Some key figures tackling the global recession found this paper a useful addition to the debate at the heart of which is this key question: is it best to let debt increase in the hope of stimulating economic growth to get out of the slump, or is it better to cut spending and raise taxes aggressively to get public debt under control?But the calculation was wrong.
EU commissioner Olli Rehn and influential US Republican politician Paul Ryan have both quoted a 90% debt-to-GDP limit to support their austerity strategies.
April 21, 2013
A student finds major mistakes in a famous paper by 2 Harvard economics professors.
Carmen Reinhart and Ken Rogoff "Growth in a Time of Debt" supposedly showed that "economic growth slows dramatically when the size of a country's debt rises above 90% of Gross Domestic Product, the overall size of the economy."
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78 comments:
What? Academics make mistakes? Heaven's to mergatroid skippy, what's next?
If you read down to the bottom of the article, you'll see that the correct result was *also* that debt is bad for growth.
Whether or not the premise in the paper is right or wrong, debt as high as 90% (it is over 100% now I believe) is always imprudent. Politicians driving spending are not economists nor do they understand simple credit rules.
Spending is out-of-control and no one will shut it down. If it takes austerity and a little bit of hurt, then so be it.
So, it's news that Republicans would rely on ideas that are wrong? I'm so shocked.
No economy ever grew because of tax hikes. No economy ever grew because of social spending. One can make the argument that borrowing and spending on needed infrastructure can enhance growth, the Interstate Highway program certainly shows that but spending to spend on things like bridges to nowhere or airports where they aren't justified does not enhance growth. Japan is proof of this.
I would like to see how many countries have a 90% or higher debt to GDP ratio and trending upward that are actually growing. Our growth rate over the last four years when the recession officially ended han't been enough to absorb new hires let alone the currently unemployed. Also show me a country with these debt levels that actually has fiscal and regulatory policies that promote private sector growth.
O Ritmo Segundo said...
So, it's news that Republicans would rely on ideas that are wrong? I'm so shocked.
It's hardly shocking to see Ritmo cannot understand the implications of the error. The error means the difference in growth rates is slightly less but still in evidence.
The Baaston types have been making math errors since MA was the only state to go for McGovern.
O Ritmo Segundo said...
So, it's news that Republicans would rely on ideas that are wrong? I'm so shocked.
Nor is it news a couple of Ivy Leaguers can't do math.
Plenty of those at 1600 Pennsylvania these days.
Maybe it causes a debt feedback loop on the debt hockey stick.
Nor is it news a couple of Ivy Leaguers can't do math.
The ones in service to Republican'tarianism? That's no surprise indeed!
If Republican'ts could do math they would be Republicouldn'ts.
I'm not an economist, but I've observed the term "austerity" to be whatever the tax and spenders and socialists want it to mean.
It can't possibly mean "Hey, maybe we should stop spending like drunken sailors." Just that. Stop spending, like...oh, like happens when I don't have the actual cash to pay for something, nor do I see being able to afford to pay off future debt over it AND that it would probably be wrong to rob somebody else to subsidize my wants.
I dunno. Austerity is confusing. So here we are, meanwhile, increasing our debt to levels no one believes we'll pay off and raising taxes, too. This is...what? What word could we use to describe this plan?
I can come up with Stupidity.
LMAO @ Ritmo...being wrong when he thinks he's being right.
Story of his life, eh?
How embarrassing for the Harvard economists. Good on them to share the actual spreadsheet though, although I don't think that's unusual for a published piece.
Trying to replicate others' work is a great exercise for a grad student. It really makes you realize what needs to be included in anything you publish.
O Ritmo Segundo said...
So, it's news that Republicans would rely on ideas that are wrong? I'm so shocked.
Revenant said...
If you read down to the bottom of the article, you'll see that the correct result was *also* that debt is bad for growth.
Imagine my surprise.
Shorter Ritmo
I think,I soiled myself.
You don't need academia to figure out the theory and how wrong it is, CEO. Old Europe's been more austere than America and its recovery's been worse. As the country that actually implemented stimulus, and had a better recovery than those that went the other way and tried austerity, the data is in. Austerity doesn't work. Stimulus does. Don't vote Republican. They simply Republican't.
By the way -- the calculation wasn't wrong. It just didn't include all the data.
Far be it from me to distract wyo from pontificating to us her expertise on toilet habits, but none of this changes the fact that Republican'ts still can't tell the difference between long-term debt and immediate recovery measures. Nothing in the article, right or wrong (its credibility now besmirched anyway), changes that, either.
Hurray!!!! We get to keep spending!!!!
Rits, you're really good at pivoting away and lining up the straw men to tilt at, I'll give you that!
Please, actually look at what's going on in most of Europe and explain to us how that's "austerity" and please, look at the results of the stimuli employed in the US and tell us how you arrived at your conclusions.
Show your work.
It's simply a question of how things are ordered. First you need growth to pay off debt. If your growth sucks, you need to spend. Once growth, then pay down debt.
Republican'ts have a brain problem that causes them to reverse every one of these very obvious precepts.
Oh, and also, Hayek was a philosopher, not an economist. Just thought I'd take this opportunity to throw that one out there.
CEO:
As a Republican't, perhaps you must be confusing pre-existing levels as your benchmark bar for what constitutes austerity. This is wrong. Austerity and stimulus are responses to economic calamity - short-term measures. Social spending is a function of policy irregardless of recession/depression. Most of Europe's RESPONSE to the Republican't Recession was to cut. Ours was to spend. Our growth has surpassed those of countries implementing austerity. Try GOOGLE trends if you want some public data on this.
Put Herndon to work on some global warming papers. He might turn up something.
O Ritmo Segundo said...
Far be it from me to distract wyo from pontificating to us her expertise on toilet habits, but none of this changes the fact that Republican'ts still can't tell the difference between long-term debt and immediate recovery measures. Nothing in the article, right or wrong (its credibility now besmirched anyway), changes that, either.
4/21/13, 3:46 PM
Six trillion and counting. Where is the growth? By the way, the debt isn't that long a term so when rates can't be kept artificially low then the government will have to make the real austerity cuts. Democrats can't tell the difference between an expense and an investment but far it be it from me to point that out to you.
"By the way -- the calculation wasn't wrong. It just didn't include all the data."
Perhaps the "calculation" wasn't wrong, but if it "didn't include all the data," then the result would be wrong, no?
"If you read down to the bottom of the article, you'll see that the correct result was *also* that debt is bad for growth."
Which article? The one Prof. Althouse links to? Or another one somewhere else? Here's all I see at the end of the article:
"Thomas Herndon 's view is that austerity policies are counter-productive."
Or are you referring to the remark by Megan McArdle, which is her opinion, based on research she refers to without naming.
Six trillion and counting. Where is the growth?
Check GOOGLE trends, d-bag. It's better than any country in Europe's. East Asia and Latin America are better, and were before the Republicession. But they are not as heavily industrialized/advanced.
I apologize for bothering your ignorance long enough to ask you to look at the publicly available data on countries that have implemented these strategies as a response for the sake of a simple comparison. You know, facts and all that.
I hope this doesn't force you to have to come up with newer and more creative lies to make up to the public. It might be very, pardon the pun, taxing. Maybe watch a Mad Men episode. I'm sure you'll figure it out.
I can remember in the eighties when the Dems were pretending that they cared about our debt and too much government spending and at that time our debt to GDP was only about 35%. Most of us knew they were just pretending, they were pretending because we had a Republican president, but they went on and proved that they weren't serious about our debt or excessive government spending under Clinton until he got religion after his party's 1994 congressional defeat.
I think under Obama our debt to GDP will soon be close to 100%. And annual government spending as a percent of GDP grew from 20% to about 25%.
We have to "spend it to see what's in it", dreams.
From the article...
"All these results were published by Thomas Herndon and his professors on 15 April, as a draft working paper. They find that high levels of debt are still correlated with lower growth - but the most spectacular results from the Reinhart and Rogoff paper disappear."
So the error amplified the effect, and fixing the error reduced the effect, but still supported the basic finding: debt crowds out growth. Not shocking, at all, especially if one has a basic understanding of market economies.
Oh oh.
Thread is troll infected.
Too bad.
This could have been an interesting discussion.
This could have been an interesting discussion.
Don't worry, Tim. It never stopped your gang from making up their own facts before and it won't stop them now.
I refer to your "colleagues" here because you have so little of your own ideas to actually say.
The principle supporting debt accumulation is that it is possible to borrow against future earnings with a presumption that those earnings will ultimately be realized through investments in the present. This is theoretically a reasonable hypothesis, but the outcome is not guaranteed, and there is no historical evidence that a mature economy is capable of increasing productive output at a rate approaching 10%, which is our current federal debt accumulation rate.
Obama's economic model relies on manipulating perception. His JournoLists, advocates, and activists play interference from their publicly privileged stations.
Obama promises people instant (or immediate) gratification without perceived consequences. This cannot be reasonably achieved in reality, except for the benefit of a select minority. In fact, it is coerced or fraudulent exploitation of the majority for the political, economic, and social benefit of a minority, which forms the basis of communism, socialism, fascism, etc.
Obama is at best purchasing time through bribery and fraud, and at worst he is sponsoring a progressive devaluation of capital and labor.
In any case, the market distortions have occurred and they are progressive. In order to compensate for the fiscal profligacy of the government, and its agents, it will be necessary for people to draw down their savings, or willfully defraud others through persistent debt accumulation.
Forward... to dysfunctional convergence.
It's interesting to note how dreams of instant gratification tie into the abortion/choice movement, and the general devaluation of human life. Men, and women, just want to have fun, without perceived consequences. Unfortunately, there are political actors who will exploit their base desires and promise each and everyone one of them a beachfront property in Hawaii.
A recent Bloomberg article that offers an encouraging view on our debt situation.
An article that points out that the "worst case" debt projections include assumptions of the long term continuation of certain trends, including continued tax cuts.
Megan McArdle has been all over this. The mistake makes a bit of a difference, but more importantly it amplifies the sensitivity of the data, particularly to the case of New Zealand. To me the whole thing just emphasizes that macroeconomics is a "science" with all the scientific evidence of astrology. It's central finding is that "shit happens." ALL macro-economists are basically philosophers, that Hayek and Friedman knew this is to their credit.
Tim said...
"From the article...
'All these results were published by Thomas Herndon and his professors on 15 April, as a draft working paper. They find that high levels of debt are still correlated with lower growth - but the most spectacular results from the Reinhart and Rogoff paper disappear.'
"So the error amplified the effect, and fixing the error reduced the effect, but still supported the basic finding: debt crowds out growth. Not shocking, at all, especially if one has a basic understanding of market economies."
Thanks, Tim. From there it continues:
"High debt is correlated with somewhat lower growth, but the relationship is much gentler and there are lots of exceptions to the rule."
The thing is, does anyone say high and growing debt is good? Rather, the question here is, given high debt, what are the expected outcomes? What strategies are necessary and effective in eliminating or mitigating the deleterious effects of debt, and what strategies will be ineffective or will cause greater harm?
Ritmo, why do you (and the other thread trolls) insist on calling me a Republican? I'm not.
Growth was .4% last time i looked.
Whatever are we doing right?
The thing is, does anyone say high and growing debt is good? Rather, the question here is, given high debt, what are the expected outcomes? What strategies are necessary and effective in eliminating or mitigating the deleterious effects of debt, and what strategies will be ineffective or will cause greater harm?
Obamacare for one.
Ritmo:
Most of Europe's RESPONSE to the Republican't Recession was to cut. Ours was to spend.
The response was to stop subsidizing Greece's spending habits. Greece couldn't borrow any more money. The creditors took massive losses.
The exact problem WAS too high a debt to GDP ratio, and no one would loan to them.
The thing is, does anyone say high and growing debt is good?
Some appear to. If there is a lot of debt, in some ways you become beholden to the debtor. It works even better when the debtor can force you and the progeny to pay for their profligate ways.
Dante: There are states in Europe apart from Greece. The response to Greece alone is not what defines their austerity measures as there was a much broader effort along those lines, in other states.
CEO: Apologies for being presumptuous.
"Obamacare for one."
Well, Obamneycare was never intended to help the economy or ameliorate US debt, but to provide health insurance to millions of Americans who presently cannot afford it. It was an ill-begotten policy, a sell-out to the insurance interests.
I donno... there is something about having debt that equals or exceeds the gross domestic product that just *sounds* like a Very Bad Idea.
Also... if what Paul Ryan is trying to sell is austerity, we need a new English language.
"Growth was .4% last time i looked.
Whatever are we doing right?"
Who are you gonna believe; the Keynesians, or your own lying eyes?
Ritmo thinks that an economy that can't produce enough jobs to absorb new entrants is growing. He really believes the economy is on fire. Poor dear.
He believes austerity measures in Southern Europe are bad choices made by feckless Southern European republicans. The fact that no one wants to buy those bonds unless they pay a huge risk rate just doesn't compute for him. He just can't grasp the notion that lenders won't lend to those countries unless they impose austerity measures. He thinks himself a smarter and wiser investor than those who actually invest money. Maybe he can inform us if things are going so well the government can't sell 30 year bonds at these low rates or why the unemployment rate is still over 7.5% or why percentage of employed adults is the lowest in thirty years. But he can't so be will reply with some irrelevant snark.
Perhaps the "calculation" wasn't wrong, but if it "didn't include all the data," then the result would be wrong, no?
Cook, my statement was limited only to the non-inclusion of all data.
Thanks for adding nothing to the conversation. As per usual. But at least you go to point out the obvious.
What austerity measures in Europe? The spoiled leftists would riot at any attempt at even modest austerity measures.
Leftists can't stand that austerity and responsibility go hand in hand--or that all of the stimulus attempts left us worse off than when we started.
Or was spending millions of dollars per job "saved" a good deal?
BBC World Service via NPR made a huge deal about this Friday evening. One wishes they showed the same concern for research that supports progressive agendas and talking points. Not to mention are we to understand that 90% debt to GDP means everything is just fine?
If I make $50,000 and owe $45,000 I would say I have a serious problem.
I try not to be a snob - whatever tool works is fine - but I'm a little bit surprised that they used Excel. Again, this particular exercise was simple enough and used little enough data that there isn't anything really wrong with Excel, but it still surprised me that they weren't using something more powerful.
@Steven, I've seen climate models coded up in Excel. Excel really can do very complicated things.
" Again, this particular exercise was simple enough and used little enough data that there isn't anything really wrong with Excel,..."
Why would they use anything more complex than the task called for?
Why isn't the deficit spending spurring demand and growth?
Could it be the supply-side implications of Obama's tax and regulatory posture if not actual policy?
Whereas the Reagan recovery occurred despite a restrictive Fed policy, Obama's recovery is foundering despite an accommodative Fed policy of unprecedented proportions.
O' Ritmo:
Dante: There are states in Europe apart from Greece. The response to Greece alone is not what defines their austerity measures as there was a much broader effort along those lines, in other states.
You mean Italy, Spain, Cyprus, etc.?
In the new biography of Pres. Coolidge by Amity Schlaes, she reports that during his administration "only one pencil at a time was issued to government workers. Those who did not use their pencils to the end were expected to return the stub. The economy measure had worked. ""Our item of expense for pencils is materially less," [Budget Director] Lord's report boasted.
I'd love to share that anecdote with Pres. Obama.
Imagine what would happen if he called on all government workers to surrender extra writing implements to their supervisors. It would be electrifying. The stock market would go up 500 points in a day.
then the result would be wrong, no?
The result with all data included was still that debt is bad for economic growth. Just not AS bad as the original results had indicated.
This is a no-brainer, really. Anybody here confused about whether it is better to be in debt or not? Any doubt as to whether living on your credit cards is a good way to prosper?
No? Well then congrats, you already know what Harvard economists receive large grants to study. :)
Apparently in some quarters more borrowing and spending to solve the problem caused by borrowing and spending is rational. The mind boggles.
"High debt is correlated with somewhat lower growth, but the relationship is much gentler and there are lots of exceptions to the rule."
Oh, much gentler lower growth.
Well, it's all good then.
Our children will be worse off than we are, but Obama, Soros, and their friends got theirs, so fuck the rest, right?
"... Old Europe's been more austere than America and its recovery's been worse. ..."
ROFLMAO!
What's the work week in Europe now? 35 hours? 33.5 hours? Less? How many weeks vacation do they get? 6?
Yeah. Austere. Right. Ayup.
@ Forbes
"Apparently in some quarters more borrowing and spending to solve the problem caused by borrowing and spending is rational. The mind boggles."
Which is why I laugh at idiotic dweebs like Ritmo. My only question to liberals who buy into this stupid nonsense is this:
Show me a modern example of a country where this works.
Because if it did work then why did Greece implode? Cyprus? Argentina? etc?
Something that is never mentioned is that Keynes called for governments to run a surplus in the good times so that they could afford to run a deficit in the bad ones. What kind of policy is "borrow in the good times, borrow in the bad"?
A policy doomed to fail.
Wasn't their article PEER reviewed? Not just fly-spected by law students?
None of those Ph.D. reviewers even bothered to get their "assistants" to run the numbers? Oh, the horror. Academic writing, at least in scientific)?) journals, is questionable.
If the reviewers don't review . . ..
Students find mistakes. Stop the presses! I've done the same and have been published for exactly the same thing. Thirty years later I'm not so proud of such a gotcha.
AA wake me up when legal papers and opinions can be held to comparable objective standards.
"Wasn't their article PEER reviewed?"
Not sure what your field is, 30yearProf, but I've reviewed papers, and had mine reviewed, for over 30 years in a physical science, and in my field reviewers don't actually redo calculations. It would be close to impossible and a commitment of time no one could commit to. ("Let see, I could write a grant with the potential of bringing in salary for myself and the lab, or I could rerun this guy's calculations and get nothing for it".)
Mistakes are caught the way this one was; with another paper. For that, you get professional credit.
Maybe economics is different, but I doubt it.
"None of those Ph.D. reviewers even bothered to get their "assistants" to run the numbers?"
If the "assistants" are paid off federal grants, as most are, it's actually illegal for then to do so. The grant was for specific work, and they aren't allowed to do what you suggest. I have quarterly "effort reports" where I have to attest to NIH that my students worked on my project and that's it.
Reviewers look for conceptual problems, appropriateness of tests and statistics, they consider whether the result is reasonable and consistent with the previous literature and probably several other things I'm missing off the top of my head. They rarely have access to the authors actual data.
The funny thing about the BBC article at the link is how it completely fails to link to Reinhart and Rogoff's response to their critics, published in the WSJ 5 days ago--which is to say, 3 days before the BBC article was posted.
Original Mike, in my field, Chemical Engineering, we check people's calculations and assumptions all the fucking time. Why? Because it is our experience that people make errors and no one enjoys a bad day at the refinery or chemical plant.
Ritmo: Growth better than any country in Europe's.
That's like saying Ethiopians eat better than N. Koreans. Current GDP growth (sub-2%) cannot create enough jobs to absorb new labor force entrants.
Robert Cook said...
"Obamacare for one."
Well, Obamneycare was never intended to help the economy or ameliorate US debt,
Thank you for admitting it is a driver to our current lack of economic growth.
Rusty,
I expected better of you than to pull the mendacious "Thank you for admitting..." gambit.
Ah, well. Live and learn.
"Cook, my statement was limited only to the non-inclusion of all data."
Uh...what?
Darcy said...
It can't possibly mean "Hey, maybe we should stop spending like drunken sailors."
As the proud father of a sailor, I resent comparing them to politicians. When sailors drink, they spend their own money. Politicians spend our money to buy votes. They have less fiscal discipline than a spoiled 13 year old "Princess" with unlimited use of her daddy's credit card.
This article did point out the importance of trying to replicate the results of published papers. This doesn't happen nearly enough, which is why a significant percentage of published academic papers contain not only errors but outright fraud.
Read this and gain understanding about this "error".
"...in my field, Chemical Engineering, we check people's calculations and assumptions all the fucking time."
We just published a paper which took us, the authors, weeks to run the calculations. How could someone else do that?
@Larry J
I truly meant no disrespect to any sailors. I'm sure they spend their own money, just as I'm sure now that using the phrase is unkind to sailors in hindsight.
You've made me think. Thanks.
Larry J. said...
This article did point out the importance of trying to replicate the results of published papers. This doesn't happen nearly enough, which is why a significant percentage of published academic papers contain not only errors but outright fraud.
How often is "nearly enough"? As Original Mike's been pointing out, replicating every single calculation in every submitted manuscript is very costly, and would probably drive many journals out of existence. When there are hundreds of grad students out there ready to replicate every published empirical study as class assignments, why is it obviously better to use the much more expensive time of referees to screen everything prior to publication? Especially when a paper is published in a volume (the "Papers and Proceedings" issue of the Amer. Econ. Review) that is known not to be subjected to the usual peer review process.
And how many academic papers can you point to that contain "outright fraud"?
It's particularly odd that you appended this baseless rant to a complaint about Darcy's use of a harmless figure of speech. As if it's outrageous to talk about the spending habits of drunken sailors but perfectly ok to toss around blanket accusations of academic dishonesty.
Dr. Casadevall and another author, Dr. Ferric C. Fang of the University of Washington, have been outspoken critics of the current culture of science. To them, the rising rate of retractions reflects perverse incentives that drive scientists to make sloppy mistakes or even knowingly publish false data.
Whack job Rit-spray said Hayek was a philosopher not an economist...
Yet ..Hayek shared the Nobel Memorial Prize in Economic Sciences (with Gunnar Myrdal) for his "pioneering work in the theory of money and economic fluctuations and ... penetrating analysis of the interdependence of economic, social and institutional phenomena".[2]
www.blogger.com/comment.g?blogID=6329595&postID=6234834695635894809
I get so tired of ignorant liberals talking thru their butt.
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