From a recent post on fivethirtyeight.com. Never let the real facts get in the way of what you want to believe.
On Moon Landings, Michelle Malkin, P-Values, the Clintons, and the Magical Mystery Dealergate Conspiracy Theory
by Nate Silver @ 5:47 PM
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On Wednesday, we ran an item about the hypothesis, put forward by certain conservative blogs, that the Obama administration was systematically more likely to close Chrysler dealerships whose owners are significant contributers to Republican political candidates. As we noted, it's absolutely true that the owners of the closed dealerships donated disproportionately to Republicans. However, as one could have learned through a few minutes of searching through FEC disclosure records, this characteristic was not unique to the owners of the closed car dealerships. Rather, auto dealers in general, whether or not their dealerships had been closed, donate disproportionately to Republican candidates -- as one might reasonably expect from a group of (mostly) wealthy, older men in suburban areas.
This morning, Marla Singer at the blog Zero Hedge provided a more sophisticated take on the subject. Instead of comparing the list of closed dealerships to the entire universe of car dealers, Singer instead went through the trouble of looking up campaign finance data for the Chrysler dealers who had been allowed to remain open, as well as those who had their businesses closed. She then ran a series of regression analyses based on this data, which produced the following results:
The key thing to look at is this table are the P-values, which are the probabilities of the outcome s occurring due to chance alone. When social scientists look at P-values in order to test the validity of a hypothesis, they are generally looking for a figure of .05 or lower, meaning there is no more than a 1 in 20 chance that an outcome could have occurred due to pure randomness. That is, they want there to be at least a 95 percent chance of the hypothesis being true.
There is a lot of debate in academic circles, which I mostly won't bore you with now, about whether the choice of 95 percent is the "right" number for tests of statistical significance. The choice of a statistical significance threshold may depend on the particular application as well as things like Bayesian priors. It's important to emphasize that no statistical analysis exists in a vacuum. There are times -- such as when I'm building a predictive model rather than trying to evaluate the "truth" behind a particular hypothesis -- when I'll include a variable even if its statistical significance is less than 95 percent. There are other times, such as when a hypothesis lacks a clear explanatory mechanism, and/or conflicts with other evidence, when I'll treat even a 95 percent positive finding quite skeptically, and would want a statistical significance threshold of 99 percent or even higher. But for better or for worse, the 95 percent threshold represents the default; if someone claims that something is "statistically significant", you can assume that they are referring to the 95 percent threshold unless they state otherwise. And if they claim that something is "highly" statistically significant, they are usually referring to a 99 percent likelihood of a positive finding or greater.
As you can see from Singer's data set, while there are some intriguing relationships in the data, none of them are particuarly close to statistically significant using the 95 percent test. The nearest "hit" is that for Hillary Clinton donors, who -- Singer found -- were slightly more likely to have their dealerships remain open. However, the associated p-value of .125 for the Clinton dealers does not imply statistical significance at the 95 percent or even the 90 percent level.
In spite of this, Singer reports that "there [is] a significant and highly positive correlation between dealer survival and Clinton donors". Although she hedges her conclusion a bit later on, this is a fairly irresponsible sentence to have written. Most people, in looking at this same exact set of data, would not only have avoided the implication that it proves the dealergate hypothesis, but would probably have come to something of the opposite conclusion: it argues strongly against the dealergate hypothesis. After all, there is no positive relationship whatsoever in the data on Democratic, Republican, Obama or McCain donations -- which until Singer's analysis was posted approximately 10 hours ago -- had been the focus of the dealergate hypothesis. In fact, in several cases -- such as for the data on Republican donations -- the coefficient has the opposite sign of the one that the purveyors of the dealergate hypothesis were hoping for. Republican donors were incrementally less, rather than more likely likely to have their dealerships shuttered, according to Singer's analysis, although the pattern is nowhere in the ballpark of being "statistically significant" as most of us would define it.
Predictably, this has not prevented people like Michelle Malkin and Doug Ross from claiming that Singer's data confirms their hypothesis. Of course, it does not confirm their original hypothesis, which was that donors to Republican candidates were more likely to have their dealership closed. Instead, a new hypothesis has evolved -- it's all about those dirty, rotten Clintons! -- the sole reed of evidence for which is Singer's overstated conclusion (but not really her underlying data itself).
Whenever you see a Magically Mystery Hypothesis like this one -- one which constantly transforms itself to fit the (lack of) available evidence -- you should be skpetical. Suppose I wanted to prove that some people are skilled at a game of chance like roulette. At the Bellagio in Las Vegas on a busy Friday evening, there are -- I don't know -- probably something like 300 people playing roulette at any given time. If I tracked their performance over the course of the evening, I would find that some of them were doing improbably well -- there would be "evidence" that about 15 of them were in fact "skilled" roulette players at a 95 percent degree of confidence. I'd also find that about 15 of them were "coolers" -- that they were doing worse than one might expect through chance alone.
Would I claim that these results are evidence that roulette is in fact a game of skill? I would certainly hope not. Instead, I'd find that the same people who were "skilled" at roulette one night were, as a group, doing no better than the average player the next night (unless they were cheating).
The way this data is being used is almost the same. Singer ran six sets of regression analysis: one each for Obama, McCain, Clinton, Democratic and Republican donors, and another for those dealers who had made no political contributions at all. She was therefore testing six hypotheses. If these hypothesis were independent from one another (which, to be clear, in this case they aren't), the odds that at least one of the six would return a p-value of .125 or lower are better than 50:50! Not only are false positives possible -- they are practically inevitable, particularly if you test enough hypotheses and tolerate a low enough threshold for statistical significance.
Why, after all, stop at Clinton donors, who until this morning had never been central to the dealergate hypothesis? Why not look at John Edwards donors, or Ron Paul donors, or donations to any of various political action committees, or donations to members of the Senate Banking Committee, or donations to Congressmen who voted for the auto bailout plan? If you looked at enough of these, you would eventually come up with a few positive results -- and then you could work backward to formulate your own conspiracy theory around it. There is a name for this sort of practice: data dredging.
At the end of the day, people are going to believe what they want to believe: some people believe that the moon landing was faked, that 9/11 was a grand conspiracy, and that Barack Obama was born in Indonesia. There is no evidence for any of these claims, but that doesn't stop tens of millions of people from believing them! Dealergate, particularly in its original formulation (that Obama was punishing Republican donors with the Chrysler closings), is in largely the same category.
Interestingly, the Washington Examiner link given at the beginning of this thread has been updated repeatedly and now says that there is no evidence of any bias against Republican donors in the dealerships identified for closure. Instead, it questions the entire need for dealership closings at all, suggesting that they are being forced on Chrysler by the administration despite Chrysler's belief that such closings are not needed. The article then suggests that dealerships are being targeted because dealership owners are a primarily Republican constituency and that any action that affects one party differentially from another must be considered partisan. What a pile of manure!
This is a letter from a Texas Dealership:
May 16, 2009
Recently, Chrysler, LLC notified Rogers Dodge, Inc., in Alvin, Texas of their anticipated closing of our dealership. Chrysler has pled their story quite publicly for several months in support of their request of billions of taxpayer dollars. This is our story.
We occupy a 3-year old Dodge-designed building for which we paid cash when it was built. It was appraised at $3,700,000 in 2007. We qualified as a Five Star dealer for the 2009 calendar year. We have remained profitable through all of this downturn. We have in excess of $1,000,000 in working capital in our dealership. We are selling at or above market share. We pay $75,000 per year in local property taxes and collect millions of dollars annually in state sales taxes. We employ 38 Alvin, Texas residents who all pay property tax, sales tax and income tax.
The owner, Mr. Peter Mankins, my uncle, owns 6 other dealerships, and has no liens on any of his properties or franchises. He has maintained a car dealership in Texarkana, Texas since the late 1960s. He purchased that dealership from my grandfather, who purchased it from my great-grandfather, who rode shotgun next to his father when he was 9, as they were settling the Oklahoma Territory. My great-grandfather started in the automotive business in the early 1900s as a motorcycle repairman, which eventually segued into an International Harvester franchise, and, subsequently, a Pontiac franchise. I have a large family, almost all of which are connected with auto dealerships in one way or another. I state all of this so that there is no confusion by Chrysler or the bankruptcy court or the US government over whether we are a group of half-committed dealers - we are not short-term auto dealers/we are committed over several generations. Chrysler and its dealers have been portrayed in the media as regressive small-town morons. Speaking solely for the dealers, I assure you this is not the case.
In the past year, we have embarked on several creative initiatives in order to remain profitable and out of bankruptcy court. We have become a very competitive used vehicle internet dealer by patterning ourselves after the most successful used vehicle internet dealers in the country. Selling more used vehicles than new vehicles is one of the stated criteria upon which Chrysler based their decision to close us. Would Chrysler have preferred their dealers join them in bankruptcy court? It was never our desire to allow ourselves to be a burden on the American taxpayers; nor do we plan this in the future. Selling more used vehicles has enabled us to not only avoid layoffs, but to actually grow our employee population from 25 to 38 during the period of May 2008 to May 2009, a 52 percent increase. Further, in the first four months of 2009, our new vehicle sales have increased by approximately 50% by employing the same innovative practices within our new vehicle department. Though Dodge district sales are down by about 50%, our new vehicle sales actually increased comparing April 2008 and April 2009. In our parts department, we have created one of very few eBay parts stores selling new factory parts. We have listed in excess of 4,000 Dodge, Chrysler, Jeep factory parts and are by far the largest internet seller of OEM DCJ parts in the world. This has increased our monthly parts sales by approximately 35% in a short 5 month period. In our service department, we have recently added an additional service advisor, a service manager, and three additional master technicians, have endeavored to maintain the least expensive oil change in town and, effective this month, extended our service hours to 14 hours per weekday and 10 hours on Saturdays. We were on track to move to 24-hour/7-day a week service hours by the end of 2009. Just this month, we hired a graduating University of Houston student as a photographer and videographer. We began the process of taking studio-quality photographs of our inventory, something which no other auto retailer in the country is doing. Evidence of our early progress with this can be found in a slideshow on our homepage at http://www.rogersdodge.com/.
When Chrysler needed dealers to purchase inventory so that the factories could keep operating and their employees could retain their paychecks, we complied and ordered 10 months of inventory. Our interest on inventory swelled from $15,000 monthly to beyond $50,000 monthly. Effectively, we took pay cuts in order to support Chrysler's cause. When Mr. Landry uttered his veiled threat that Chrysler would "remember those who supported us and those who didn't," we felt that we had done our part to support Chrysler and its workers. Now, we realize that we were just supporting our own demise. Last week, we were given three weeks to dispose of five months of inventory. In doing so, we anticipate losing in excess of $1 million - we may actually have to inject capital into our business in order to go out of business. Our $2 million plus in equity in our franchise is now completely worthless. Further, we now face the very real possibility that our new building will sit empty for months or years until someone is willing to purchase it.
Despite all of this, Chrysler is taking our franchise so that it can be given to our neighbor across the street, Ron Carter Autoland. Ron Carter Autoland has the local Ford, Chevrolet, Chrysler, Jeep, Pontiac, Buick and GMC franchises. They occupy a 40 to 50 year old building that does not comply with any manufacturer's design standards. They have recently moved their Ford, Chrysler and Jeep franchises into the same building, a violation of their franchise agreements with both Ford and Chrysler. They have recently cut their service hours, consolidated their used vehicle operations and laid off many employees. The manager, and a major shareholder, of Ron Carter Autoland is Mr. Cary Wilson, President-elect of the Houston Auto Dealers Association - apparently Mr. Wilson's political affiliation is very important to Chrysler, the bankruptcy court and the US government.
How exactly does transferring our franchise to our neighbor serve Chrysler's stated purpose of thinning out dealer numbers? The franchise will still exist - it will just have a new owner.
Though I am a Washington, DC-educated attorney and former employee of the US Department of Labor and the US Senate and an active advocate of the American way of life, it is difficult for me to view this abrogation of our franchise rights as anything more than a manipulation of US bankruptcy court and law so that Chrysler LLC can transfer wealth between dealers they like and those they dislike, those that have agreed to under-table favors and those that haven't, and to settle old vendettas. This is not the purpose of US bankruptcy protection and, surely, it isn't why the US Treasury has given billions to Chrysler to keep them in business.
This is our story; however, it is, unfortunately, not unique. Allowing this manipulation of US bankruptcy law will set a precedent that effectively invalidates all state franchise laws. Though technically a question of law, many of these closings are politically motivated. Thus, anyone with any interest in retaining the US economic system in its current form must contact their political representatives immediately. Small businesses will have no legal protections if these closings are allowed to occur. Rome is burning, America - please wake up.
Nicholas Parks, President
Rogers Dodge, Inc.
May 20, 2009
A Sliver of an update:
First, thank you to the hundreds of citizens, customers, and competitors who have wished us well with our objection to Chrysler's Motion. It's great to know that there are so many people who understand the fundamental problems with the actions of Chrysler and the Bankruptcy Court - namely, the deprivation of Due Process and erosion of Federalism present in this case.
Since being notified on Thursday that we were on the list, three of our lenders have cut us off - representing 60% of our sales business over the last 2 months. One, San Antonio Credit Union, a collective of Texas credit unions, represented 44% alone and was the beneficiary of a great, long-term relationship with this dealership. Though I understand their fears and I believe they're justifiable, they seem not to realize that, at least for a while, we are still a franchise dealer. Further, the majority of our vendors with which we maintain business relationships have revoked our credit lines, resulting in the requirement that we must purchase all goods and services in cash. This doesn't effect us much - it's just a bit of a slight. After years of perfect performance with all of our vendors, it's a little depressing - but I suppose their fears are justifiable as well.
Meanwhile, Chrysler Financial, with which we currently maintain a $4 million floorplan balance (money lent to purchase vehicle inventory) has begun the practice of checking our inventory every other day. Perhaps someone sent my letter to Detroit? I surely didn't. I hope I never encounter another Chrysler employee. Regardless, Chrysler is either using Chrysler Financial to harrass us or they also fear that we will default on our obligations. We've been a partner with Chrysler Financial for 7 years - the total time that we've owned this franchise - and have never been out of trust one time. Further, if we were to default with Chrysler Financial, it would jeopardize all of our other franchises - which is not going to happen, regardless of the cost.
Doesn't seem fair, does it?
When it stops being fun, I will find something else to do with my time and money.
Unfortunately there is nothing fair in a bankruptcy. It is a process by which courts supervise selective management decisions to abrogate contractual relationships and to renege on credit agreements in an attempt to preserve some form of on-going business. Generally, the primary beneficiaries are the managers who created the bankruptcy to begin with and the secured creditors who in some cases may have also have had a hand in the management decisions leading to bankruptcy. In the interests of preserving the business, the courts provide wide latitude to the in-place management as long as it does not go further into debt.
I personally lost about $150,000 as a result of bankruptcies of three clients. In the case of the largest, the primary secured creditor was the company that had founded the bankrupt entity. It spun off the company as a separate subsidiary with an agreement under which it provided the company access to marketing data in exchange for a $12 million secured note. No cash was actually invested, but that note was the basis for giving the company control of the creditors committee and ultimately ownership of the post-bankruptcy entity. In the final settlement it received 60% of the on-going entity, the management received 30% to ensure retention, and another secured creditor received 10% in exchange for its original investment that came in the form of a secured loan of $600,000. I was one of a number of vendors who had involuntarily funded the creation of the software, at a cost of $10 million, that was the foundation for the surviving company. None of us was ever paid for our development work but the bankrupt company retained all rights to the software (which was designed by my staff) and used it to launch their business following bankruptcy. I never received a single dime of the money I was owed. From the perspective of the courts, unsecured creditors rank only slightly ahead of shareholders, on par with vendors, and slightly behind unpaid employees.
I do not know anything about the automobile business. However, many months ago the excessive number of Chrysler and General Motors dealerships was considered to be one of the major sources of inefficiency that would need to be addressed to turn around the industry. Another were the salary and benefit structures for union employees. No matter what happens, salaries have gone down, benefits have been reduced, retirees will suffer, and a substantial number of jobs will disappear forever. For dealers, the issue is not whether or not the dealerships are profitable, but whether the distribution network would be more efficient and more profitable to the survivors if there fewer dealerships in existence. What is happening now in Chrysler is that the company is implementing those cuts. GM will follow shortly. For the consumer, prices will probably go up, for the surviving dealers there will be less competition for customers and employees, and for the manufacturer there will be less pressure for pricing discounts. If successful, the business may survive and prosper. If not, the business as a whole will close.
It is ironic that those who argue most vehemently in favor of letting economic forces call the shots are now lobbying the government to use its power as an investor to protect some of the inefficiencies that contributed to this problem in the beginning.
It is ironic that those who argue most vehemently in favor of letting economic forces call the shots are now lobbying the government to use its power as an investor to protect some of the inefficiencies that contributed to this problem in the beginning.
That is utter bullcrap, Jeff. What's so damned ironic is that the Obama enablers like you continue foisting and supporting these socialistic mandates on America. What the hell will it take for you statists to open your eyes????
If you don't see this nation slidding down the toilet every time your messianic leader spews his un-American retoric, you are truly and totally blind. And when the time comes for a reckoning, I won't be concerned about how pathetic the administration is, but will be looking for all his enablers. None of you seem to mind putting your great grandkids in bondage, but I certainly do, because as yours go down, so do mine. But then, when do any of you socialists believe in individualistic freedoms...you don't look any further than the next way you can get even. What a sickening lot you all are.
About all I see different between you and your islamic buddies is one of you wear a towel, so no one can see your ignorant guilt.
Here's a Google exercise for you jihad lovers. How many times in the Muslim "good book", the Koran, does it stipulate to "kill the infidels"? You may want to get fitted for a turban, so you aren't considered as being on the wrong side.
You may wonder why I'm so spiteful towards you, Jeff. Because you are the worst of the statists...you appear to be erudite. You fill folks heads with all sorts of smarmy bloviations, and they think you might be onto something. They can see the stupidity in the likes of Remington, or Backpasture, and others of their mentality. But every now and then, you provide some intelligence. But it's still in the socialistic vein, and that's why you present such a danger to this country.
You say you are a believer in the constitution, but see nothing wrong with the government's confiscation of private businesses in the US. Even one such act under Bush would have you and your ilk up in arms crying tyranny to the high courts. And you would be correct.
If Alito or Roberts had said anything close to the remarks made by the current SCOTUS nominee, you and the MSP would be heating up the tar, and plucking every chicken in the country.
Don't you realize what a sham your beliefs are foisting on your family? When will you see what's about to happen?...yet this year?...or will it take some real disaster for you to come to your senses. How much of the constitution must be shredded before you see what you and those in your camp are destroying?
Atlas IS shrugging, Jeff. It's coming down to the wannabes that have no clue how to maintain this nation's greatness. Will it take another 9/11 attack to wake you up, or are you waiting until they drop that bomb on your neighbor's house to realize you have been fooled by the BHO folly?
When the one you love becomes a memory, that memory becomes a treasure.
The same thing happened in Cedar Rapids. Bob Mickey Cedar Rapids Dodge/Chrysler was terminated by Chrysler. Karen Mickey, the owner, is a very large GOP supported and a profitable dealership for over 20 years with a good reputation. (We bought our Minivan there). The Franchise was then given to the dealership next door, Mike McGrath Jeep/Pontiac (former). The McGrath's are large Dem supporters, with horrible customer service records and sleezy salespersons. How does this reduce the number of dealerships if they give them to the place next door?
The Mickey's closed their doors on Tuesday.