marți, 27 martie 2012

Illustrated Guide To Web Experiments

Illustrated Guide To Web Experiments


Illustrated Guide To Web Experiments

Posted: 26 Mar 2012 02:16 PM PDT

Posted by Thomas Høgenhaven

Web experimentation is a great tool to increase engagement and conversion rates. The primary strength of experiments is the possibility to isolate variables, and thus examine causality between different metrics such as tagline and conversion rate.
 
Much of the literature on experimental design has its roots in statistics and can be quite intimidating. To make it more accessible, I introduce the illustrated guide to web experiments (with some help from my brother, Andreas Høgenhaven, who kindly made the illustrations).
 
Before getting started on the experiment, you need to get the basics right: Test metrics that align with your long term business goals. Test big changes, not small. And remember that the test winner is not the optimal performance, but only the best performing variation we have tested. It doesn’t mean that you have found the all time optimal performing variation. You can (almost) always do better in another test.
 

A/B or MVT

One of the first things to consider is the experimental design. An A/B test design is usually preferred when one or two factors are tested, while a multivariate test (MVT) design is used when two or more independent factors are tested. However, it is worth noting that 2+ factors can be tested with A/B/n tests or with sequential A/B tests. The downside of using A/B test for several factors is that it does not capture interaction effects.
A-B test vs MVT

MVT Face-off: Full Factorial vs Fractional Factorial

So you want to go multivariate, huh? Wait a second. There are different kinds of multivariate tests. If you have ever visited Which MVT, you probably came across terms such as full factorial, fractional factorial, and modified taguchi. Before getting into these wicked words, let's get our multivariate test down to earth with an example. In this example we have 3 different factors, and each factor has two conditions.
 
 
In this case there are 3 factors each with 2 combinations, giving a total of 23 = 8 groups. In the full factorial design, all possible combinations are tested. This means 8 variations are created, and users are split between these. In the following table, +1 Indicates condition on while -1 indicates condition 2.
 
Full Factional Vs Fractional Factorial Experiment
 
This design is not too bad when we have 3 factors with 2 conditions in each. But if we want to test 4 factors each comprising 4 conditions, we will have 44 = 256 groups. Or if we want to test 10 different factors with 2 conditions in each, we will end up with 210 = 1,024 groups. This will require a lot of subjects to detect any significant effect of the factors. This is not a problem if you are Google or Twitter, but it is if you are selling sausages in the wider Seattle area (You can calculate the test duration time with Google's Calculator and VisualWebsiteOptimizers Calculator. These calculators are, however, based on very imprecise data because the change in conversion rate is unknown. That is kinda the point of the test).
 
Enter fractional factorial design. The fractional factorial design was popularized by Genichi Taguchi and is sometimes called the Taguchi design. In a fractional factorial design, only a fraction of the total number of combinations are included in the experiment. Hence the name. Instead of testing all possible combinations, the fractional factorial design only tests enough combination to calculate the conversion rate of all possible combinations.
 
In this example, it is sufficient to run 4 different combinations, and use the interaction between included factors to calculate combination of factors not included in the experiment. The 4 groups included are ABC; A + (BC); B + (CA); C + (BA).
 
Instead of testing Factor A 3 times, it is only tested once while holding B and C constant. Similarly, Factor B is tested once while holding A and C constant, and Factor C tested once while holding A and B constant. I'll not deep too deeply into the statistics here, as the experimental software does the math for us anyway.
 
The fractional factorial test assumes that the factors are independent of one another. If there are interactions between factors (e.g. image and headline), it'd affect the validity of the test. One caveat of the fractional factorial design is that one factor (e.g. A) might be confounded with two-factor interactions (e.g. BC). This means that there is a risk that we end up not knowing if the variance is caused by A or by the interaction BC. Thus, if you have enough time and visitors, full factorial design is often preferable to fractional factorial design.
 

Testing The Test Environment With The A/A Test

Most inbound marketers are quite familiar with A/B tests. But what is less known is the A/A test. The A/A test is useful as a test of the experimental environment, and is worth running before starting A/B or MVT tests. The A/A test shows if the users are split correctly, and if there are any potential misleading biases in the test environment.
 
 
In the A/A design, users are split up like they are in an A/B or MVT test, but all groups see the same variation. We want the test results to be non-significant, and thus see no difference between the groups. If the test is significant something is wrong with the test environment, and subsequent tests are likely to be flawed. But as discussed below, an A/A test is likely to be significant sometimes, due to random error / noise.
 
The A/A test is also a good way to show co-workers, bosses, and clients how data fluctuate, and that they should not get too excited when seeing an increase in conversion rate with 80% confidence. Especially in the early phases of experiments.
 

Statistical Significance

In the ideal experiment, all variables are held constant except the independent variable (the thing we want to investigate, e.g. tagline, call to action, and images). But in the real world, many variables are not constant. For example, when conducting an A/B test, the users are split between two groups. As people are different, the two groups will never comprise similar individuals. This is not a problem as long as the other variables are randomized. It does, however, inflict noise in the data. This is why we use statistical tests.
 
 
We conclude that a result is statistically significant when there is only low probability that the difference between groups is caused by random error. In other words, the purpose of statistical tests is to examine the likelihood that the two samples of scores were drawn from populations with the same mean, meaning there is no "true" difference between the groups, and all variation is caused by noise.
 
Statistical significance in Google Webmaster Tools
 
In most experiments and experimental software, 95% confidence is used as the threshold of significance, although this number is somewhat arbitrary. If the difference between two group means is significant at 98% probability, we accept it as significant even though there is a 2% probability that the difference is caused by chance. Thus, statistical tests show us how confident we can be that difference in result are not caused by chance / random error. In Google Website Optimizer, this probability is called chance to beat original.
 

Pro Tip: Ramp Up Traffic To Experimental Conditions Gradually

One last tip I really like is ramping up the percentage of traffic sent to experimental condition(s) slowly. If you start out sending 50% of the visitors to the control condition, and 50% to the experimental condition, you might have a problem if something in the experimental condition is broken. A better approach is to start sending only 5% of the users to the experimental condition(s). If everything is fine, go to 10%, then 25% and finally 50%. This will help you discover critical errors before too many users do it.
 
Ps. If you want to know more / share your knowledge on experiments and CRO tools, you might want to have a look at this CRO Tools Facebook Group.

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Unnatural Link Warnings and Blog Networks

Posted: 26 Mar 2012 04:26 AM PDT

Posted by Carson Ward

Advice and Confessions from a Reformed Link Network Spammer

There was only one time when link building was the easiest, least challenging part of my SEO work. I was a link network spammer, relying upon services with names like "blog networks" and "article networks." These services allow paid subscribers to post their content to a network of sites for the sole purpose of building links. Because the sites aren't meant to be read by people, many networks accept and actively encourage spun content. The resultant content quality is absolutely horrific.

Sodium Body of water Town - Uhhh, you mean Salt Lake City?

I pulled this example from an active blog network site. "Sodium Body of water Town" is spun garbagese for "Salt Lake City."

Using blog networks, I had multiple sites penalized, re-included, and, once I had learned the ropes, I even had a few that gained rankings and escaped unharmed. I ultimately gave up my spam-content ways because it became clear that it was not an effective long-term strategy. The writing was on the wall - Google was getting smarter, and I was at risk of losing any time I invested.

And the writing was, and still is, on the wall. Google rolled out Panda, which dealt a heavy blow to some blog and article networks that had paid almost no attention to users. Starting this year, blog networks, both private and public, starting dropping. In one of the highest-profile incidents, Google crippled BMR's blog network.

Webmasters began receiving warnings in Google Webmaster Tools around the same time that now strike fear into the hearts of those using manipulative or questionable tactics to build links:


Google WMT Warning Google Webmaster Tools notice of detected unnatural links to http://example.com/


Dear site owner or webmaster of http://example.com/,

We've detected that some of your site's pages may be using techniques that are outside Google's Webmaster Guidelines.

Specifically, look for possibly artificial or unnatural links pointing to your site that could be intended to manipulate PageRank. Examples of unnatural linking could include buying links to pass PageRank or participating in link schemes.

We encourage you to make changes to your site so that it meets our quality guidelines. Once you've made these changes, please submit your site for reconsideration in Google's search results.

If you find unnatural links to your site that you are unable to control or remove, please provide the details in your reconsideration request.

If you have any questions about how to resolve this issue, please see our Webmaster Help Forum for support.

Sincerely,

Google Search Quality Team

In short: you're caught - the game is up. Some sites received this warning without penalties, and some sites were penalized immediately. In either case, the links need to be taken down to retain or regain rankings. So what now?

Identifying Posts from Blog Networks

There are plenty of webmasters, site owners, and SEOs who have no idea what Google is talking about when they receive the warning. For example, I recently spoke with a friend from a reputable SEO agency who had the bad lack of taking over the same week his client was penalized for the previous SEO firm's work. In any case, the first step to fixing the problem is finding the links in question. We can use tools like Open Site Explorer and Google/Bing Webmaster tools to find bad links.

Because BMR's sites have already been outed, penalized, and rendered useless for the foreseeable future, we can use an old BMR site as examples of what to look for:

BMR-spam-blog-example

That's right - you can get misinformation about water shoes, Dubai shopping, and constipation remedies - all in one place! BMR posts actually had limited quality reviews, making them higher quality than most existing blog networks. 

The identifying marks of a blog network post are as follows:

  1. Terrible content and a boring template; you find yourself asking, "Why would anyone ever subscribe to this blog?"
  2. Topics are jumped, unrelated to the site's theme, and categorization is poor.
  3. There is rarely an about section, author name, or means of contact.
  4. Lots and lots of exact-match anchor text seemingly pointing to sites at random.
  5. Posts tend to be 400-500 words with 2-3 links per post - generally all to the same site.

If you have recently received an unnatural link warning, there's a pretty good chance that you have a lot of links like this in your link portfolio. You will also wish to look for footer/blogroll links, especially from irrelevant sites, and any other links that were clearly not intended to be viewed by visitors. 

Fixing and Recovering From Unnatural Link Penalties

There is a way back to Google's good graces, but it's not going to be fast, and it's unlikely that your traffic will reach the same heights it once did if you relied heavily on link networks or paid links to gain rankings. Once you're caught, you must sacrifice all paid or spammy links, submit a reconsideration request, and develop a legitimate backlink portfolio.

Removing Penalization-Inducing Links

The removal of links has to be thorough, or the reconsideration request will be denied. If you rent links on a monthly basis, the obvious step is to stop paying for the links and request their removal. If your links were built by an external company, contact them and see what they can do about taking any links from blog networks offline. For BMR users, I recommend clicking the following link, which BMR was professional enough to offer:

Take them all down! Now leave the site without exporting those low-quality posts that you won't need, thanks to the fantastic new link-building strategy you're going to develop. Other link networks often provide simple solutions to taking down your links - speak with the person who put these links up if you don't have access.

In the case of paid links not submitted through a blog network, you may have to contact the site directly and request removal of links. It's a tedious process, but a reasonable effort has to be made. 

Submitting a Reconsideration Request

If your site hasn't been penalized yet, but you received the warning, you can skip this step. Do not skip the step above, as you will eventually face into a penalty if you don't clean up your act and link portfolio. In a blog post on 6 Ways to Recover from Bad Links, Dr. Pete offers some advice for reconsideration requests:

  • Be honest, specific and detailed.
  • Show that you’ve made an effort.
  • Act like you mean it (better yet: mean it).

You have to explain that you have changed your views and your strategic focus. A good way to show effort is by including a link to an accessible Google Doc spreadsheet showing the bad links, which ones were removed, and which ones you made unsuccessful efforts to remove. Be specific, and touch on everything requested on the reinclusion request form:

Tell us more about what happened: what actions might have led to any penalties, and what corrective actions have been taken. If you used a search engine optimization (SEO) company, please note that. Describing the SEO firm and their actions is a helpful indication of good faith that may assist in evaluation of reconsideration requests. If you recently acquired this domain and think it may have violated the guidelines before you owned it, let us know that below. In general, sites that directly profit from traffic (e.g. search engine optimizers, affiliate programs, etc.) may need to provide more evidence of good faith before a site will be reconsidered.

Be open and specific about what you were doing, what you changed to comply with Google's guidelines, and what you will do going forward. Right now there is doubtless a long line of websites requesting reinclusion, so make sure you've done a good clean-up. The last thing you want is to have to go through the whole process again in a few months. You'll also have to be patient, especially if you're a smaller site or lesser-known brand. In the meantime, though, we will develop a legitimate link-building strategy.

Build a Legitimate Link Portfolio

Under most conditions, Google appears to assess link penalties algorithmically. Most of the sites that I have seen receiving warnings about unnatural links have serious problems with the over-optimization of anchor text and links from low-quality sites.

Link penalties - exact match over optimization and spammy sites

Low quality sites, in this diagram, refers to sites (and pages) that have little or no relevance, few incoming links, unnatural link portfolios of their own, and few branding signals. Having too much exact-match anchor text from legitimate domains is a hard thing to do, but it has happened through things like widgets with unnatural anchor text.

Building links from legitimate sources is hard, and in competitive and boring industries it take a lot of creativity and work. Some have taken this as a license to manipulate rankings and build spammy links.

In competitive and boring industries; however, the online world looks very much like the real world. The secret to success in both is a unique selling point (USP): what makes you different or better than your competitors? Your USP can be customer experience, site interactivity, prices, or content resources. Online businesses will profit in much the same way that offline businesses did and continue to.

It is time to start thinking of ways to build links and attract users in a way that is scalable, effective, and long-term. Building links manually is boring, difficult, and often unrewarding. There's a reason a lot of industry leaders have been talking about content marketing.

New Questions and Concerns

There's a lot of change in this industry, and we've become good at adapting and changing our roles. As with all significant changes, there have been a flood of questions about what to do. First, I do not think that this was related to Google's reported semantic search or the upcoming over-optimization penalty. The later was was pre-announced after large numbers of sites had already been pummeled my something else entirely. 

My Blog Network is Running Strong. Should I Stop?

Yes. Those who have not received warnings for using blog networks should recognize that blog networks are not a sustainable long-term strategy. You're spending time building bad links instead of relationships and branding. Additionally, Google has hit several blog networks, and it's likely to continue. Standing and waiting for the hammer to fall is strategy at its absolute worst.

Couldn't I Hurt Competitors?

The last defense for the link spammer is a fallacious line of reasoning: "search engines can't penalize me, because I could do it to my competitors." Yes, in theory, you could trigger a link spam penalty on a competitor site. You will find; however, that companies with strong branding signals who have built real editorial links - usually the companies that actually rank highly - are nearly impervious to link spam attacks. 

Yes, you can do horrible things to other people - but why? Ethics aside, it just doesn't make sense in this industry to waste effort tearing others rather than building a site up. Restaurant owners don't go around attacking nearby restaurant owners' stores, because it takes a lot of effort and, even if you do temporarily close a restaurant, it doesn't really bring new customers. There are a lot of restaurants in the city - and even more sites on the internet.

Note that there may be legal ramifications if you successfully harm a competitor with link spam. Once the subpoenas start falling, the invincible feeling of anonymity disappears quickly.

Strategies for Agencies

One line in the reconsideration request stood out to me:

"Describing the SEO firm and their actions is a helpful indication of good faith"

People rarely describe a company without mentioning its name. What actions might we expect from firms mentioned in multiple reconsideration requests? Direct action is unlikely, but companies who relied on networks to build links to clients' and their own sites may be wise to worry, devise a new strategy, and stop publishing crap.

I have absolutely no interest in the obnoxious and mostly-imaginary "war" between white hat and black hat SEO. Whether you care about adding value to users - and at the world of link penalties and Panda, it's insane not to - it's time to drop tactics and schemes like blog networks. The links have been low value for a long time, but now they carry with them an unacceptable risk.


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What was President Obama doing in Korea?

The White House Your Daily Snapshot for
Monday, March 26, 2012
 

What was President Obama doing in Korea?

Today, President Obama heads home from South Korea -- after a busy three days of diplomatic meetings and discussions of nuclear security.

This is the President's third official visit to South Korea, and as he pointed out, he's been to Seoul more than any other capital. That fact obviously to speaks the strength of the political relationship between our two nations, but it also highlights our growing economic ties.

That's why President Obama worked so hard to pass the U.S.-Korea Trade Agreement -- which will help to support an estimated 70,000 jobs in the years ahead and increase U.S. GDP by at least $11 billion due to increased exports of goods.

Infographic

In Case You Missed It

Here are some of the top stories from the White House blog:

Dr. Jill Biden: Military Support Will Define Future Leaders
At the 2012 4-H Youth Conference, Dr. Jill Biden applauded the support 4-H has always given military families, saying the Club has always provided "military-connected children [with] an outlet -- a chance to use their talents -- and helped them reach their full potential,” she said.

President Obama Talks Title IX
President Obama discusses how Title IX has made society more equal.

Invest in a Clean Energy Future by Ending Fossil Fuels Subsidies
Instead of subsidizing the fossil fuels of the last century by giving away $4 billion of taxpayer money each year to oil companies that are more profitable than ever, we should be investing in a clean energy future--especially when gas prices are high and drivers, whose budgets are already stretched thin, are feeling the pain at the pump.

Today's Schedule

All times are Eastern Daylight Time (EDT).

1:30 AM: The President attends a second plenary session

4:00 AM: The President holds a bilateral meeting with Prime Minister Yousaf Raza Gillani of Pakistan

5:30 AM: The President departs Seoul, Republic of Korea

7:45 AM: The Vice President hosts a breakfast meeting with Secretary of State Clinton

9:40 PM: The President arrives Washington, DC

9:55 PM: The President arrives the White House

WhiteHouse.gov/live Indicates that the event will be live-streamed on WhiteHouse.gov/Live

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Seth's Blog : Making big decisions about money

Making big decisions about money

We're bad it. And marketers know this.

Consider: you're buying a $30,000 car and you have the option of upgrading the stereo to the 18 speaker, 100 watt version for just $500 more. Should you?

Or perhaps you're considering two jobs, one that you love and one that pays $2,000 more. Which to choose?

Or...

You are lucky enough to be able to choose between two colleges. One, the one with the nice campus and slightly more famous name, will cost your parents (and your long-term debt) about $200,000 for four years, and the other ("lesser" school) has offered you a full scholarship.

Which should you take?

In a surprisingly large number of cases, we take the stereo, even though we'd never buy a nice stereo at home, or we choose to "go with our heart because college is so important" and pick the expensive college. (This is, of course, a good choice to have to make, as most people can't possibly find the money).

Here's one reason we mess up: Money is just a number.

Comparing dreams of a great stereo (four years of driving long distances, listening to great music!) compared with the daily reminder of our cheapness makes picking the better stereo feel easier. After all, we're not giving up anything but a number.

The college case is even more clear. $200,000 is a number that's big, sure, but it doesn't have much substance. It's not a number we play with or encounter very often. The feeling about the story of compromise involving something tied up in our self-esteem, though, that feeling is something we deal with daily.

Here's how to undo the self-marketing. Stop using numbers.

You can have the stereo if you give up going to Starbucks every workday for the next year and a half. Worth it?

If you go to the free school, you can drive there in a brand new Mini convertible, and every summer you can spend $25,000 on a top-of-the-line internship/experience, and you can create a jazz series and pay your favorite musicians to come to campus to play for you and your fifty coolest friends, and you can have Herbie Hancock give you piano lessons and you can still have enough money left over to live without debt for a year after you graduate while you look for the perfect gig...

Suddenly, you're not comparing "this is my dream," with a number that means very little. You're comparing one version of your dream with another version.


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luni, 26 martie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Illusion of Cheap Money; Major Promises in Europe But No Real Reform; Does the Bond Market Have it Wrong? 30 years of Japanisation?

Posted: 26 Mar 2012 05:29 PM PDT

Major Promises But No Reform

Steen Jakobsen, chief economist at Saxo Bank in Denmark discusses the illusion of cheap money, bond market yields, and the lack of European reform in his latest email.
In Spain, things are going from bad to worse. Last weekend's local election in Andalucia, where Spain's centre right People's Party failed to secure an outright majority, left Prime Minister Rajoy without a mandate to carry on with tough austerity.

It was a bad start to week where we on Thursday will see a major general strike aimed at… Yes, you guessed it: Austerity measures.

Spain 10-Year Bonds and 5-Year CDS



Illusion of Cheap Money

The European story remains one of major promises and no actual reforms. A low interest rate and an extreme sense of "security" created by the illusion of easy money and low interest rates won't last forever.

As I wrote in Interest rates: the market has it all wrong, we could be on route to an exit strategy from central banks which at a bare minimum will be a goodbye to "unconventional measures" and if so, the low in interest rate cycle is in place.

30 years of Japanisation?

The only way central banks can create a proper exit from unconventional is to hand over the torch to reforms from governments and politicians. Unlikely, yes, needed?

Absolutely, otherwise we are doomed to 30 years of Japanisation.
I concur with the above analysis. What cannot last forever by definition won't. That includes a market whose only focus at the moment is on the "illusion of cheap money".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List


Bernanke Puzzled Over Jobs, Cites Okun's Law; Six Things Bernanke is Clueless About

Posted: 26 Mar 2012 10:06 AM PDT

Bernanke's blind faith in empirical formulas over common sense is again in play with his speech today on Recent Developments in the Labor Market.
In any given month, a large number of workers are being hired or are leaving their current jobs, illustrating the dynamism of the U.S. labor market. For example, between 2001 and 2007, private employers hired nearly 5 million people, on average, each month. Total separations, on average, were only slightly smaller. Taking the difference between gross hires and separations, the net monthly change in payrolls during this period was, on average, less than 100,000 jobs per month--a small figure compared to the gross flows.

The recent history of these flows suggests that further improvement in the labor market will likely need to come from a shift to a more robust pace of hiring. As figure 7 shows, the declines in aggregate payrolls during the recession stemmed from both a reduction in hiring and a large increase in layoffs. In contrast, the increase in employment since the end of 2009 has been due to a significant decline in layoffs but only a moderate improvement in hiring. To achieve a more rapid recovery in the job market, hiring rates will need to return to more normal levels.



The Change in Unemployment and Economic Growth: A Puzzle?

What will lead to more hiring and, consequently, further declines in unemployment? The short answer is more-rapid economic growth. Indeed, the improvement in the labor market over the past year--especially the decline in the unemployment rate--has been faster than might have been expected, given that the economy during that time appears to have grown at a relatively modest pace. About 50 years ago, the economist and presidential adviser Arthur Okun identified a rule of thumb that has come to be known as Okun's law. That rule of thumb describes the observed relationship between changes in the unemployment rate and the growth rate of real gross domestic product (GDP). Okun noted that, because of ongoing increases in the size of the labor force and in the level of productivity, real GDP growth close to the rate of growth of its potential is normally required just to hold the unemployment rate steady. To reduce the unemployment rate, therefore, the economy must grow at a pace above its potential. More specifically, according to currently accepted versions of Okun's law, to achieve a 1 percentage point decline in the unemployment rate in the course of a year, real GDP must grow approximately 2 percentage points faster than the rate of growth of potential GDP over that period. So, for illustration, if the potential rate of GDP growth is 2 percent, Okun's law says that GDP must grow at about a 4 percent rate for one year to achieve a 1 percentage point reduction in the rate of unemployment.

In light of this historical regularity, the combination of relatively modest GDP growth with the more substantial improvement in the labor market over the past year is something of a puzzle. Resolving this puzzle could give us important insight into how the economy is likely to evolve.
Okun's Law is Useless

There is no puzzle. Rather, Bernanke fails to see the obvious.

  1. Demographics are vastly different today in the face of boomer retirements than they were 50 years ago.
  2. This a not typical cyclical recession. Instead, it's a consumer deleveraging and balance sheet recession.


Instead of relying on charts, Okun's Law and the Beveridge Curve, how about a little common sense?

Bernanke concluded with ...
... cyclical rather than structural factors are likely the primary source of its substantial increase [in long-term unemployment] during the recession. If this assessment is correct, then accommodative policies to support the economic recovery will help address this problem as well. We must watch long-term unemployment especially carefully, however. Even if the primary cause of high long-term unemployment is insufficient aggregate demand, if progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one.

If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited. Even if that proves to be the case, however, we should not conclude that nothing can be done. If structural factors are the predominant explanation for the increase in long-term unemployment, it will become even more important to take the steps needed to ensure that workers are able to obtain the skills needed to meet the demands of our rapidly changing economy.
Cyclical or Structural Problem?

Bernanke thinks the problem is cyclical. Moreover, his structural thesis involves training. Good grief. He is clueless on both counts.

Instead of his cyclical theory, I propose Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation.

The problem is debt and deleveraging, not retaining. Bernanke wants consumers to spend more. However, boomers are up to their eyeballs in debt, facing retirement with insufficient income, and a need to downsize lifestyles. These are not the typical cyclical forces, this is a massive demographic shift. Factor in global wage arbitrage and student debt, and the problems are massive.

Middle-Aged Borrowers Pile on Student Debt

Speaking of student debt, Bernanke also missed the fact that Middle-Aged Borrowers piled on student debt hoping to get a better job.

Such debt has a negative payback. For a discussion, please see Consumer Credit "Demolishes Expectations" Really? No Not Really! The "Non-Bounce" in Non-Revolving Credit

People going back to school and staying in school longer explains a significant part of the decline in the participation rate.

Disability Fraud

Looking for another reason for an artificially low unemployment rate?

Consider disability fraud, people claiming disabilities they do not have such as mental illness. Prior to the great recession 33% of applicants claimed mental illness. The number is 43% now.

There was fraud before, of course. There is even more fraud now.

Please see Disability Fraud Holds Down Unemployment Rate; Jobless Disability Claims Hit Record $200B in January for further discussion.

Is Bernanke Angry With Bond Market?

MarketWatch proclaims Bernanke getting angry at the bond market
There are lots of ways to interpret the Federal Reserve's continual talking down of the U.S. economy, but the comments from Ben Bernanke on Monday have a clear target: the bond market.

Ben has commanded: "Thou shalt take risk." He also has commanded from Mount Jackson Hole, and other venues: "Bond rates shall stay low."

But Wall Street traders were starting to disobey. The yield on the 10-year note 10_YEAR +1.70% has been heading the other way. UBS economists have declared the three-decade long bull rally in government bonds is set to end.

Bernanke is fearful that an increase in yields will kill off the recent gains seen in the U.S. economy. That's why the Fed has started quarterly press conferences and revealing the interest rate forecasts of Federal Open Market Committee members — all to keep a better grip on interest rates.

But that grip is loosening, and probably not helped by the hawks on the Fed who have been on the warpath saying the central bank really isn't committed to low rates, after all. Just an hour before Bernanke spoke, Philadelphia Fed President Charles Plosser was in Paris, warning an audience of a central bank without boundaries.

Bernanke is willing to tolerate the likes of Plosser and Dallas Fed Chief Richard Fisher in the name of academic diversity so long as no one actually believes them. But confronted with evidence the hawks are making inroads, Bernanke went to Arlington, Va. to say who's boss. The U.S. economy needs low interest rates and the Fed's bond purchases, Bernanke said
Is Bernanke commanding the bond market or is Bernanke simply clueless?

 Six Things Bernanke is Clueless About

  1. Bernanke somehow missed the fact that demographics are vastly different today than they were 50 years ago.
  2. Bernanke somehow missed the fact this a not typical cyclical recession. Instead, it's a consumer deleveraging and balance sheet recession.
  3. Bernanke missed student debt problems
  4. Bernanke missed structural problems of debt deflation
  5. Bernanke missed disability fraud explanation of falling participation rate
  6. Bernanke missed middle-age re-schooling reason for falling participation rate

Through it all, Bernanke wonders why Okun's Law does not appear to work. Is that clueless or what?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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