Friday, September 28, 2012
Prediction markets and elections, 2000-2012
I'm not a campaign analyst, but I have dabbled in prediction markets, which means I've kept track of the Iowa Electronic Market.
If we look at the current election, we see that over the past month the aggregate prediction of the probability of Obama winning broke through the bounds that it had operated within since last July.
This looks pretty dramatic, but let's look to history. In 2008 the Obama contract had a breakout past the 70% mark around October 4th.
In 2004, the Bush contract peaked somewhere in the low 70% range around the end of September.
In 2000, the Gore contract had a local peak in late September.
This rough historical comparison indicates that now is about the point in the 2008 election when the market began to show Obama pulling away. In 2004 we saw a reversal of a sharp upward trend in the leading candidate, though the leader pulled out the victory in the end and the reversal had already begun at this point in the election cycle. In the wild 2000 election, we saw Bush open up a lead in mid-October, but that lead never broke the 80% mark.
If we look at the current election, we see that over the past month the aggregate prediction of the probability of Obama winning broke through the bounds that it had operated within since last July.
This looks pretty dramatic, but let's look to history. In 2008 the Obama contract had a breakout past the 70% mark around October 4th.
In 2004, the Bush contract peaked somewhere in the low 70% range around the end of September.
In 2000, the Gore contract had a local peak in late September.
This rough historical comparison indicates that now is about the point in the 2008 election when the market began to show Obama pulling away. In 2004 we saw a reversal of a sharp upward trend in the leading candidate, though the leader pulled out the victory in the end and the reversal had already begun at this point in the election cycle. In the wild 2000 election, we saw Bush open up a lead in mid-October, but that lead never broke the 80% mark.
Thursday, September 27, 2012
Chinese Leaders are Human
This would be a "dog bites man" story, if not for the wealth of commentators who fawned over the skill of China's leaders a few years ago.
First, the fans of Chinese leadership. In 2009, Friedman bemoaned American political gridlock compared to the "reasonably enlightened group" of autocrats running China. While the U.S. dithered, China was surging ahead with farsighted investment in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. Some argued for more autocratic methods in the U.S. Even more dramatic statements came from bloggers, like this from 2010: "There is a simple difference between West and East today, the opposite of that seen during the past few centuries. Good leadership. They have it; we do not." FM goes on, summarizing views that many others have offered:
To extend FM's metaphor, China's leaders were batting .300 in the minor leagues. Plenty of athletes don't make it that far, so it is certainly an accomplishment, but it doesn't necessarily mean that they'll do that well when the challenges get more difficult in the majors. My point is that it is premature to compare a minor league batter's average to a Ted Williams or even a Cody Ross. (To mix sports metaphors, there have been successful NFL quarterbacks who were unextraordinary at the college level - like Tom Brady - and there have been successful college QBs who bust when they get to the NFL - like Ryan Leaf.)
The past few years have presented evidence that hard problems are hard for everyone, be they China's leaders or America's. The shine on China's purported successes have begun to lose their luster. Their "state of the art transportation systems" have shown design flaws, many of its high speed rail lines are losing money, and repeated issues with officials embezzling investment funds. They managed to reduce population growth and are now facing the challenge of an aging population that will get old before it gets rich. Their "network of partners around the world" looks like a rogue's gallery. They have alienated their neighbors over territorial disputes while emerging international threats challenge and shape their foreign policy and international behavior. High levels of investment are only a facet of China's myriad economic problems and they are related to high levels of bad debt, inflation dangers and property bubbles. In short, if China's leadership is so great, why didn't they see these challenges coming and do something about them?
To bring all this home, today the NYTimes summarized the current situation:
All of which leads us to a wildly bland conclusion: Chinese leaders are not any more competent than the leaders of any other country. Some of them embezzle, some get into sex scandals and some even get caught up in murder conspiracies. They certainly don't seem less corrupt, as a population, than American leaders. They face some different challenges than American leaders; sometimes these challenges are easier and sometimes they are harder. China had a string of comparatively easy decisions and hit the ball out of the park. Some people over-extrapolated from that to conclude that they were the next Babe Ruth. Now they need to prove that they can hit the curve.
UPDATED - 3 DEC 2012
Poking through some old notes, I came across an op-ed from Andy Stern about China's Superior Economic Model written almost exactly a year ago. His example of Chinese success ought to humble anyone who makes predicitions:
First, the fans of Chinese leadership. In 2009, Friedman bemoaned American political gridlock compared to the "reasonably enlightened group" of autocrats running China. While the U.S. dithered, China was surging ahead with farsighted investment in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. Some argued for more autocratic methods in the U.S. Even more dramatic statements came from bloggers, like this from 2010: "There is a simple difference between West and East today, the opposite of that seen during the past few centuries. Good leadership. They have it; we do not." FM goes on, summarizing views that many others have offered:
Playing baseball a .300 hitter gets the job done even though failing 70% of the time. China’s leaders are not giants. But they make good-enough decisions with a reasonable frequency. China has serious problems, but rapid growth and competent leadership can solve serious problems.
Compare the work of China’s leaders and ours. They have implemented plans to reduce pollution, increase energy efficiency with cutting-edge power systems, and build state-of-the-art transportation systems. They have successfully managed to reduce population growth, perhaps the most serious challenge for an emerging nation. They are building a network of partners around the world, linked by loans and trade agreements. They’re [sic] chief financial problems are too-large foreign currency reserves and excessive levels of fixed investment.I disagreed with these arguments then (my verbatim posts have been lost to the sands of time, a.k.a. the the great Bloglines collapse of '12) because they were based upon a non-representative track record. China was reaping a demographic dividend, benefiting from the "catch-up" effect of what economists call "Beta-convergence, while also benefiting from opening its economy to globalization. These are fairly well-established principles, and all China's leaders had to do was decide to follow them. It took decisiveness (such as enforcing the One Child Policy) but the problems to be solved were not that complicated. To compare Chinese and American leaders was to compare apples and neutron stars.
To extend FM's metaphor, China's leaders were batting .300 in the minor leagues. Plenty of athletes don't make it that far, so it is certainly an accomplishment, but it doesn't necessarily mean that they'll do that well when the challenges get more difficult in the majors. My point is that it is premature to compare a minor league batter's average to a Ted Williams or even a Cody Ross. (To mix sports metaphors, there have been successful NFL quarterbacks who were unextraordinary at the college level - like Tom Brady - and there have been successful college QBs who bust when they get to the NFL - like Ryan Leaf.)
The past few years have presented evidence that hard problems are hard for everyone, be they China's leaders or America's. The shine on China's purported successes have begun to lose their luster. Their "state of the art transportation systems" have shown design flaws, many of its high speed rail lines are losing money, and repeated issues with officials embezzling investment funds. They managed to reduce population growth and are now facing the challenge of an aging population that will get old before it gets rich. Their "network of partners around the world" looks like a rogue's gallery. They have alienated their neighbors over territorial disputes while emerging international threats challenge and shape their foreign policy and international behavior. High levels of investment are only a facet of China's myriad economic problems and they are related to high levels of bad debt, inflation dangers and property bubbles. In short, if China's leadership is so great, why didn't they see these challenges coming and do something about them?
To bring all this home, today the NYTimes summarized the current situation:
...even as China’s vaunted export manufacturing juggernaut loses force and the Shanghai stock market remains in a slump, the Communist Party appears so distracted by its politically tangled once-a-decade leadership transition that it is unwilling or unable to pursue the more ambitious agenda that many economists say is necessary to head off a far more serious crisis in the future.Part of the challenge for China's leaders is that the actions needed will require overturning power structures that have benefited from the past thirty years of growth. One of the main recommendations of a recent World Bank study was to make China’s economy more market-oriented, including scaling back the power of state-owned companies and altering the way the government allocates resources. [pdf] Easy to say, but hard to do when those SOEs have influence with the leadership and when leaders have profited from the current way that the government allocates resources. Business leaders inside and outside of China are worried about how much China's economy has slowed as well as the prospect of future declines.
All of which leads us to a wildly bland conclusion: Chinese leaders are not any more competent than the leaders of any other country. Some of them embezzle, some get into sex scandals and some even get caught up in murder conspiracies. They certainly don't seem less corrupt, as a population, than American leaders. They face some different challenges than American leaders; sometimes these challenges are easier and sometimes they are harder. China had a string of comparatively easy decisions and hit the ball out of the park. Some people over-extrapolated from that to conclude that they were the next Babe Ruth. Now they need to prove that they can hit the curve.
UPDATED - 3 DEC 2012
Poking through some old notes, I came across an op-ed from Andy Stern about China's Superior Economic Model written almost exactly a year ago. His example of Chinese success ought to humble anyone who makes predicitions:
While we debate, Team China rolls on. Our delegation witnessed China's people-oriented development in Chongqing, a city of 32 million in Western China, which is led by an aggressive and popular Communist Party leader—Bo Xilai. A skyline of cranes are building roughly 1.5 million square feet of usable floor space daily—including, our delegation was told, 700,000 units of public housing annually.To begin with, of course, that aggressive and popular leader is not passive and barely mentioned after his sudden and public fall from grace. Meanwhile, the past twelve months haven't been kind to Chinese industrial production or economic growth in general.
Meanwhile, the Chinese government can boast that it has established in Western China an economic zone for cloud computing and automotive and aerospace production resulting in 12.5% annual growth and 49% growth in annual tax revenue, with wages rising more than 10% a year.
Friday, September 14, 2012
Romney wants more F-22s, but at what cost?
Or at least he said that in VA Beach.
On the cost question, the article quotes Loren Thompson, who cites a $900 million figure to "ramp up production" based upon a quote provided by LM when Japan was inquiring about F-22s.
There is also, however, a RAND report (Retaining F-22 Tooling: Options and Costs [pdf]) that offers far more detail than an out of context number. It provides a point estimate of $307 million (FY10 dollars) to restart production in FY13 after a complete shutdown, with a low cost estimate of $116 million and high cost estimate of $507 million (p. 17).
Once the line was restarted, the RAND report estimates that it would cost ~$17 billion (FY10) to procure 75 F-22s over five years (at an average procurement unit cost of $233 million) (p. 22).
Even these costs could increase if the period of shutdown goes longer. Critical suppliers for the F-22 program have already begun to re-purpose their equipment or even shut down (chapter 5). So the RAND estimates represent the low end of the cost spectrum because its "future" restart scenario involved production starting in FY13. Were Romney's rhetoric to turn into policy, it would be at least FY15 before it actually began to be implemented. Even so, the non-recurring restart costs are dwarfed by the recurring cost of procuring additional aircraft ($0.1 billion to $0.5 billion vs. $17.1 billion).
Thus endeth today's procurement wonkery.
On the cost question, the article quotes Loren Thompson, who cites a $900 million figure to "ramp up production" based upon a quote provided by LM when Japan was inquiring about F-22s.
There is also, however, a RAND report (Retaining F-22 Tooling: Options and Costs [pdf]) that offers far more detail than an out of context number. It provides a point estimate of $307 million (FY10 dollars) to restart production in FY13 after a complete shutdown, with a low cost estimate of $116 million and high cost estimate of $507 million (p. 17).
Once the line was restarted, the RAND report estimates that it would cost ~$17 billion (FY10) to procure 75 F-22s over five years (at an average procurement unit cost of $233 million) (p. 22).
Even these costs could increase if the period of shutdown goes longer. Critical suppliers for the F-22 program have already begun to re-purpose their equipment or even shut down (chapter 5). So the RAND estimates represent the low end of the cost spectrum because its "future" restart scenario involved production starting in FY13. Were Romney's rhetoric to turn into policy, it would be at least FY15 before it actually began to be implemented. Even so, the non-recurring restart costs are dwarfed by the recurring cost of procuring additional aircraft ($0.1 billion to $0.5 billion vs. $17.1 billion).
Thus endeth today's procurement wonkery.
