Maybe because I spend so much time working with numbers, I’m as interested in the process of statistics as much as in its outcomes.
More recently, I heard about Dick Morris’s claim that, “In the last five months, according to the Federal Reserve Board, the money supply in the United States has increased by 271 percent.”
271%??? Where did that implausible-looking number come from? Bill Peterson traced this to a 27.1% (note the decimal point) annualized rate of growth in M1 reported on a Federal Reserve website. So it sounded like a simple case of innumeracy (compounded by some partisan foolishness on Morris’s part that, I argued here, doesn’t do the Republican Party any favors).
But then an anonymous commenter wrote, “Dick Morris was referring to the Federal Reserve Adjusted Monetary Base which did, in fact, grow by a multiple between 2.5x-3x in the five months spanning October, 2008 through March, 2009.” The commenter provided a couple of links and concluded,
In short, Dick Morris is right and you are wrong. I believe it is called a cruel irony when you publicly mock someone’s intelligence only to find out subsequently that they are correct and you, well, you stepped in it.
I’ve made mistakes before and so it hardly shocked me that I got something wrong again! Apparently I’d been too quick to believe the Chance News entry that had gotten me started on this. In retrospect, it seemed pretty silly that I was so quick to trust the zero-budget Chance News while disparaging the well respected newspaper, The Hill (where Morris’s column had originally appeared).
At this point, I really wanted to see the “271%” so I could issue a full-throated retraction. Unfortunately (or, maybe, fortunately, in the sense that it led to this story), when I followed the links supplied by the commenter, I could not find a 271% growth in the money supply anywhere! Which led back to the original puzzle of where the number came from. Was it simply a mis-transcribing of the 27.1%, or was there something else going on?
I was reminded of a legal consulting project I once worked on, where the statistician on the other side had done an analysis which I had then replicated, getting completely different results. But I didn’t feel confident about my own claims until I tracked down how the other guy had done it wrong. It took me 2 hours to get the correct answer myself and to check it to my satisfaction [amusingly, I first typed “statisfaction” there], and 6 hours to get into the problem in enough depth to figure out what the other statistician had done wrong. (I bill by the hour so I remember these time totals. And, believe me, the other guy billed lots lots more than 8 hours to get his wrong answer!)
OK, back to Dick Morris’s 271%. The latest insight came from Robert Waldmann, who commented as follows:
I [Waldmann] think I understand how he missed the damned dot, overlooked the concept of “annualised” and decided to call a 271% increase “tripling” not “almost quadrupling”.
He mixed up H and M1. The monetary base has roughly tripled I think (and if I’m wrong well Morris is ignorant too).
If he didn’t know about money multipliers, the money supply process, fractional reserve banking and my mother’s maiden name (all equally certain) he might think this meant the money supply tripled. So he sends his long suffering research assistant to find the proof that the money supply tripled. The poor unfortunate guy came back with the number which Morris miss read due to the fact that “He puts ideology first and the [data] a distant second.”
This story has the ring of truth to it: the research assistant was sent to do an impossible task, and Morris’s ideology blocked him from realizing the mistake. (And, presumably, nobody edits his column at The Hill.) Interesting.
I remain ignorant regarding the money supply. One of the few things I remember from economics class in 11th grade is that “the money supply” is not well defined because of the presence of nonmonetary assets such as stocks, bonds, real estate, etc., as well as checking accounts and the like.
P.S. I’m still waiting for the anonymous commenter to come back to me with more data. I still think it’s possible that there’s a 271% in there (or, at least, “a multiple between 2.5x-3x,” as the commenter claimed) that makes sense and that I just didn’t know where to look.