Doubling down on the economic effort today. Another takedown/article brought to us by a friend on the Rogoff and Reinhart lie. These words first from my buddy “k“:
“From the Laboratory of History at Palmas del Mar. There has been a huge dust up in the Economist world. A paper and book by economists Carmen Reinhart and Kenneth Rogoff that political leaders in the U.S., U.K. and the Euro Zone used to justify their austerity push has been shown to be nothing less or more than an intentional lie. Reinhart and Rogoff intentionally took correlation for causation.
In other words, they claimed results were causes and causes were results. Then, they cherry picked their data and over and under emphasized their data sets to get the results they wanted. Their work was a farce. Economic reality works in the opposite way they say it did. Nonetheless, political leader’s that shared Reinhart and Rogoff’s ideology used their work to push for austerity.
Democrats and Republicans in the U.S. Obama included, the leaders of the Euro Zone counties and the U.K. all used Reinhart and Rogoff to claim there was a government “debt crisis” and that austerity would thereby produce economic growth. It was all hogwash and their policies have caused or maintained massive unemployment and poverty. However, do not expect the neoliberal political elites to change course. They will not. Their paycheck and status depends on their not understanding reality. They worship at the altar of corporate finance. As Max Planck said, “Science advances one funeral at a time.” The same holds true for economists and politicians. We must hope and wait for one political death at a time.
There are many articles about this revelation circulating in the economist blogosphere. We present one by L. Randall Wray below as our article du jour.” k
“Carmen Reinhart and Ken Rogoff came as close to celebrity status as an economist can ever come, with their book, This Time Is Different. They claimed that 800 years (!) of financial history proves that high government debt ratios lead to low economic growth. Governments all over the world took heed and downsized, adopting austerity that cost millions upon millions of workers their jobs.
But it was all a lie. Yes, a lie. They screwed up their data analysis. Like so many times before—think Larry Summers at Harvard, Chicago’s Gene Fama, or Charles Plosser at the University of Rochester—the economists reach results counter to intuition and the real world…….”
” ….Rogoff and Reinhart committed the cardinal sin of academics: while their purported results fit their theory, the data they supposedly used does not. Either they fudged or they erred. It really doesn’t matter. Their results were completely, utterly wrong. And their own data proves it.”
“Their results were completely, utterly wrong. And their own data proves it.
You can read a summary of the expose here: http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems. The academic paper is here: http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/
The paper confirms what we suspected: the Rogoff and Reinhart research is crap. They threw out all the high debt, good growth countries. If you put those back in, it simply is not true that high government debt leads to low growth.
Was it intentional? Who cares. Motive is not the issue. Crappy research is the problem. And this was one of the most cited papers in recent economic research. Here’s the abstract from the critical analysis of their work:
“We replicate Reinhart and Rogoff and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. Our finding is that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower. We also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff’s claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.”
Me: You’ve got to read the whole takedown article if you’re at all interested in how the money and lies came through this time Faulty, apparently deliberately faulty, research being cited at the pinnacles of federal financial decision making. All at the cost of lost economic opportunity, idle capacity, and continued unemployment. Excellent pick and summary, thank you “k“.