Thursday, October 31, 2013

Sumner and Romer taught me all I need to know to prove anything

To prove fake causation select an unrepresentative sample. These two like to talk about what happens to specific examples of the economy, out of context, and thus learned much from the Great Depression.

So, easy to fact check, go to the NBER macro history and extract a true representative sample and find out what really caused the GD. I go there and think to myself, I have to set up my graphing and statistics software and I don't get paid, so screw it, I will pester a paid economist to do the work they are supposed to be doing.

But, I can do it in my head, and I have looked over hundreds of time series of the GD, and most of the changes happening in the spring of 1933 are most likely related to cheap energy.

When the Great Depression Hit the Oil Industry
The global oil industry faced a classic squeeze in the spring of 1933: falling prices and expanding supply.
This brutal dynamic would exacerbate the international tension and economic havoc already roiling the world's markets during the Great Depression. And it would help set the stage for a century of energy politics.

The world's oil producers blamed the U.S.
"In all the oil fields outside America, restriction of output is being enforced," the Economist wrote. But in the U.S., "the twin evils of over-production and illegal production" were preventing efforts to maintain prices.
Several American states mandated reduced pumping, and some operators' associations agreed to scale back. Other independent producers ignored restrictions, and in states where these producers were politically powerful, governments refused to act. Some oilfield producers pumped more to sustain their revenue, but they only triggered price collapses.
In 1932, U.S. heavy crude oil averaged 87 cents per barrel (about $12 today), and light crude averaged 82 cents. By spring 1933, heavy crude had fallen to 44 cents and light crude to 66 cents. Then the bottom fell out.

And, I might add, the continual, non stop road building the nation was doing added greatly to the utility of gas, as did the near complete expansion of boradcast networks.

So here is the complete theory:

In 1927, Hoover regulated the airwaves too soon and caused agglomeration of the broadcast industry before the transportation network was ready.  Roads became instantly clogged. The liquidity of radio broadcasting was an order of magnitude faster than the liquidity of money.  Roads 2 years behind radio, cities simply became parking lots, depression, low prices everywhere.  But everyone who cared knew the problem, that is why they built roads, standardized traffic systems continually, they knew what they were racing.

So, submit me to the test. Romer claims the wonders of gold caused us to buy light trucks in 1934. I have a a speculative bet, though I have glanced at the data. I bet that Romer must also explain how the wonders of gold caused us to sell  railroads simultaneously.

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