My Favorite Chart on Earth
csmonitor.com
csmonitor.com
So unless you're buying index funds that track the DJIA, the chart loses it use. Because when we look at this, we see that the stock market always goes up with time. But what we are looking at is the fact that the 30 largest/most successful companies in the USA keep pace with inflation. Which is hardly a shock.
Note that I'm not arguing some of the authors points, I'm just encouraging an open mind when viewing graphics like this - you've got to know what you're looking for.
So you're correct in that bad performance by a firm in the DJIA will affect the index, however, really bad performance by a company will not be completely reflected in the index, only the first part of their decline. And that will be somewhat mitigated by the inclusion of their replacement, which is usually a growing company.
Also saying "The war on terror" is kind of misleading since troop levels have varied greatly. To give one example the initial Afghan offensive only involved about 1,300 ground troops. As of 2003 that number was still only at 10,000 (http://www.cbsnews.com/stories/2009/12/01/ap/government/main...)
That's around the same number we had in Somalia (5,300), the '89 Panama invasion (30,000) and several other conflicts. So the fact that the chart starts to level off as of 2001 while these other conflicts don't seem to have made an impact undermines the implied point
Only if you believe the cause is troop levels. There are lots of things about a war that could be responsible for a correlation that are not directly correlated with number of troops deployed.
None of those necessarily have a great deal to do with troop strength, but they do all seem to correlate with (some) wars.
I would imagine that the only reason why someone would posit this correlation would be to say something on how to view our current situation, and I think he's saying that we've had a bad 10 years (logarithmicly speaking), but once we're out of this war (by him, inflationary) period, things will be great.
I'm not sure if I buy this argument or its implications, but the omission of korea, panama, gulf war 1 and somalia and the inclusion of the GWoT don't "ruin" it for me, at very least.
Note he still doesn't mention 1929-1933, which seems like a big omission, although it doesn't directly contradict the assertion.
http://en.wikipedia.org/wiki/Recession_of_1953
There was also a recession brought on by the oil price spikes of the First Gulf War:
http://en.wikipedia.org/wiki/Early_1990s_recession
The trend still holds up, it just wasn't worth mentioning in those cases. I'm more interested in why we got the Great Depression in a period of relative peace.
Speculation. There were very few regulations on the stock market, which led to massive growth across the board. As a result, average people invested their savings in the stock market, because they were all but guaranteed double-digit ROIs. Problem is, stock prices were based on the inflationary pressure of increased investment, not the actual revenues of the companies themselves. When the bubble burst, it hurt everyone. People were worried that their savings would be lost, so they rushed to the banks to withdraw all their money, but the banks didn't have enough to cover their balances, so they shut down. Now, savings weren't insured back then, so when the banks closed their clients lost everything.
As a result of the Great Depression, the government instituted sane financial regulations. Of course, in protecting against busts, they capped growth, so big money types hated them. Thus, neoliberals in the Reagan, Bush (I), Clinton, and Bush (II) administrations systematically removed the regulations that had been put in place to stop serious recessions from happening. There was tremendous growth, then...
This latest recession was entirely foreseeable, and in fact, my friend's grandfather called it. He said in about 2005 that the last time he had seen growth like that, and people generally acting so irresponsibly with their money was right before the Great Depression. In fact, he even called the housing market as the bubble that would pop. I promptly ignored him of course, because he was just some senile old man. Just goes to show, people will only be responsible so long as the pain of their previous irresponsibility is fresh in their minds. When it starts to fade, they get greedy and stupid again.
http://costofwar.com/en/ http://historical.whatitcosts.com/facts-korean-war.htm
Quote from http://historical.whatitcosts.com/facts-korean-war-pg2.htm
> Human Costs > 33,600 American lives lost in this conflict.
So non-Americans don't count?
And if you need proof that linear graphs of money are misleading then compare:
http://en.wikipedia.org/wiki/File:Components_of_US_Money_sup... http://en.wikipedia.org/wiki/File:Components_of_US_Money_sup...
There're some notable exceptions, eg. growth in the unemployment rate is usually linear, because it's already computed as a percentage. Growth in the absolute number of people unemployed is exponential.
Because of compound interest money grows exponentially - the more money you have, the faster it grows.
Suppose I start with earning 10,000 a year, but my neighbor earns 20,000. Now suppose we both each 5% raises each year. After 10 years I earn 16288, and he earns 32577.
Now graph my income over the years and look at the gap between our incomes. In a linear graph the separation keeps getting larger and larger (we started with a 10,000 separation, and now have a 16289 separation). But that's wrong - we are both gaining equally as well. In a logarithmic graph the separation will stay exactly the same (and notice how when we started he earned twice as much as me, and he still earns twice as much as me after 10 years).
Suppose I'm in the business of selling stuff.
If I earn $1 per widget, and I can afford to keep 1000 widgets in stock, then I earned $1000. My neighbor however can stock 2000, and earns $2000. Now suppose both our profits go up to $1.50 per widget - now I earn $1500, and he earns $3000.
Now compare: In a linear graph he had $1000 more than me, and now has $1500 more than me. If you graph this over time he will look like he's doing far better than me - the income gap will keep growing - but really, he's doing exactly as well as me, it's just he has a higher base.
A logarithmic graph will show the relative difference between us - he has twice as much as me, and that doesn't change at all.
These explanations would be so much better with some graphs - is there a web service that will plot these things for me as live data?
One final example:
Suppose we are both businessmen, and we want to see who is better, I start with $100 and manage to grow it to $200, my friend started with $300 and grew it to $450. Who did better? I earned $100, but he earned $150 - clearly he did better right? But if you notice while I doubled my money, he only 1.5'd it. I'm clearly the better businessman, yet I earned less money.
On a linear graph it will look like he did better, since he now has so much more. But on a logarithmic graph the truth comes out - I did better. (And over time I will far exceed his income, and a logarithmic graph will show this correctly, but a linear one won't.)
Sorry, that doesn't follow over, at least not at scale.
It's far more common for a given mom and pop restaurant to double its sales than it is for mcdonald's the chain to do so. (It's also more common for a said restaurant to fail than it is for mcdonald's the chain to fail.) That doesn't imply that the folks running said restaurant are better biz folks than the folks running mcdonalds and would eventually overtake mcdonalds.
Exponentials don't persist.
Sometimes we forget that 100 years of data is nothing compared to human history and does not signify anything about the future.
ftp://download.intel.com/museum/Moores_Law/Articles-Press_Releases/Gordon_Moore_1965_Article.pdf
sure he used his experience, but CEO's have also been known to make wild and extravagant statements :)
It was called Prosper.com. Actually there were many attempts at exactly what you're talking about. So far they've all failed.
Just like people writing about science in the newspapers are rarely actual scientists, people writing about economy in the news are rarely economists.
Wouldn't the length of a war be difficult to estimate at the outset, and hence be priced in to stock market growth over time? In my economics class they taught us that war is bad for the (real) economy because the country is relatively more invested in the engines of destruction than production, and thus productivity growth in things that make life better is lower. The conclusions of this chart stand to intuitive reason based on that teaching, but I'm by no means an expert.
But to be fair, Korea was dwarfed by WWII and Vietnam in cost and public awareness. For example, did you know that we're currently technically still at war with North Korea? There's only a cease-fire, no treaty. We still even have troops over there...
That the war on terror will last for decades to come, escalating conflicts in other locations, say Pakistan or somewhere in the gulf (again)
World wide war without end.. The assertion that the war in Afghanistan is winding down, doesn't strike me as accurate.
In addition the period after the second world war, was marked by a US economic dominance, as Europe was in ruins and the soviet block stifled economic development in almost half the globe for several decades including the Vietnam period until glasnost started to get a footing (in that curious uptick around 1988 perhaps), right till the fall of the Berlin wall.
Things are different now. slightly.
That's how we explained it when I studied economics, at least IIRC.
Edit: just noticed the website name. "The Christian Science Monitor". I feel slightly cheated.
(For the avoidance of doubt: No, I am not a Christian Scientist.)
I'm more apathetic to this surprise. Everything looks like linear growth when plotted on a long enough time line, in log log with a fat marker.