Greenberg’s Law of The Media

If a news item has a number in it, then it is probably misleading.

Fact-Checking the Fact-Checkers: The AP Releases Misleading Analysis of Obama’s Tax Plan

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Fact-Checking the Fact-Checkers: The AP Releases Misleading Analysis of Obama’s Tax Plan says the following:

As Hanlon noted, “AP’s ‘fact check’ misses the point of the Buffett rule. The point is not to ensure that rich people on average pay higher taxes than middle-class people on average,” but “to ensure that all households with incomes above $1 million pay at least what middle-class families are paying.”

This is not the first time this month that the AP’s “fact-checkers” have bungled the facts regarding Obama’s economic plans. At this rate, they should think about opening a new division to fact-check the fact-checkers.

This is no surprise to me.  When I saw the headline for the AP story, I didn’t even bother to read the story.  I knew that it would be a distortion.

After reading the exposé, I decided to follow the link to the AP story, FACT CHECK: Are rich taxed less than secretaries? Here is the red-flag.

On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

What does that even mean?  How did they take the average?  Did they average the percentages of all the included taxpayers?  Did they weight the averages by the amount of income earned by each tax payer? When the income of people making more than $1 million ranges from that $1 million to several billion dollars, then the average weighted by income is quite skewed from the average weighted by the numbers of taxpayers in each category.

When the article uses such imprecise terms, you know the article is an example covered by Greenberg’s Law Of The Media.

Another of the many red flags in the article include:

The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office.

That is what I call half a statistic.  They don’t say it, but they obviously want you to infer that 10% of the households paying 70% of the federal income taxes is too much taxation.  To know if this inference is correct, you’d have to know what fraction of the income these 10% of households make, but they don’t tell you that.  Even if they did tell you about the declared income, they would be leaving out the unrealized capital gains of these wealthy people which may dwarf the income the IRS requires them to report as income. So to paraphrase Bill Clinton “It all depends on what the meaning of income is.”

Of course the quote is not going to emphasize that paying only 50% of federal taxes while paying 70% of all federal income taxes means that there are other hefty federal taxes other than income taxes that the less wealthy pay in larger percentages than the wealthy.

To use these tricks in their article, you would almost have to conclude that the article is purposely distorting the facts or the authors are totally ignorant of how they are misusing the numbers.  Personally, I don’t need people to report the news who know less about it than I do.  I certainly don’t need reporters who tell lies in their reports.

Click on the link under categories at the right side of this window for Greenberg’s Law Of The Media to see other articles in that category.  In the set of articles that come up, you might notice Associated Press the Faux Noise of the Print Media.

Republican’s Refusal On Raising Taxes Costs The Wealthy $7.8 Trillion

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The article Global Bonds Gain $132 Billion as Stock Rout Cuts $7.8 Trillion says (among other things),

… yesterday’s stock rout wiped out about $2.5 trillion in global equity values, extending total losses since July 26 to $7.8 trillion.

Put this together with the words in the Standard & Poors downgrade of the US credit rating:

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

I think that S & P is only looking for a couple of trillion dollars more of deficit reduction. Wouldn’t it have been cheaper even for the wealthy to have raised their taxes instead of making them lose trillions of dollars in the stock market?

My friend JohnK said the following:

I think any increase in consumer interest rates as a result of the downgrade should be called the “Tea Party Tax Increase, or, in Washington parlance, the “TPTI”.

I would just change that to say that this loss of wealth could be dubbed the TPTI.

Notice that I classify this post under the category of Greenberg’s Law of The Media which states that “if a news item has a number in it, then it is probably misleading.”

S & P – Decide Answer, Then Look For Evidence

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I find the following from the Bloomberg News report as published in The Boston Globe article, Treasury official faults credit rating downgrade:

S&P made a $2 trillion calculating mistake and then changed the rationale for its decision, raising “fundamental questions about the credibility and integrity of S&P’s ratings action,’’ John Bellows, acting assistant secretary for economic policy, wrote in a Treasury blog post.

The dispute stems from how S&P used figures from the Congressional Budget Office. The discrepancy didn’t change the downgrade decision, S&P officials said, because Treasury’s $2 trillion figure was derived by calculating government debt over a 10-year period while S&P’s ratings are determined using a three- to five-year timetable.

It appears that S & P may have come to the conclusion that it needed to downgrade the US credit rating and then went searching for the evidence that would justify the foregone conclusion.

In making hypotheses, I suppose there can be circumstances where your gut tells you what the hypothesis should be before you find the evidence to support it.  However, especially in this case where the hypothesis came before a formal search for evidence, you must be extremely diligent to not look only for supporting evidence.  You must be as diligent in searching for any evidence that would contradict your hypothesis.

As pointed out by Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable, it doesn’t make any difference how many swans that you see that are white, seeing just one black swan is enough to convince you that not all swans are white.  Even before you see the black swan, you ought to be cautious about claiming all swans are white.

Yes, I know,  if I am to follow my own logic, I should look for evidence that S & P did not make its decision to stick by its original conclusion because of  confirmation bias.  I’ll leave that as an exercise for the reader.  After all, I don’t get paid millions of dollars for writing these blog posts.  I would say millions of dollars may be at stake for S & P if they should lose their reputation, what reputation they have left, for making good calls on the creditworthiness of investments.  Remember their investment grade rating of banks’ mortgage backed securities.

August 8, 2011 9:00 AM

As mentioned in the post Resistance To Revenue Increase Causes S & P Downgrade, I was able to read the full S&P report.

I can’t tell if I was reading the original report or the corrected one, but it does look to me as if the quote mentioned above from John Bellows on the Treasury blog may have been very self-serving.

Perhaps S & P didn’t so much as make a mistake as they did use different assumptions from the CBO report from which they took their numbers.  I don’t know if this difference was mentioned in the original report, but it is very clearly stated in the report that I read.

I think this shows that you cannot trust what either political side has to say about the report.  You have to read the report and decide for yourself what you think it says and what you think it means.

Here is the link where you can read the full 8 page S & P Report.

Resistance To Revenue Increase Causes S & P Downgrade

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According to the article Mainstream Media Ignores S&P Attack On Republicans:

Page 4 of the official Standard & Poors “Research Update”

…

We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

I did a Google search and could find no mention of this except in a comment on an article on one newspaper web site.  Of course, I only checked the first few of the 33,600 entries from the search S & P Downgrade “raise revenue”.  I had hoped for a link to the actual report so I could read it myself.

See if you can do any better finding this information.

I did a Google search on Reason US Downgrade.  Again I only found the reason in comments on news stories.  One of the comments cited the same article as I cited above.

In the article from Bloomberg News that I read in The Boston Globe, Treasury official faults credit rating downgrade, I did find the following paragraphs:

S&P reduced the US rating one grade to AA+ while keeping the outlook at “negative,’’ saying it was less confident that Congress would end Bush-era tax cuts or tackle spending on entitlements.
…
S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time.

It is concerned that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect entitlement programs such as Social Security and Medicare.

August 7, 2011, 11:03 PM.

I have now read the full 8 page S & P Report as have millions of other investors.

The original article from which I quoted left out an important sentence that makes the quote even more damaging in my opinion.  In the quote below, I put in the missing sentence along with the original.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

Putting the missing sentence together with the original extracted quote makes it clear that S & P does not believe that President Obama will be able to prevent the Republics from making the Bush tax cuts for the wealthy a permanent fixture of our tax laws.  All Congressional Budget Office analyses assume a base line scenario that the Bush tax cuts will expire.  The CBO analysis of any proposed congressional legislation only rates what that legislation will do when compared to existing law.  The existing law says that the Bush tax cuts will expire in their entirety.  Even President Obama wants to keep the tax cuts for the middle class.

I am not faulting the CBO for their assumptions.  The job of the CBO is to make objective analyses without introducing any political speculations.  So the best thing they can do is to to not second guess the political process and clearly state their assumptions.  With the assumptions clearly stated, the reader can then make whatever different assumptions they want to make and then adjust the results as appropriate.  This seems to be exactly what S & P did.

No wonder the S & P is so upset with the prospects for our getting control of the budgeting process and appropriately adjusting the results of the  CBO report.

Misunderstanding The Nation’s Debt

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McClatchy has published an article, Debt-limit friction a bad omen for tackling bigger crisis, which purports to explain the difference between internal and external debt and how that measures the seriousness of the current problem.

The article uses the following histogram to make some point. I am sure you are going to hear more about this chart in the coming days, so I thought I would give you a chance to try to figure out if there is any substantive meaning in it.

This graph raises more questions than it answers.  The graph is used by Alex Brill, an economist with the American Enterprise Institute, a conservative research center in Washington, which puts the whole thing into question right there. American Enterprise Institute, indeed.  The article also quotes Christopher Frenze, a former staff director of the American Action Forum, a conservative policy institute in Washington.

Greece, Italy, and Portugal are all countries that are considered to be on the verge of huge problems because of their debt.  They all have a debt as a percentage of GDP that is larger than the US.  However, Ireland and Spain are frequently lumped in with Greece, Italy, and Portugal as having problems, yet Ireland and Spain have lower debt to GDP ratios than the US.

Moreover, Japan, which is known to have very little external debt seems to have the largest ratio of external debt to GDP.  I looked up The Economy of Japan in Wikipedia.

For 2010 Wikipedia says Japan has GDP of $5.458 trillion, gross external debt of $2.2146 trillion and public debt of 225.8% of GDP.

So this works out to a gross external debt of 41.1% of GDP and a public debt of $12.324 trillion.  None of these numbers remotely correspond to anything in the chart used by McClatchy.

On second thought, the public debt of 225% from Wikipedia is in the ballpark of the 185% in the chart. Perhaps what OECD is calling external debt is what Wikipedia calls public debt. Perhaps this shows that no matter what you call it, the measure used in this article is not relevant as a measure of the seriousness of an economy’s immediate problems.

In analyzing private companies there is something known as the Quick Ratio. Investopedia provides the following definition:

Quick Ratio
An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

The quick ratio is calculated as:

Quick Ratio

Also known as the “acid-test ratio” or the “quick assets ratio”

Perhaps we need a measure such as this to look at the country’s financial situation.

Obama’s debt talks alarm Democrats about Social Security

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The article Obama’s debt talks alarm Democrats about Social Security is worth reading for some of the comments.

However, I need to talk about the article Commentary: Obama’s tax plan to pay off debt counts on ‘rich’ who aren’t, in order for you to see where I was coming from in my response to the article mentioned in the first paragraph above. The author of the commentary article had made the following assertion:

No matter what Democrats say, the richest 1 percent of Americans – that’s everybody making $380,000 or more – do not get a free ride under the current tax code. They earn 20 percent of all income in America but pay 38 percent of income taxes.

I’ll get to my comment on this second article in a moment.  However, by the time I saw a comment on the first article, I had refined my ideas about the second.  In response to a comment  about tax loopholes for the poor, that I found in the first article I wrote:

The issue being debated by Congress and the President is future cuts in cost of living allowance, not past cuts.  Don’t muddy the waters.

Putting purchasing power in the hands of the people who would spend it and boost the economy (earned income tax credit) is not the same as putting the money into the hands of the ultra wealthy who suck it right out of the economy and invest it overseas or lend it back to the government by purchasing treasury securities (whose interest payment to the wealthy is not taxable.)

The rich may earn 20% of the income and pay 38% of the taxes, but remember that almost every penny of what the middle class earns is counted as income, but the vast majority of what the rich earn is not even counted.

The rich have vast amounts of unrealized capital gains that are not counted as income.  Any realized capital gains in tax deferred accounts are also not counted as income.

How else do the rich earn so little income, but their wealth is skyrocketing?  The wealth of the people who are earning 80% of the income is falling. Remember the golden rule, “He who has the gold, makes the rules.”

Now here is what I wrote in response to the claim that the payers of 38% of the taxes earned only 20% of the income:

Why limit your tax calculation to income taxes.? The middle class pay much more of their taxes as payroll taxes than the income taxes. Convenient ommission, don’t you think?

They may make only 20 percent of the income, but remember the tax code leaves out a whole bunch of stuff from what is included as income.  If the rich are so burdened by the tax code, why has their share of wealth skyrocketed over the last 20 years while the middle class’s share has plummeted?  How does that wealth get hidden from the tax collector?

That is like the corporate reports that claim we made x amount of profit, excluding certain items.  In other words excluding certain items that say we made far less than x amount of profit.  The GAAP (generally accepted accounting principles) do not allow them to exclude certain items.

In the case of the wealthy, the books they want to show us and the IRS are the ones that say they are burdened by the tax code.  The books they keep for themselves show quite a different story.

I have always said, I’ll believe a corporate CEO is poor when I see him brown bagging for lunch.

By the way, unrealized capital gains are not counted as income until you sell the stock. If you sell the stock in a tax deferred account 401k and IRA are exmaples, then you don’t count it as income until you withdraw the money from the account even if the income is realized by the sale of the stock.

Bad Science: Quacks, Hacks, and Big Pharma Flacks

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I have just read this fascinating book, Bad Science: Quacks, Hacks, and Big Pharma Flacks, by British Medical Doctor Ben Goldacre.  This book is chock full of examples of why Greenberg’s Law Of The Media is true.

I wrote the law based on my reading of the media and my 6-years of post high school mathematics training. I have never claimed that I was particularly good with the statistical end of mathematics, yet I could recognize a lot of the flaws in news stories. Because Ben Goldacre does seem to be a statistics expert, he is able to point out flaws in the media far beyond what I would have suspected.  His explanations will make it easy to recognize these errors when I see them in the future.

In addition, he points out that flawed interpretations of statistics and probabilities extend far beyond the media and have consequences far more severe than a misinformed public.

It is not only that people (big pharma flacks) lie with statistics, it is also that people just don’t understand how to apply statistics nor understand how to interpret them.  So, even with the best intentions in the world, if you don’t know what you are doing with statistics, what seem like perfectly reasonable conclusions to you are just not borne out by the numbers when they are understood correctly.

There are many experts who do understand all this and know how to figure out what is statistically  significant and what is not.  Their interpretations might surprise you, until the reasoning is explained.

In Chapter 11 titled Bad Data, Goldacre pulls together quite a few of ways that people get fooled.

He writes in a very entertaining way, and I can hardly do justice to his ideas here, but I will try to give you a hint at some of what you should know.

  1. Using relative risk instead of natural frequencies.

    Let’s say the risk of having a heart attack in your fifties is 50 percent higher if you have high cholesterol. That sounds pretty bad. Let`s say the extra risk of having a heart attack if you have high cholesterol is only 2 percent. That sounds OK to me. But they’re the same (hypothetical) figures. Let’s try this. Out of a hundred men in their fifties with normal cholesterol, four will be expected to have a heart attack, whereas out of a hundred men with high cholesterol, six will be expected to have a heart attack. That’s two extra heart attacks per hundred. Those are called natural frequencies.

  2. Choosing your figures

    He quotes from an article in the UK’s Independent explaining a change of heart in their policy on cannabis.

    In 1997, this newspaper launched a campaign to decriminalise the drug. If only we had known then what we can reveal today . . . Record numbers of teenagers are requiring drug treatment as a result of smoking skunk, the highly potent cannabis strain that is 25 times stronger than resin sold a decade ago.

    By the time he has finished, he shows that the number from the government report that the paper uses as its authority for the information says no such thing. He shows that you might conclude that the number is double, not 25 times higher. Even the doubling is a misinterpretation of the data.  More over, this scare about the multiplying strength had been used years before by Ronald Reagan. Had you multiplied together the increase noted by Reagan in the 80s with the increase mentioned by the paper in the 90s, It would require more THC to be present in the plant than the total volume of space taken up by the plant itself. It would require matter to be condensed into superdense quark-gluon plasma cannabis. For God’s sake don’t tell the newspapers such a thing is possible.

  3. Misunderstanding statistical significance

    For his example he uses

    …an article in The Times (London) in March 2006 headed: COCAINE FLOODS THE PLAYGROUND. Use of the addictive drug by children doubles in a year, said the subheading. Was this true?

    If you read the press release for the government survey on which the story is based, it reports almost no change in patterns of drug use, drinking or smoking since 2000.

    He goes through the process of explaining how you get from some initial numbers used by the newspaper to the quite correct analysis in the government report to show that there was really almost no change.

  4. Poorly chosen questions in a survey where the respondents choose whether or not to respond to the survey

    This one is so obvious, I’ll let you go to the book to read his instructive example.
  5. Misunderstanding the math of predicting very rare events

    The examples are very revealing, but too hard to summarize here. One of the example he uses shows the futility of a psychiatrist’s trying to predict which of the psychiatrist’s patients is likely to commit a murder.
  6. The prosecutor’s fallacy

    This is related to the above, but in this case the prosecutor uses statistics to show that an innocent explanation for the crime is unlikely without telling you that the criminal explanation is even more unlikely. He uses an actual case to demonstrate this problem.
  7. Using the occurrence of an unlikely event to prove that something weird has happened

    In the introduction to this discussion of an actual criminal case, he uses a quotation from renowned physicist Richard Feynman to start you thinking about the absurdity he is about to describe.

    You know, the most amazing thing happened to me tonight. I was coming here, on the way to the lecture, and I came in through the parking lot. And you won’t believe what happened. I saw a car with the license plate ARW 357. Can you imagine? Of all the millions of license plates in the state, what was the chance that I would see that particular one tonight? Amazing . . .

    If you don’t catch the absurdity of the point Feynman was making, then this comment by Goldacre, might help:

    There is also an important lesson here from which we could all benefit: unlikely things do happen. Somebody wins the lottery every week; children are struck by lightning. It’s only weird and startling when something very, very specific and unlikely happens if you have specifically predicted it beforehand.

    Later he explains what is wrong with the court case he uses as an example.

    First he makes an analogy about blindly firing thousands of bullets from a machine gun at a barn and then finding and circling three bullet holes close together to prove that you are an excellent shot. He ties the analogy to the prosecution he is describing

    You would, I think, disagree with both my methods and my conclusions for that deduction. But this is exactly what has happened in Lucia’s case: the prosecutors found seven deaths on one nurse’s shifts, in one hospital, in one city, in one country, in the world and then drew a target around them.

    He generalizes the problem with what the prosecutor did.

    This breaks a cardinal rule of any research involving statistics: you cannot find your hypothesis in your results. Before you go to your data with your statistical tool, you have to have a specific hypothesis to test. If your hypothesis comes from analyzing the data, then there is no sense in analyzing the same data again to confirm it.

TSA Could Have Chosen A Less Intrusive Screening Machine

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The McClatchy news article, TSA Could Have Chosen A Less Intrusive Screening Machine, discusses an alternative to the controversial machine being used in the U.S.

Unlike the backscatter imaging devices that provide revealing body images and which have stoked concerns about radiation, the system at Schiphol uses radio waves to detect contraband.

The Woburn, Mass., firm that manufacturers the system, L-3 Communications Security & Detection Systems, claims on its website that the radio waves are “10,000 times lower than other commonly-used radio frequency devices.”

If the software identifies a passenger carrying explosives, an outline of the problem body area is displayed on a generic mannequin figure instead of on the actual image of the passenger’s body. The mannequin image, which appears on the operator’s control panel, “can then be used by security personnel to direct a focused discussion or search,” the company website reads.

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On Wednesday, in testimony before the Senate Committee on Commerce, Science and Transportation, John Pistole, the administrator of the Transportation Security Administration, acknowledged that the new target recognition imaging was “the next generation.”

“The only concern I have about that is there are currently a high rate of false positives on that technology, so we’re working through that,” Pistole testified. “But we are currently testing that today. We have been for several months.”

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On Wednesday, Pistole admitted the pat-downs have been more aggressive. But children under age 12 are exempted from the searches, he said.

I included the last sentence to show how ridiculous this security stuff really is.  Now that the TSA has told the terrorists where the hole in the security barrier is, how long will it take them to go through it?  Older gang members in this country already use minors to carry their guns for them, because minors don’t face the stiff penalties that adults do.

As for the worry about false positives of the new machine, I guess that implies that there aren’t very many false positives with the machines now in use.

According to the TSA, airport security has detected more than 130 prohibited, illegal or dangerous items this year thanks to the new scanning equipment. And more than 99 percent of airline passengers choose the imaging technology over alternative screening methods.

It would be interesting to hear how many pat down searches have been done in this time frame where the 130 items were found.  Any number above 130 would be from false positives.

I have decided that the numbers in this article put the story in the Greenberg’s Law Of The Media category.

I can think of several more devious methods that terrorists could use than they have used so far.  In the off chance that they have not already thought of them, I am not going to name them here.  That just means I won’t be able to say “I told you so” when they do start using them.  However, I feel safe in disclosing that I have thought of them.  They are so obvious that there is really no need to kidnap me and waterboard me to find out what they are.  If the terrorists lack imagination, I am sure they can find these ideas on Google.