Your opinions on this article

Economics Political Theory
1

I saw this on the AnCap reddit today:

http://www.stansberryresearch.com/pub/reports/201112PSI_issue.html

I decided to give it a scan and saw that it was using graphical statistics to try to prove a causation of higher unemployment due to higher government spending.

Despite this being a nice claim to be able to make (and could possibly be made in a rigorous way), the analysis the article provides falls into the correlation/causation pitfall and ignores the fact that the higher government spending may have been as a result of the higher unemployment rate.

Am I right in my critique?

2

You’d be right if all he presented was a chart.

But he also writes before that:

The simple fact is, the government has to take resources from someone before it can dole them out to others. And this act of taking turns out to be economically destructive. It reduces the market’s incentives for entrepreneurs. The more you take from the productive members of society, the less productive they become. That’s the primary lesson of the history of socialism. Yet… many of our political leaders seem oblivious to this iron law of human nature.

So he provides theoretical support, meaning he explains why they are related and one causes the other.

3

FYI…

Here’s a playlist on Porter Stansberry, including a segment from Peter Schiff’s radio show where he talks about the accuracy (or lack thereof) of various predictions and claims he’s made:
http://www.youtube.com/playlist?list=PL8FC99A00CE682D15

(backup link to Schiff, since he took his upload down before)

Below is an email reply to someone who asked about a popular Porter Stansberry video that’s made the rounds:

It looks like Stansberry’s information is more or less accurate. I would be suspicious of anything dealing with him though. It’s a lot like the National Inflation Association organization he mentions. That organization itself is run by a well-known pump and dump stock scammer. And when I say “well-known” I mean the kid was on “60 Minutes” and the cover of Newsweek magazine (mostly because he was so young and in so much trouble…I believe he’s the only minor to have ever settled with the SEC). But even still, the information the organization puts out regarding the economy is quite good, although it’s a bit on the fearmongering side.

It seems like this may be the case with this Stansberry guy.

Here’s his BBB report. (His grade is “F”)

And here’s the filing against him on the SEC’s website. That’s right. Stansberry was convicted of securities fraud in a U.S. District Court in 2007. Read about it here.

The judge described Porter’s work as (quoting from the judge’s decision) "a fraud scheme whereby victims were induced to pay $1,000 each for a ‘sure thing’ stock tip allegedly based upon 'inside information"…”

The judge also noted that “…Stansberry’s conduct undoubtedly involved deliberate fraud, making statements that he knew to be false.” And: “the Court does not find that Stansberry recognizes his factual culpability and, indeed, finds that he testified falsely at trial.”

So…yeah. Listen to the economic info and general investment advice…but I wouldn’t give him any sort of personal financial info…let alone actual money. But since you say you’ve signed up already, I would go ahead and get the research reports he promised and cancel within the trial period and get all your money back.

4

This is a really tough one. But let’s think about this praxeologically for a moment:

In a capitalistic economy the government acts as a market participant and spends accordingly. In an economy where wages and prices are flexible then, regardless of the level of government spending, wages will adjust and involuntary unemployment will disappear. Therefore we can determine a priori that in the long term government spending cannot directly affect the rate of unemployment except in the ways that it actually affects growth from what it otherwise would have been. This, however, is not directly measurable. One cannot say, merely based upon the level of SPENDING how high or low unemployment will be. Alterations which the government makes could increase or decrease the employment level.

However, this is not what we are seeing, we are seeing the short term effects of government policy in a shifting economy where wages are not especially flexible. We can tell, once again a priori, that if governments taxes from areas which are more capital intesive and spends in areas which are more labor intensive that employment will be positively affected, however unless the government spending is actually a productive force like infastructure or something of the like, then real wages will decrease through a general rise in prices. This could, or could not actually result in negative unemployment growth, however it would most certainly result in a greater unemployment that would otherwise be the case.

By this reasoning I would actually consider this analysis somewhat plausible. However, a very, very important fact is left out. Government spending as a percentage of GDP tends to rise with business cycles because of the fact that even though overall revenue decreases budgets do not. If you look most of the major spikes in spending and unemployment correlate with business cycles, and then during times of relative growth both of these things decrease, suggesting that government spending is not increasing at the same rate as GDP growth. I’m not sure then if this is the case of post hoc, because a reason is given but it leaves out other major events, or non sequitur for a similar reason, because what is said does not necessarily follow.

So we can see that there certainly are major things wrong with this analysis, indeed I find the most important one to be the fact that he leaves out state and local expenditures and focuses only on the federal government which is leaving out a good 40 percent of the issue by today’s standards.

I’m also exceedingly dubious about his ‘real GDP graph’

So overall, interesting idea but I find a lot of stuff really flawed.