Austerity Flaws

While our legislators in Washington (and other countries) cite Rogoff and Reinhart; Growth in a Time of Debt arguing for budget cuts like the newly proposed reduction in Social Security, we learn the study data is dead wrong. Coding and spreadsheet errors when corrected show an entirely different conclusion. So much for credibility.

Addressed this week by Mitchell, Krugman, and many others it appears these errors were pretty elementary stuff…except through these “elementary” data weighting and spreadsheet coding errors it changed the entire cause-effect relationship. When the data is corrected the Rogoff and Reinhart conclusion not only falls, but the data substantiates an opposing cause-effect. Austerity measures (cutting budgets) do NOT promote economic growth.

 “It turns out that when they revised their multiplier estimates exactly the opposite was the case. Now they acknowledge that spending multipliers are in range of 1.5 1.75, meaning that increasing government spending adds at least 150 cents in the dollar spent extra to the economy.”


Ah, so it is indeed bad to cut the budget right now. I think we heard that before—besides all the really smart economists have been saying this for a long time. Will our legislators now read and head or simply dig in their heels?

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