Monday's Top 10: Kirdan Lees on tweeting economists, happiness indices vs GDP, Janet Yellen, US fuel efficiency, GDP flaws, optimal immigration, Dilbert & more

Monday's Top 10: Kirdan Lees on tweeting economists, happiness indices vs GDP, Janet Yellen, US fuel efficiency, GDP flaws, optimal immigration, Dilbert & more

Today's Top 10 is a guest post from Kirdan Lees, principal economist at the New Zealand Institute of Economic Research.

As always, we welcome your additions in the comments below or via email to And if you're interested in contributing the occasional Top 10 yourself, contact

See all previous Top 10s here.

1. NZ Economists go nuts on twitter
but does man or machine do better on picking retweets?

Last week the New Zealand Association of Economists ran their excellent annual conference in Auckland.

Way more tweeting at the conference than in past years, and a sweet after dinner talk by Bernard Hickey on the role of media were highlights.

That got me into the always excellent New York Times on whether big data and machine learning algorithms can outperform mere humans on picking what gets retweeted.

It might not help economists write better tweets but the bottom line:

The end result is an algorithm that guesses well. It can guess which tweet gets retweeted about 67 percent of the time, beating humans, who on average get it right only 61 percent of the time.

It must rely on a few crude features, such as length of the tweet, the presence of certain words (“retweet” or “please”) or the use of indefinite articles. Yet with so little, it does so much. This is one of the miracles of big data: Algorithms find information in unexpected places, uncovering “signal” in places we thought contained only “noise.”

2. Researchers none too happy about the use of happiness indices instead of GDP
Kevin Lang and Tim Bond have an intriguing article at voxeu that talks through just how hard it is to draw conclusions from self-reported happiness measures rather than GDP.

That’s important since many economists, like Diana Coyle for example, are pointing out flaws in using GDP and suggest using alternatives.

Say you ask people to rank their happiness as either: “very happy” (2), “pretty happy”, (1) or “not too happy”, (0). Turns out your assumption on the underlying distribution that underpins people’s responses really, really matters.

Assume happiness is distributed very widely across people that aren’t that happy, but narrowly for people that are broadly happy (left-skew), and New Zealand is the happiest country in the world.

But if there are large differences in happiness across people that are happier than average (right-skew), many of the rankings are reversed (New Zealand plummets in the world happiness rankings).

In their words:

Self-reported measures of happiness are growing in popularity as alternatives to GDP. This column presents a novel statistical critique of the validity of comparing such measures across groups. Since monotonic transformations of individuals’ happiness levels can reverse average happiness rankings between countries, no meaningful comparison can be made without assumptions on the distribution of happiness.

3. Yellen says lifting interest rates not the right approach to tackling asset price bubbles
Last week Janet Yellen laid out her thinking on what macroprudential policy should do and what monetary policy might be expected to do.

The comments come hot on the Bank of England’s announcements on setting up “firebreaks” so high loan-to-income lending – above 4.5 – cannot be more than 15 percent of new mortgage lending.

Yellen’s three key points:

- critical for regulators to complete their efforts at implementing a macroprudential approach

- policymakers must carefully monitor evolving risks to the financial system and be realistic about the ability of macroprudential tools to influence these developments

- no simple rule that can prescribe, even in a general sense, how monetary policy should adjust in response to shifts in the outlook for financial stability

4. Larry Ball counts the costs of the GFC on the OECD one country at a time
Larry Ball has a nice article that looks at the costs of the GFC across the OECD.

He measures the cost of the GFC on potential output –“the normal level of production given the economy’s resources and technology.” Normally, after a demand driven recession, interest rates fall, induce spending and output returns to potential.

But the GFC has scarred the ability of many economies to produce goods – for example, through skills that atrophy over long periods of unemployment. Ball compares OECD and IMF measures of potential output.

New Zealand lies south of many European countries but our potential output – that will never be recovered – has been hit hard. I’ve graphed below New Zealand’s position compared to OECD peers.

Whereas textbook macroeconomic theory suggests that output should return to potential after a recession, there is mounting evidence that deep recessions have highly persistent effects on output. This column reports estimates of the long-term damage caused by the Great Recession. In most countries in the sample, the loss of potential output – 8.4% on average – has been almost as large as the loss of actual output. In the countries hit hardest by the recession, the growth rate of potential output is much lower today than it was before 2008.

5. Time to build … more US public infrastructure? Paul Krugman thinks so
So if the output costs of the GFC are high, digging into the story behind the smackdown in potential output across the OECD looks like a good idea.

Krugman’s line: lots of labour lying around makes it a great time for the government to get out and spend on public infrastructure projects. Sadly for the US, ideology and politics seems to get in way.

At the New York Times, Krugman points out:

... the aftermath of the bursting bubble was (and still is) a very good time to invest in infrastructure. In prosperous times, public spending on roads, bridges and so on competes with the private sector for resources. Since 2008, however, our economy has been awash in unemployed workers (especially construction workers) and capital with no place to go (which is why government borrowing costs are at historic lows). Putting those idle resources to work building useful stuff should have been a no-brainer.

6. Five reasons cars in the US are more fuel efficient than ever
Better fuel economy is great. Saves us money, reduces reliance on oil and help reduce climate change. Vox have a great article that charts (see below) the improvement in US fuel efficiency. They put the improvement down to 5 key reasons.

New cars and light trucks sold in the United States now get around 25.5 miles per gallon on average — far above levels from five years ago:

1.       High oil prices and stricter standards are pushing fuel-economy up

2.       Smaller cars are regaining market share from SUVs and pickups

3.       Hybrids are growing — but tweaks to the combustion engine are still a huge source of innovation

4.       Cars are no longer getting heavier — and that's a major shift

5.       Every automaker is making cars with better fuel economy — not just Japanese companies

Our Ministry of Transport puts up some useful stats on the New Zealand fleet here.

7. Many more jobs in the US labour market
Since the peak of the crisis, the US job market has been going nowhere. Unemployment soared but then improved – but only because workers became so disenchanted with the lack of opportunities they exited the workforce altogether.

This all matters – both for the workers but also for monetary policy – the Fed has tied stimulus closely to the state of the US labour market.

But Ben Casselmans, at fivethirtyeight shows the market has turned for the better:

But in recent months, something has changed. On Thursday, the Bureau of Labor Statistics reported that U.S. employers added 288,000 jobs in June and the unemployment rate fell to 6.1 percent, its lowest level since September 2008, the month Lehman Brothers’ bankruptcy sparked a global financial crisis. The U.S. has added 1.4 million jobs so far this year, making it the best half-year since the recession ended. Payrolls are up by 2.5 million over the past year, also the best mark of the recovery.

8. Seasonality and data revisions mean GDP doesn’t matter much for business cycle analysis
“Growth” in the US economy from the start of the year to the end of March just got smashed in the latest set of revisions by the Bureau of Economic Analysis.

The economy shrank 2.9 percent after the BEA said in April the economy grew 0.1 percent. Turned out the winter was really, really bad but often the seasonal factor is quite large (see figure below). As Stephen G. Cecchetti and  Kermit Schoenholtz point out, GDP gets trumped by other data sources for real-time business cycle analysis:

In reality, these headline growth numbers simply don’t contain all that much information for real-time business cycle analysis. There are many reasons, but two deserve special attention: (1) the statistical noise created by seasonality; and (2) the propensity to revise GDP many years after the period being measured.

9. 2,002,052,035 – Optimal number of immigrants for the US
John Cochrane has a nice post on the optimal number of migrants for the US. Interesting for NZIER since we think New Zealand could do with lots more people given the types of people that want to come to New Zealand right now.

John Cochrane’s view, it’s the wrong question. Set up the dynamics that mean you get the people you want and then the market will decide the numbers:

Let’s talk about the deal, not the numbers. For every objection to open immigration, it’s easy enough to find terms of the deal to resolve the matter. The right terms will allow the optimal amount of immigration to settle itself, so that no apparatchik in Washington has to come up with a number. Once we get the terms right, every person who can benefit our society will come, and America will truly be a great nation of great immigrants again.

10. Brazil, Brazil, Brazil
Nate Silver is incredibly talented and probably lucky too – picking 49 of 50 states in the 2008 US Presidential Election.

When he lays down his thinking on the probabilities of different events people tend to listen.

His pick for the football World Cup? Brazil all the way - and the bookies are underpricing their chances.

Looking for a World Cup favorite? All you really need to know is this: The World Cup gets underway Thursday in Sao Paulo, and it’s really hard to beat Brazil in Brazil.

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Jeez , where does America find these  unorthodox Central bank Federal reserve Charipersons? 
Have they all gone nuts ?
First Bernanke , now Yellen.
There are the people who print money to flood the market , are too scared to let banks fail , which in turn  removes the  risks for the banks and  enable reckless practices
Dont they know that if you want to avoid bubbles and  reduce demand for expensive assets , you need to increase the cost ?
Interest rates and restrictive lending is the only way to achieve this  

Shows a) your blinkers and b) your ignorance, c) bias to what ever voodoo economics you adhere to. 
They are both fairly conventional keynesians actually. 
Do you like to eat?   If you let a major US bank fail then you will take down the entire Global banking system in 2 ~ 3 days as inter-bank lending stops and the system freezes up.  Here in NZ we'd probably see OZ banks struggle and then ours.
The rest of your posting is frankly so misguided I dont know where to start in trying to point out why.

Steven - the global banking system (mainly the USA) is enmeshed in an inter-connected mess of $650 Trillion of derivatives hanging over its head - it should never have been allowed to get there, but it has
It's the unwinding of those derivatives that the central bankers are desperately avoiding - in their desperation to avoid that they are simply playing blobs and compounding the problem
It has nothing to do with conventional day-to-day business banking, and more importantly, nothing to do with Keynesian economics
So the question is this - what would your solution to that problem be

Carry on business as usual, I mean it has worked well to date so will keep working right?
The real solutions are so unpalatable that they won't happen.

Agree on the Derivitives but that isnt where Im thinking.  That is really a sledge on a nut.
Really we step back to Greenspan and his "puts", he carries the blame.  So can it be solved?  I dont know and the US Govn/Congress lacks the will anyway ie to solve it in 2008 the US needed to Natiuonalise all the banks and [re-]enact the previous legislation put in after the 1st Great Depression.
Conventional day-to-day, I dont agree here with you, from what I can read if some of the big US bans were allowed to go under then the entire global system would freeze over and that includes NZ banks.
The actions being undertaken are really pretty Keynesian in nature, ie stimulus by Govn as opposed to austerity, recent examples of which seem to be utter failures.
My solution is I think "oh god we are all going to die anyway" so I'd nationalise the US banks & EU banks etc, ie do OBRs.   However given the scale Im not sure its possible even if there was the want and there isnt.  I think we'll implode and then they will do it.

Day-to-day commercial banking
No mention of the repeal of the Glass Steagall Act allowing merchant banks to take over or merge with commercial banks and commercial banking?
Derivatives tend to be a product of merchant banking not commercial banking
steven, you can do better than that

Very little distinction between merchant and commercial banking since 1999.
"Part of the Banking Act of 1933 prohibited a bank from accepting deposits and underwriting securities, thus legally segregating depository and investment banks. The repeal of that requirement in 1999 means that today's banks can incorporate both elements. There are many in the financial community who believe that this relaxation of the regulations contributed to the recent financial woes in the United States".

apropos merchant banking
Just last week ANZ bank in NZ announced it was opening a commodities desk - which is morse-code for derivatives trading -

? ANZ  owns what was known as "Direct Broking" ( an online trading desk for NZX,ASX) .   Doesn't that just mean any announcement is either an extension of that service, or ANZ continuing with their consolidation of their departments under the ANZ core brand?

The sad part is any successful alternative is likely to blow that country's currency through the roof.
If it's a business, they're going to have feet of granite, and be able to have enough margin to fend off every parasite seeking cash and industry dominance to stop their competition from undercutting them (eg supermarkets), they will have to have secure finance/super low debt+equity costs to resist undercutting by competitors (eg Oracle is having issues), and they're going (a) have to be big enough to stave off government interference (eg Ma Bell couldn't, Fonterra can't), (b) solid enough to handle all legal manipulations and dirty tricks (eg Microsoft browsers couldn't) while having a naturally profitable market base that doesn't require deliberate redundancy manipulation (eg counts Apple out).  Yet they're going to have to stay on top of market trends and stay relevant as no point being yesterdays white knight (eg there goes IBM).

And they have to have succession and employee's that are beyond reproach lest even the best and most powerful will have difficulty staying funded and popular (eg royal families and Presidents around the globe).

What I can guarantee you, is that the more mouths their are to feed, and the more wages and mortgages to cover, the worse and harder it will be to achieve "correction"

Steven , ever heard of MORAL HAZARD  , its about risk taking without consequence
There is nothing Keynesian about recent  Fed practices and policies, they are totally  unorthodox  
Banks  should be no different to any other business ... if the secrew up they should either fail , be bailed  out by insurers or be gobbled up by the competition .
Bailing them out at taxpayers expense is not accpetable , and can only lead to trouble .

Boatman - I think there are elements of what both you and Steven say is right, but neither on your own. In truth Steven's propbably right, you can't expect a truly too big to fail bank to fall over completely, but equally true moral hazard is an equally massive issue. To my mind it has to be a compromise solution, the central bank/Govt  bails it out but with: management sacked, the shareholders losing everything, and depositors losing some percentage of their investments/savings in that bank. There is no investent/savings that should be immune to poor decisions and savers need to be awary of their banks (spread their risk and reseaerch their banks), and in what they're doing, banks wary of their despositors.

How many people with savings or investments in a bank would read for example the contents of say this link.

So what's the answer notaneconomist, we encourage them to put their money into an investment property becauser they understand rent , or do we expect the rest of the tax payers to fully bail them out if they have it in a failed bank ? 
There are is no easy answers, but there sure is a degree of personal responsbility that required.

Who would the taxpayers really be bailing out?
The system is created for debt and people with debt are simply better looked after all round.
And the OBR policy indicates that I should not keep any savings in the banks.
I didn't create this dirty Socialist system of robbing from Peter to pay Paul ! 

I agree notaeconomist, put it under the mattress like the really smart people do.

If you take a look under the bonnet a "too big to fail" bank, it is not a large one, or one with many depositors or assets.   It's one that has sizeable tresury/fed/sovereign junk,  thus it's not too big because it would affect the economy or businesses (that would be "creating opportunities/recycling businesses")  it's too big because governments would be called up for large funds to cover their IOU's   and/or have to quickly re-finance large borrowings - yes such places have some underwriting in case of short funding, but a large operation going down with ALL it's mortgages/bonds going sour?  (well Christchurch would be very minor by comparison) would also mean any underwriting done by that "too big" bank  would also have to have emergency re-writing, and at a time when funding is short.

That's what is meant by too big.  It's your VIP customer that is too big...not the bank.

#5. Krugman is sort of right but he doesn't quite get why. Growth is about consumption of resources and if the private section won't step in, then yes goverment can start consuming instead. I do expect there will be attempts to do this.
The flaw in the plan comes if growth is hitting physical constraints, you can't consume what isn't there.

Agree. Somehow despite that he seems to be able to see the economics side of things very well, he seems blind to its under-pinnings, oil and materials.  He advocates more growth but the price of oil already cripplingly high then goes higher and kills that the growth.

Things like high oil prices only matter if someone is a price follower.  If they are a price setter then they just pass on the cost.

If the cost gets higher enough to effect elasticity of demand then they just spin it as a bonus in carbon efficiency.  That's why peak oil is a guarantee and only a fear for those price followers (ie consumers, small businesses, landlords) have to worry about.
 the increase in cost might mean your mortgage is a problem and work has to take shortcuts to pay the living wage, but to the government and local bodies they can just put pen to paper and write themselves more funding.  And all the time point out how efficient they are and how much savings you would have lost if they didn't.   That indiviudal consumers miss out, that's because state services and happiness for the mob is more important.

#2 is a perfect demonstration of this, just as I was saying the other day.  When GDP numbers and income get too embarrassing the mob rulers just switch KPI to something the mob finds more paletable - any short fall in resources will then be blamed on the primary producers and comodity businesses, as only a small portion of the "family", the mob, work actively in that industry (as most are now unemployed/students/part-time or in service/support industry... which are more ruled by pen-on-paper than hard facts and economics.)

In general that is a pretty good post cowboy. What is think is going to be an issue for a quite substantial number of people is that there is a lot of them that would like to think they are price makers when in reality they are takers. Property investors will fall into this category. It has its base in pretentiousness but will end miserably for a good number. The 1% are not really the 1% at all, more like the .001%, a lot of those who think they are in the club will be swiftly cut off when their usefullness ends.

yes, and though they think they're important and influencial, they're only kept around to see the numbers are made.  Once they speak up when "they come for me" it's all over and their seat at the table will be sold to the next keen victim.   That's why I got very concerned about being over-exposed to property, if government wants some funds you won't be seeing tenants standing up against government promises if the government writes rules for more income from property, and hard assets are hard to liquidate in such markets.

Our Ministry of Transport puts up some useful stats on the New Zealand fleet here is a link to somebody's C: drive.

Thank you for the heads-up. That link should have been ...

#9 Be careful what you wish for; unless you have strong leadership...

This is one time our elected leaders should pay attention to the advice of Vladimir Putin.

How scary is that!

On August 04, 2013, Vladimir Putin, the Russian president, addressed the Duma (Russian Parliament), and gave a speech about the tensions with minorities in Russia:

In Russia live like Russians. Any minority, from anywhere, if it wants to live in Russia , to work and eat in Russia , should speak Russian, and should respect the Russian laws. If they prefer Sharia Law, and live the life of Muslim's then we advise them to go to those places where that's the state law.


Russia does not need Muslim minorities. Minorities need Russia , and we will not grant them special privileges, or try to change our laws to fit their desires, no matter how loud they yell 'discrimination'.


We will not tolerate disrespect of our Russian culture ...


We had better learn from the suicides of America , England , Holland and France , if we are to survive as a nation.


The Muslims are taking over those countries and they will not take over Russia ...


The Russian customs and traditions are not compatible with the lack of culture or the primitive ways


Sharia Law and Muslims, when this honourable legislative body thinks of creating new laws, it should have in mind the Russian national interest first, observing that the Muslims Minorities are not Russians.


The politicians in the Duma gave Putin a five minute standing ovation.

It is a sad day when a Communist makes more sense than our Hon. Leaders but here it is!!!!

Luckily NZ is surrounded by ocean so we can effectively control the borders if we want to.
Seems the flow of migrants/refugees from war, resource depletion, environmental degradation and overpopulation is turning into a flood now. 80 million extra people PER YEAR that need water, food, housing, education, health care and meaningful work - and we have maxed out on global resources: water, soil, breathable air.
Things are getting a whole lot uglier, fast.

Its not going to go down...
You MUST watch this:
visually stunning!!!
So Brownlea is pulling in to NZ the very people that can help most in their own country!
"unintended consequences"....

Great video - I was waiting for the jars to come crashing down, he is a confident presenter, I think my nerves in public speaking would make me fumble the stacking of the jars, lol.
Immigration only encourages overpopulation as it just delays the inevitable crash of unlimited growth a while longer.
You probably know these 2 vids then already - they are my goto vids:
"Professor Al Bartlett begins his one-hour talk with the statement, The greatest shortcoming of the human race is our inability to understand the exponential function."
"Our country’s financial and economic troubles are about to get a lot worse, and it is important that you understand why so that you can begin to prepare.
So let’s begin.
Like millions of others, you already know that something is just not right.  Or perhaps a whole collection of somethings.  Money is being printed at rates never before seen in world history, and yet the economy isn’t responding.  We are drilling feverishly to coax oil out of tighter, deeper rock formations than in the past, and yet oil prices remain stubbornly high..."

Had not seen the second one...

Another issue with immigration is the ideological belief about the value of 'diversity' and 'multiculturalism'. If its not the economic argument for immigration, 'diversity' is wheeled out to justify it and any dissent is labelled 'racist'.

Multiculteralism only works if you have a dominant culture. It is one reason why the provinces are where you want to be in New Zealand as Auckland will turn into a war zone very quickly when there are shortages. Imagine the value of property then!

Of course what he doesnt say is that 3.5billion on $2 cant be helped.
Good video.

Not really, but better than most.
What happens when the uber rich start buying here as bolt holes? our pollies will greet them happily.

Putin is head and shoulders above the current crop of american and european politicians in many ways. The deceitful attitude of the USA, after fomenting the downfall of a democratically elected government in the Ukraine, and continually trying to goad Russia into a military response has been met by Putin with restraint and efforts to cool the fighting in the Ukraine. The western media including NZ 's has done the people a great disservice by not accurately reporting events there. I note John Key could not get Grocer home from the Moscow negotiations on trade with NZ , fast enough in his haste to suck up to the USA. Hypocrite. Free trade has to be on the terms of the American corporate state.
In Syria also Putin out manuovered the USA ,They were itching to unleash their bombers  on the Syrians on the trumpted up pretext of "Assads use of chemical weapons". Putin has successfully had these removed and destroyed. Meanwhile the american supported rebels were proven to be the ones who used chemical weapons.

#10 Or maybe not Brazil, Brazil, Brazil. It does show that if a predictive model has some of it's fundamentals wrong, it can be not just a little wrong, but very wrong (see GFC). 538 had Brazil  at 65% for a win even after the loss of the key players. They didn't publish their odds of a 7-1 landslide, but it would be nice to see them write an autopsy of their model.