Thursday, February 10, 2011

Krugman Sloppiness in Use of Data

Yves Smith has a post about her ongoing debate with Paul Krugman on whether speculators have been involved in the current increase in commodity prices and his insistence  that he knows that the cause of current increases in commodity prices is all the result of fundamental factors.

What struck me is Smith's contention that Krugman is just sloppy about the data he uses:
He professes to be empirical, but as we will show, he is looking at dangerously incomplete data, so his conclusions rest on what comes close to a garbage in, garbage out analysis. And that’s been a source of frustration given his considerable reputation and reach...
Now consider commodities. Inventories can be held LOTS of places: storage facilities by private owners (major refiners such as flour mills), finished product, private speculators (there have been reports for years of base metal stockpiling in China), even the consumer level (during the oil crisis, people kept their auto gas tanks fuller due to the even-odd license plate gas station system). Consider what a monstrous supervisory apparatus around the world would be required to track all or even a substantial portion of where inventories in various commodities could be held.
The logical fallacy for Krugman is the official inventories he is looking at are only a subset of the places where inventory can be accumulated, and in many if not most cases a small enough subset that he cannot reach conclusions of the absence of inventory accumulation.
From whatever direction you look, the guy just throws stuff up on his blog without seemingly a care to its accuracy.

1 comment:

  1. Color me puzzled at the "undocumented inventories" idea to say that speculative activities of few independent speculators is untraceable. Is Yves contending that the speculative activity isn't by a small group of people, but by EVERYONE in the world? It boggles the mind.

    If we are to believe that people's auto gas tanks are part of the problem then everybody must be in on this speculative conspiracy. In my book, that's no conspiracy. That's the marketplace factoring in expectations properly. I guess it can be called speculation, but it's ubiquitous and no surprise or news.