Reality vs. Perception: The 3 Minute Mile

Tuesday, December 23, 2003 | 12:20 PM

I was quite the runner back in High School. My mile times were a little over 3 minutes. Indeed, I ran the marathon in just under an hour and a half. Now that I’m in my 40s, it takes me longer to finish the 26 mile run - a touch over two hours.

Still, those are pretty respectable numbers.

Of course, those are my seasonally adjusted, inflation bracketed, annualized numbers -- not my actual track times. I simply applied the same governmental methodologies used to calculate economic statistics to my lap times.

Take this morning’s revised GDP numbers, for example: 8.2% annualized GDP growth sure sounds impressive. But that number’s fictional. GDP growth for the 3rd Quarter was 2.05%, which is then multiplied by four to derive an annual number (4 Qs= 1 year).

GDP is no more 8.2% per year than I am a 3-minute miler.

What’s so amazing about these illusions is how the markets react to them. Each week, we get treated to seasonal adjustments, revised estimates, subsequent revisions to the revisions. There’s hedonic pricing (which, trust me, you really don’t want to know about). There are nominal numbers, inflation adjusted data, and on occasion, “real” numbers.

Then there’s the GDP deflator. No one I spoke with is able to explain to me what this does or how it works. (That includes Nobel Laureates). There is some complicated applied mathematics involved; NASA’s Jet Propulsion Laboratory had some engineers figure out how the deflator functions for their website (really). But no one else actually understands how this works. That should be a red flag that we have become overly reliant on estimates and false data.

But intelligent economists admonish us to understand the limitations of data, and place it into the framework of a larger perspective of trend. See the forest and the trees.

What should matter most to market watchers, however, are the changes in underlying trends and how they impact perception versus reality. Example: Before the 3rd Quarter, the general perception of the economy was that it was worse than it actually was. After the 8.2% GDP number came out, expectations got raised so high they overshot the reality. Now, the general perception is that the economy is much better than it actually is.

That gets reflected in the disappointment in holiday retail sales - despite the fact they are going to be the best in 3 years.

Reality trumped by perception once again.

Tuesday, December 23, 2003 | 12:20 PM | Permalink | Comments (1) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Reality vs. Perception: The 3 Minute Mile:


Bull shit record for a mile is like 3 mins 50 seconds

Posted by: Ulie | Oct 15, 2008 4:09:29 PM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™