament (or barely, as with the Progressives and United Future). There is a much clearer linear correlation here. It's been said, but correlation doesn't imply causation. But it is clear that higher spending is pretty well correlated with higher votes. A lot of people just plainly assume that money buys votes, hence why we need equalised political funding, control on donations, or what have you. I tend to think that people are a bit more rational than that, and that a better explanation for this data is that people tend to donate to the parties they vote for.

In case you're too impressed by my high R squared values, I'll finish with this graph.

Correlation is easy to get.
Incidentally the maximum of this graph is visible on the chart, it is at (2.87,1.56). This means that (according to my perfectly correlative model) the optimal amount of spending is $2.87m, and it will get you 1.56m votes, which at the 2008 election would have seen you earn 67% of the votes.
I can't believe I'm giving this stuff away for free.

The Joyful Plague

Via Kids Prefer Cheese I have come across this informative diagram. 'The Gay Plague' makes AIDS sound fun, in a kind of 1930's way. I still prefer Flight of the Conchords' 'fun monkey disease' however.

In other news, this girl(?)'s parents and teachers are preposterously incompetent. You read about it but it still surprises to see evidence that this sort of thing actually exists.

Update: Brad Taylor in the comments points out that it is photoshopped. Phew. I guess it is too easy to become inured to failings of American education. With hindsight I guess that is pretty obvious.

Jawboning for Jesus

Via Overcoming Bias I learn of a cool new website called Wrong Tomorrow. It essentially tracks predictions made by pundits and judges whether or not they come true. Sounds straightforward, and perhaps a good way to increase the cost of poor predictions, increasing the overall quality of predictions.

The best prediction on the site is definitely high-rolling televangelist Pat Robertson's.

"The Lord said the dollar is going to go down dramatically, and when all this happens we will begin to have what is known as hyperinflation...If I'm hearing him right, gold will go to about $1900 dollars an ounce and oil to $300 a barrel."

Now it may well be that God provides Pat Robertson with commodity price forecasts. Call me sceptical, but I would be interested however to know Robertson's financial portfolio, in particular his position (if any) on the price of these goods.

It seems that this sort of thing wouldn't be too hard to do. All Barack Obama would have to do would be to go massively short on oil, then announce a $500b plan to make solar cars. Obviously others before me have thought of this, which is why political figures in the US release their personal financial dealings and positions for public scrutiny. But it seems that influential figures with little to do with financial markets like Robertson manage to slip through that net.

Note: Jawboning is generally used only with respect to Governments and central banks trying to manipulate prices in an economy. My title is therefore incorrect, but my ability to generate alliterative witticisms is weak enough as it is, so I should probably take what I can get.

Modelling Facebook Growth

Interestingly, a few months ago Facebook passed Myspace in terms of popularity. Bebo is a distant third (or worse, as I only included 3 sites in the search). This graph tracks unique visitors to the site rather than users, but I think this is still a useful measure of popularity, and probably directly proportional to the number of users in any case.

Facebook growth, while high, is relatively linear, which is interesting because it seems intuitively like growth (positive and negative) for social network sites should be a textbook case of an exponential relationship. Think about it - you are more likely to use a site if your friends use it (because that's the point), so the amount of new people joining should be proportional to the amount of people that are already there (which is a key characteristic of exponential growth, or decline). Assuming that most of the people that sign up to Facebook actually have friends.

Is there a way to salvage my hypothesis? Perhaps the function is logistic, and the market is near saturation. But Facebook increased its hits by 159% in the last year, which would probably not be characteristic of such a function (*).

I guess the analysis is just too simple at one factor. Perhaps we could say that these factors influence someone's decision to join a social network.

1) The amount of friends you have that use it
2) Your level of technological literacy
3) Whether or not you have regular access to a computer
4) The amount of spare time you have (**)
5) The amount you actually like your friends and want to catch up with them via the internet

So as we see a general increase in 2) and 3) we should also see a general increase in social network users.

Am I missing anything? For the record, I use facebook, because all my friends do.

(*) Because this graph refers to hits, it could be that facebook's recent newsworthy actions increased its hits without increasing its users. But I don't think that most people read a news article and then immediately try to get to the primary source, even if it is readily accessible.
(**) Or are willing to make, provided your work computer doesn't block the site...

Historical Data Tells The Tale

Interest.co.nz is a very popular and useful website with all sorts of useful info on it. They also have pieces written by various different authors.

This recent one is written by Philip O'Connor, a senior lecturer a Auckland University. As a mere student at Victoria University, I certainly hesitate before criticising him. However, I don't think this piece is very good, and it's not just because he spelt 'intuitive' incorrectly on his graph.

The good gentleman provides us with a graph of house prices and variable mortgage rates between 2003 and 2005. He argues that the high level of correlation (r=0.79, we are told) implies that there is a link and that house prices will fall as interest rates continue to drop. Obviously this is of crucial interest to those who own houses, or plan to. But the time period he analyses is very short, so I thought it would be interesting to expand it out a little bit.

In the brief time I have between studying (honestly) I couldn't find the data he is using, but I did find house prices and variable mortgage rates on the stats nz website and the rbnz website respectively, for the years of 1985 - 2003.













My hastily knocked together graph is far less pretty, but it seems to show that over a longer period of time, we observe the opposite effect of what the article suggests. This is obviously the 'intuitive' sense the author rejects - the idea that as mortgage rates rise, the cost of borrowing increases, so demand for houses goes down, and so does price. That sort of inversely proportional relationship seems to be roughly what we see here. There's certainly no way you'd get a positive r value from this bad boy.

Matt Nolan makes similar arguments.

(*Notes*) I indexed my graph, giving the first year (1985) a value of 1000. The data points were in different frequencies, which is why one came up as a line and one as dots. There may be a way to fix this, but all I have on my laptop is Excel, and it seems resistant to reason. Perhaps I will throw together a better one at uni next time I am in.
I certainly couldn't tell from the data if the house prices were inflation-adjusted, doing so might flatten them out somewhat. I don't suspect it would make them turn downward however, at least for the most part.
Update: I'm also having some formatting problems with ugly little squares showing up around the graph, but I'm not down enough with my HTML to solve this. Hopefully it is just restricted to firefox users, but if it isn't, please try to ignore them :)