Monday, March 7, 2016

Levels and Growth: The Twain Are Not The Same

I promised myself I will not be snarky this week.

I will not be snarky this week.

I will not be snarky this week.

Unfortunately, this week, I have a lot to be snarky about.

Take this Star article published over the weekend. Please.

I will not be snarky this week.

Ok, no more jokes. Deep breath, start again (excerpt; emphasis added).
A slowing Malaysian economy

PETALING JAYA: Businesses and consumers remain wary of the economic outlook, judging from the money supply gauges of M3, also known as broad money, and M1, a narrower definition, used to measure the amount of money circulating in the economy. What is interesting to note is that M3 has shrunk by more than 86% over a span of four years....
For M3 to decline by 86%, would require every single current account, savings deposit and fixed deposit to be withdrawn from the banking system (and you'd still have a chunk of change left over). Which isn't physically possible, because physical notes and coins only form about 5% of M3. There simply isn't enough cash in the system to handle that magnitude of decline. What he's really trying to say of course is that the growth of M3, not the level of M3, has shrunk. He's confusing growth rates with levels, and confusing the reader at the same time.

To be fair to Mr Ng, in my experience that kind of mistake is terribly common among Malaysians. I come across it way too often, both at work and in the local media. Another common mistake: stock-flow confusion, like comparing an individual's wealth or a corporate balance sheet to a country's GDP (though this error is common in other places too).

I don't know if its a flaw in the way math is taught in the Malaysian school system, or an unfamiliarity with the nuances of the English language. Either way, it's the sort of pesky little detail that can jeopardise the credibility of a piece, and the point that the author is trying to make.

Yes, I'm anal about things like this, but we live in an open, globalised world. Paying attention to details matters.

5 comments:

  1. Clarity in specifics - i think it's the most proabable problem =
    (understanding of (maths) AND (stats) ) ^incredible command of English :P

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  2. I dont think such details are pesky. It makes huge implications as you mentioned. What if students are citing this as a source for his/her research?

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  3. Sir, whats your take on Divisia approach in measuring the degree of "moneyness" in the economy? Just read about it today and it sounds interesting though

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    1. @Group 8

      Read about it a few years ago, and I fully agree with Barnett's conclusions. Some central banks actually publish Divisia aggregates or have experimented with them:

      https://research.stlouisfed.org/msi/divisia.html

      http://www.bankofengland.co.uk/statistics/Pages/iadb/notesiadb/divisia.aspx

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    2. Stanchart on Divisia:

      http://www.bloomberg.com/news/articles/2016-04-07/money-again-seen-making-economies-go-around-for-central-bankers

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