12 ms·

Researchers Finally Replicated Reinhart-Rogoff, and There Are Serious Problems

367 points by rdp 13y ago

nhebb 13y ago
This article give a better explanation: http://www.businessinsider.com/thomas-herndon-michael-ash-and-robert-pollin-on-reinhart-and-rogoff-2013-4 http://www.businessinsider.com/thomas-herndon-michael-ash-an...
- acqq 13y ago
  The source is actually: http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems http://www.nextnewdeal.net/rortybomb/researchers-finally-rep... and the paper (including the data and code files upon which the results are based!) is: http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/ http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04dea...
  - mey 13y ago
    Submitted the source to HN.
  - nhebb 13y ago
    Thanks. I should have known better. I don't think Business Insider creates original content (well, they do create some, but not much).
trhtrsh 13y ago
Does economics have peer-review? Excel is tolerated in an academic journal?
- rayiner 13y ago
  What do you mean "Excel is tolerated in an academic journal?" Excel is a perfectly fine tool for doing all sorts of data analysis without knowing how to program. This same error could've been done in a "real" programming language just by messing up some subscripts.
  - salman89 13y ago
    It is much harder to peer review for errors than code.
    - jpadkins 13y ago
      Not really. You start from the solution cells and work backwards. It might be easier than reviewing a functional programming language that does the same work. Think about all the accounting and financial decisions that is reviewed in excel. They are vitally important to get correct.
      - DanBC 13y ago
        The European Spreadsheet Risk Interest Group[1] has a list of spreadsheet errors. (http://www.eusprig.org/horror-stories.htm http://www.eusprig.org/horror-stories.htm) There are lots of errors in accounting and financial spreadsheets. It's vitally important that traders enter the correct numbers when making trades, but 'fat finger errors' happen pretty often. Ray Panko has a lot of useful research about spreadsheets. Part of the problems he identifies are difficulties in auditing and finding errors. [1] (http://www.eusprig.org/ http://www.eusprig.org/) [2] (http://panko.shidler.hawaii.edu/ssr/ http://panko.shidler.hawaii.edu/ssr/) My internet is flaky, and none of the links I find work.
      - salman89 13y ago
        Going cell by cell in a backwards fashion seems to be a tedious way of checking for errors, and goes against your normal logical flow (forwards).
        rayiner 13y ago
        If you're a a programmer in a typical imperative language, sure. If your familiarity is with data flow or functional languages, you work backwards all the time (or rather, you work top down, from the highest level of generality to the lowest level of detail).
    - tbrownaw 13y ago
- tptacek 13y ago
  If you really don't believe Excel is safe for real analysis, you have much bigger things to be scared about than academic journals.
  - gohrt 13y ago
    Such as the worldwide financial system.
ajanuary 13y ago
I wonder if this sort of error is less common in 2007+ thanks to the addition of tables.
- pinko 13y ago
  As ernardom points out above (below? predict-o-karma where are you!), this involved much more intellectually serious errors than just the calculation bug. They both missed (or possibly cherry-picked) countries and misweighted them.
  - calinet6 13y ago
    I would venture to guess that they'd be entirely incompetent at whatever software they attempted to use.
bernardom 13y ago
Is The Reinhart-Rogoff Result Based On A Simple Spreadsheet Error? Oh my goodness, no. That's the least of it. They took all Commonwealth countries, found the periods where they had over 90% debt-to-GDP ratio, and EQUAL WEIGHTED them regardless of length or country. I won't do a better job of explaining this than the article: "U.K. has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally." Wow.
- calinet6 13y ago
  That in addition to the Excel error, this is just stupidity. I can't believe it got as far as it did, except that certain groups really wanted to believe its conclusions, even though they were false.
  - bernardom 13y ago
    Yup. They also subjectively ignored the post-WW2 period for most countries; coincidentally when countries had high debt and grew like crazy. I bet that if you started with the desired results in mind for a study like this, you could create a list of variables to try and pick the combination that maximizes your metric. Then provide a post-hoc justification for each choice. For example: * debt-to-gdp 80%, 85%, 90%, 95% * Ignore years after ww2 (the war was an externality) * Don't ignore years after ww2 (why would we? they're years.) * Ignore years after ww2 for countries that got aid from US (removing an externality) * Ignore years after ww2 for countries that did not get aid from US (most countries did, don't want to mix the sample) * Ignore years after ww2 for countries that were in the European theater (removing an externality) * Ignore years after ww2 for countries that were not in the European theater (not affected by war like rest of globe) * Ignore years after any war (externality) * Weigh by population of country at time of study (lazy way to account for size of industry) * Weigh by population of country by year (better way to accounts for size of industry) * Equal weight for all countries (easy to explain) * For each country, take periods of high debt-to-gdp and compare against periods without high debt-to-gdp; then compare countries equally (easy to explain-ish) * Take each period of consecutive years with a high debt-to-gdp ratio and call each period one sample point. Average these inequal-length points together and compare against all years of low debt-to-gdp (Come on! Nobody would believe-- oh no.)
lbarrow 13y ago
Wait -- so apparently it's acceptable in economics to publish big important papers with broad-reaching public policy implications without releasing the data on which the paper was based? That would never fly in the sciences.
- pc86 13y ago
  Welcome to the social sciences. This is in part why I am a programmer now and why my Poli Sci degree is sitting in a drawer.
  - cwbrandsma 13y ago
    I avoided Poli Sci at every turn, so this is actually an honest question: how much science is in Poli Sci? It actually seems a bit like Computer Science, in that, if the degree has the word Science in it, it probably isn't.
    - _delirium 13y ago
      There's quite a bit of data-anlytics type stuff in quantitative poli-sci these days. Now whether it's good science or not varies, much like in the rest of "big data", where there's no guarantee that either the data or the analysis is always good. There's some very careful stuff, and a lot of data-dredging on datasets of convenience (or over-extrapolation from limited data sets). More traditional poli-sci is scientific in the sense of the social sciences, which has a fairly long history of epistemological debate I'm only vaguely familiar with. I think I would probably call it scientific in a certain sense, but maybe a different word is needed. I'd group it vaguely with disciplines like anthropology, archaeology, and linguistics as areas with quite a bit of methodological diversity, but still a more empirical orientation than you find in the humanities. Part of the issue is that there is data, but how to interpret the data is complex ("there is no such thing as raw data"). Though for mostly institutional reasons there are some people who are more philosophers or historians who also happen to be in poli-sci departments.
      - pc86 13y ago
ColinWright 13y ago
Other discussion: https://news.ycombinator.com/item?id=5559483 https://news.ycombinator.com/item?id=5559483
cs702 13y ago
Stepping back for a moment, this thorough debunking of Reinhart and Rogoff's flawed paper means that now there is NO evidence that government debt exceeding 90% of GDP somehow negatively impacts growth. Let me repeat that: there is NO EVIDENCE that more government debt causes slower economic growth -- just theories. I wonder what all the government deficit scaremongers will say to this! -- PS. For reference, the often-cited paper by Reinhart and Rogoff can be downloaded at http://www.nber.org/papers/w15639.pdf http://www.nber.org/papers/w15639.pdf and the new paper debunking it can be downloaded at http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf http://www.peri.umass.edu/fileadmin/pdf/working_papers/worki... -- PS#2. An Excel typo was partly to blame for Reinhart and Rogoff's errors! Reminds me of the Excel typo that allowed the "London Whale" silently to rack up billions of dollars in unexpected losses at JP Morgan: http://baselinescenario.com/2013/02/09/the-importance-of-excel/ http://baselinescenario.com/2013/02/09/the-importance-of-exc...
- bubbleRefuge 13y ago
  There never was any evidence because they never published the data till now. Nobody could reproduce the results.
  - w1ntermute 13y ago
    Why the fuck is this considered acceptable? Why should I listen to any boffin who refuses to release his data? It's not exactly difficult to upload a couple files to your damn website. I've been in the exact same position and I did it in 5 minutes. But it took them THREE FUCKING YEARS to release this shit. What a joke.
    - bubbleRefuge 13y ago
      Corporate controlled media ?
      - dmix 13y ago
        It's not even a corporate conspiracy... it's the markets demand for politics to be entertainment... not something based on empirical data. See: http://www.amazon.com/Amusing-Ourselves-Death-Discourse-Business/dp/014303653X/ http://www.amazon.com/Amusing-Ourselves-Death-Discourse-Busi...
danso 13y ago
> In a new paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff's data was constructed. What's amazing to me is that no one, until the researchers spotlighted here, apparently thought to ask to see the data? Isn't this part of peer-review? Things like this is why I love being part of the open-source community. People may brag about and diss each other's code performance to an unnecessary degree of hostility, but at least we can all check the code and run it for ourselves.
- makr17 13y ago
  > Isn't this part of peer-review? iirc, the paper wasn't published, let alone peer-reviewed. it was "discovered" and used as a justification by people who may or may not understand the deeper issues involved.
  - sirclueless 13y ago
    That's not true, it was published in the American Economic Review, which is apparently a very well-respected journal. http://www.aeaweb.org/articles.php?hs=1&fnd=s&doi=10.1257/aer.100.2.573 http://www.aeaweb.org/articles.php?hs=1&fnd=s&doi=10...
    - ukapu 13y ago
      I believe it was published in a section of the journal that does not require peer-review.
jl6 13y ago
Isn't it more plausible that public debt is caused by government deficit spending, which causes economic growth, but a temporary kind of growth that is only as good as the government's ability to continue spending?
- tunesmith 13y ago
  Well, that assumes the non-existence of "multipliers". The concept of a multiplier is that if a government debt-spends on something, some of the effects will be able to continue on their own power and contribute to economic growth after the government spending stops. That would be economic growth that wouldn't happen if the debt-spending didn't happen. It's also sort of the heart of Keynesianism. The counterpoint is the more intuitive certainty that if times are tough, everyone should tighten their belts, including the government. That's sort of what drives the austerity efforts.
  - jl6 13y ago
    Is there evidence for or against the existence of multipliers? Sorry if this is a basic question.
    - rayiner 13y ago
      The U.S. debt-spent to build most of the infrastructure we have today (highways, trains, power plants, etc), as well as to buy total U.S. military dominance in foreign affairs. It's been working pretty well for us so far.
    - tunesmith 13y ago
      That's the crux of the entire debate. There arguably is plenty of evidence of multipliers, but the problem is that when your lab is the entire society, there's no counterfactual - there's no control group. So you can never quite say that in the absence of the debt spending, the multiplier effect wouldn't have happened. Anti-keynesians (hayekians?) point this out regularly and like to say that the burden of proof is on the keynesians, which will of course be impossible for the keynesians to ever prove. So that's where they get their handhold on arguing against keynesian theory. (Note I'm only a hobbyist with this stuff so my explanations may be way off - this is just my own sense of it.) Now, there's something to be said for sometimes accepting something that is not potentially provably false. I think Darwinian evolution is an example of something that is not a strictly technical theory, but there's been such a body of experimentation over the years that you pretty much have to accept it as fact anyway. And there's work done in modern Causality about how to tease out causality from correlation in the absence of counterfactuals. I've been trying to struggle through a causality textbook by Judea Pearl but it's really weird advanced stuff.
mrcactu5 13y ago
I enjoyed reading "This Time is Different" I think their discussions of debt has motivated us to look at this concept in more depth. Maybe we can improve on their crude excel spreadsheet analysis. Then someone should do it!
crapshoot101 13y ago
This surprises me - Reinhart and Rogoff are both very well respected economists, and neither is a culture warrior type - they've published enough (Including "This Time Its Different", a great book to understand the history of financial crises) that I almost wonder if there's more to this than meets the eye at first glance. I realize the first tendency is to "burn the witch", but I'd like to learn more.
- 3am 13y ago
  "both very well respected economists" Not any more. This is a career killer. I wouldn't be surprised to see them accepting posts with the American Enterprise Institute or Cato in short order. EDIT: also, Barry Ritholtz is generally perceived as an honest broker on these things, and his commentary is here: http://www.ritholtz.com/blog/2013/04/did-reinhart-rogoff-screw-up-their-debt-research/ http://www.ritholtz.com/blog/2013/04/did-reinhart-rogoff-scr...
  - crapshoot101 13y ago
    I realize most of HN is left-of-center, but Cato in particular is not fluff. Specifically on the two, Rogoff was Chief Economist of the IMF (I spent a summer interning when he was there), and no one considers either of these economists as crazy-right wing types (the IMF, by American political standards, is probably a centrist Democratic type, even if it does make some very stupid calls for austerity from time to time). There's always room for disagreement because economics is the dismal science (as one famous line put it, Harry Truman wanted to find a one-handed economist - so they wouldn't always answer "X could happen, on the other hand, Y could happen), and answers aren't as binary as they sometimes are in the hard sciences. I'm curious to see what Rogoff and Reinhart respond to this with. Edit: thanks for the Ritholz piece - hadn't seen that. I certainly am not claiming that there's no mistake - I just want to see what the defendants in this have to say, so to speak.
    - 3am 13y ago
      I wasn't casting aspersions on their previous credentials, but if anything that magnifies the seriousness of this situation. It looks a lot like unethical cherry picking of data (the 'coding error' is really of secondary importance to me). I know economics can be considered on the transition from hard to soft sciences, and even within the field you have very soft-science schools like the Austrians to very quantitative approaches like 'freshwater'. But that doesn't seem to apply here. Maybe if they added caveats to their methodology it would have been different. I'm also not dismissing Cato or AEP out of hand, but nobody can deny that they are partisan think tanks. Their primary purpose is to provide cover for policy proposals, not original research.
martythemaniak 13y ago
The most incredible and depressing aspect of this is that it will have no impact whatsoever on policy makers, leaders or their supporters. Can anyone imagine Paul Ryan or Cameron/Osborne coming out and admitting their policies are based on nothing more than gut feelings unsupported by anything? What about the countless pundits who've spent years squawking about austerity? The notion is laughable.
- Vivtek 13y ago
  Worse than that: the people who like a Ryan and his type actually respect gut feelings better than wonky data.
  - dmix 13y ago
    Well, we were all born into a political system based on the whims of politicians and bureaucrats...and not people like engineers who respect strong data. Which is why I personally put more trust in the irrationality of markets and business over the irrationality of elected lawyers who gain power via rhetoric (and not production).
  - rbanffy 13y ago
    There is another study that explains these events: http://www.livescience.com/18132-intelligence-social-conservatism-racism.html http://www.livescience.com/18132-intelligence-social-conserv... /sigh
  - specialist 13y ago
    Nah. The most depressing part for me is: challenging people's flawed beliefs reinforces those flawed beliefs. Creationism, Iraq had WMDs, anthropocentric climate change, etc. I used to believe that if only we all just talked things out, we'd come to an agreement. No more. Now I focus on better organizing. Rallying the troops.
  - bob13579 13y ago
    With the computation, they still find 0-30 debt/GDP, 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; 90-120, 2.4% and over 120, 1.6% I wonder what you'll conclude with that data.
jdrobins2000 13y ago
Putting on my tinfoil hat, I wonder if this error was intentional or unintentional? Was the errant conclusion known to be false by any who propagated it? If so, by whom and to what end? For example, perhaps the US and Euro governments wanted to justify some tough measures of fiscal restraint and increase public support, and they wanted to keep it from being delayed until collapse was impossible to avoid. (See, I'm not totally jaded. But I can think of plenty of worse scenarios too.) The "flaws" seem to be too large (and some deliberate) to be unintentional, but maybe I give too much credit. I've just noticed too much misinformation being spread by those who should know better, and coincidentally seem to benefit the most from it. I'm suspending my judgement until I learn more, but anyone else have any insights?
pyalot2 13y ago
They accidentially, the whole economy.
cletus 13y ago
This actually isn't news. Questions have already been raised as this paper was never peer reviewed [1] (Jan 2013), which states: > According to their C.V.s [2], it's been published in the May 2010 issue of the American Economic Review, which is a special non-reviewed "papers and proceedings" issue. So I really don't know why anyone listened to this in the first place other than it furthered their pre-existing political agenda. This is why any paper should be required to release: - the raw data supporting it; - the assumptions, exclusions and weightings made to produce the final data; and - any code used for a model. All of these issues are particularly problematic when it comes to climate science. [1]: http://www.nextnewdeal.net/rortybomb/no-90-percent-debt-threshold-hasnt-been-proven http://www.nextnewdeal.net/rortybomb/no-90-percent-debt-thre... [2]: http://www.carmenreinhart.com/c.v./cv-in-pdf/ http://www.carmenreinhart.com/c.v./cv-in-pdf/
- JumpCrisscross 13y ago
  "This actually isn't news" This is news. "We can't replicate" a landmark study (yes, it was an intercontinental landmark study) is very different from "we have found the specific errors that make this study faulty".
- pharrington 13y ago
  So I really don't know why anyone listened to this in the first place Maybe because this seems to be standard for research publications. http://www.gwern.net/DNB%20FAQ#flaws-in-mainstream-science-and-psychology http://www.gwern.net/DNB%20FAQ#flaws-in-mainstream-science-a... e: downvote with comments please
- gruseom 13y ago
  Deleting a comment in one thread (especially a parent comment) and reposting it in another is not a very good practice. Also, this is obviously news. Also, a gratuitous reference to climate science in this context is flamebait—luckily it hasn't set anyone off. Fully agree about releasing both data and code.
helmut_hed 13y ago
This is also good evidence for why you should release your data online, so it can be properly vetted Reinhart and Rogoff may reach exactly the opposite conclusion, given the embarrassing publicity. For me this is an illustration of why publishing just your conclusions without data (or code, or whatever details are germane to your field) is so common.
deleted 13y ago
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johngalt 13y ago
Debt and growth are obviously separate entities that are hard to correlate. Intuitively it makes sense that debt doesn't inherently slow growth, and could even speed growth. Reducing the problem to a personal level, you borrow money to buy a good car which enables you to work a higher paying job. This scenario makes the case that debt causes growth. From a policy standpoint if you borrow money for long term infrastructure and growth opportunities you could easily see debt as a net positive. OTOH, you run up your credit cards to buy a better TVs or to buy 'friends'. In this instance debt can only lead to eventual poverty and ruin. Which type of spending do you think is happening more often at a federal level?
api 13y ago
It seems clear to me that government debt in modern fiat-credit economies isn't really debt in the same sense that private debt is debt. It doesn't behave like private debt. I don't think debt is even the correct term for it. Maybe we need a new one.
jaekwon 13y ago
Where do I find the paper that links GDP to sustainability or quality of life? You can have a compulsive debt driven society and still have strong economic activity, no? Or is "economic growth" really an indicator of economic sustainability?
Uhhrrr 13y ago
I see a lot of comments here to the effect that this means debt is a free lunch now. Would that it were so - we could get rid of taxes, as well as Medicare and Social Security withholding. And nix the Obamacare penalty. And, of course, buy everyone a pony. Sadly, ponies are a finite resource until such time as the government figures out how to print more of them. Debt still has a multiplier less than 1 - far less, for large amounts of debt. All this article means is the magic number where debt starts to cause deep hurting is somewhere above 90% of GDP.
TallGuyShort 13y ago
Serious question - not trolling. Even if increasing the deficit does not affect GDP (and I'm in no position to even comment on whether or not I think it does) - how is that sustainable? I mean, AFAIK the argument behind increasing government spending is as simple as "it solves problems" - it provides help to those in need, affects the economy, etc. But why won't this at some point collapse? And if it will at some point collapse, why do we think politics will allow the government to behave any differently as we near that time? So again - serious question - I fail to see how we can expect government spending to grow without eventually consuming 100% of everyone's income or collapsing entirely (and I understand that many people may consider the former a good thing). edit: And this may be because I don't know where the money comes from to begin with. If I keep getting bigger and bigger loans and there's no way my income will allow me to pay these loands back in the foreseeable future, then won't everyone just cease doing business with me at some point? Does "debt" in a government context act differently, and if so, why?
- derefr 13y ago
  > I fail to see how we can expect government spending to grow without eventually consuming 100% of everyone's income or collapsing entirely (and I understand that many people may consider the former a good thing). Both options sound good to me, in that if people manage to keep eating and living in houses and raising their children after this happens, we will have officially entered a post-scarcity economy.
- bloaf 13y ago
  Some historical notes: http://en.wikipedia.org/wiki/File:USDebt.png http://en.wikipedia.org/wiki/File:USDebt.png The US national debt during WWII was around 120% of GDP. In the years that followed, that ratio fell to below 40%. However, we didn't appreciably pay off our debts, the real dollar amount stayed a little over $2 trillion. We accomplished this feat, of course, by substantially increasing the GDP. It is easy to realize that it is fine for debt to continuously grow, so long as the GDP grows faster. Also, the only president to entirely pay off the national debt, Andrew Jackson, triggered one of the deepest depressions in US history.
auctiontheory 13y ago
Apparently economics is harder than chess.
kybernetikos 13y ago
Are we describing running the same formulae on the same numbers as 'replicating' these days? Did real economists always consider these results provisional/dubious/bogus and the fact that they were used as the basis of policy is to the shame of our policy makers and press, or is the field of economics so messed up that research based on schoolboy errors can become the accepted view within the field?
trotsky 13y ago
It's interesting to note that one of the authors of the original paper, Ken Rogan, was the chief economist at the IMF 2001-2003. He also joined the group of 30 in 2008, an economic policy organization that is very influential in things like the Basel accords, IMF governance and matters of finance in Brussels. Many of these organizations rely on private data to support their policy decisions, or rely on private analysis from similar organizations. That's hard to criticize because at least some of it would cause serious harm to the folks who provided it, or enable high finance players to front run policy actions to huge profit. But what to make of an insider like that refusing to release data that had no market risk or legal restrictions in place. It's not hard to imagine that his primary goal was support of an economic philosophy and would have been just as happy to publish a paper that claimed high debt/gdp rations promote growth. It certainly makes me wonder if this kind of approach is part of the culture in some of these policy and international finance organizations. If the data relied on by the IMF/ECB/etc as they've effectively reformed governments and imposed major budget changes can't be made public, then you're highly reliant on them to be ethical and extremely diligent. If there's any significant amount of philosophy trumping science in the european restructuring, one begins to wonder if some of the weaker euro members are still actual democracies.
narrator 13y ago
Mainstream economics is centered around recommending policies that ensure bond-holders are paid. It all leads back to that. If there is too much debt destroying the underlying economy causing bond interest payers to default, lower rates. If rates go to zero, print money to pay the bondholders. If that causes inflation raise taxes and cut spending to pay the bondholders (a.k.a austerity), etc. The political economic dimension of the relationship between bondholders and the people who pay there interest is an important missing component from our understanding.
- yekko 13y ago
  Hmm no, if there is inflation, enact a one time wealth tax and then cancel those money. Also, you can print money to increase supply, this is what the Asian miracle is all about after all. Too bad they didn't print money to increase demand...
afterburner 13y ago
The point is: don't copy Europe's austerity disaster.
xenonite 13y ago
Official response to the critique by Reinhart and Rogoff: https://news.ycombinator.com/item?id=5560829 https://news.ycombinator.com/item?id=5560829
kochb 13y ago
> In fact, [the past] tells us that a larger deficit right now would help us greatly. That conclusion is quite a jump from Reinhart-Rogoff is flawed.
bob13579 13y ago
The correction actually bolsters the claim that more debt leads to lower growth. 0-30 debt/GDP, 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; 90-120, 2.4% and over 120, 1.6%
- anigbrowl 13y ago
  there's a big difference between claiming that >90% debt leads to (slower) growth of 2.2% and claiming that it results in (negative) growth of -0.1%. In the first scenario, you don't grow as quickly as you'd like, in the second scenario your economy is actually shrinking and you're entering a death spiral.
  - bob13579 13y ago
    You're setting up a straw man. That's not my argument. The argument is that the data bolsters the claim that more debt correlates with slower growth.
    - anigbrowl 13y ago
      No I'm not. I know what your argument is, and it's disingenuous. It's like saying that you only have one pet in your apartment while glossing over the fact that the pet is an elephant. Nobody disputes the idea that more debt can result in slower growth. But there's a huge difference between saying that growth with high debt levels has historically been about 2.2% (compared to a more desirable 3%+ with lower debt) and saying that high-debt-growth has been -0.1%. That's an error of 220% in the wrong direction.
seoguru 13y ago
Mike Norman called out the flaws in Reinhart and Rogoff a while back: http://www.youtube.com/watch?v=JkKxN1H1P10&list=UUZhuQXtpH2dXeEAX_5MKGow&index=4 http://www.youtube.com/watch?v=JkKxN1H1P10&list=UUZhuQXt...
seoguru 13y ago
Randy Wray's view: http://www.economonitor.com/lrwray/2013/04/17/no-rogoff-and-reinhart-this-time-is-different-sloppy-research-and-no-understanding-of-sovereign-currency/ http://www.economonitor.com/lrwray/2013/04/17/no-rogoff-and-... concluding paragraph makes so much sense: "More than five decades ago, Abba Lerner gave the answer to this question. If there are involuntarily unemployed (we would add underemployed) people it means the deficit is too low. The government should either cut taxes or increase spending. It is certainly debatable which one is a better policy, but that’s beyond the scope of this paper. When is the deficit too large? When it’s over 3%, 7%, 10%? Again, there is no magic number and anyone who comes up with a universal number simply misunderstands the modern monetary regime and macroeconomics. In opposition to magic, Lerner proposed “functional finance”—the notion that the federal government’s budgetary outcome is of no consequence by itself, but rather, what is important is the economic effects of government spending and taxing. When total spending in the economy, including government spending, is more than what the economy is able to produce when employed at full capacity, the government should either lower its spending or raise taxes. A failure to do so will lead to inflation. So inflation is the true limit to government spending not lack of financing. Government debt is merely the result of government deficit and hence the same applies to debt as well."
ArkyBeagle 13y ago
Dropping back the frame for a bit - Jeff Sachs is on EconTalk this week, and he says what ( IMO ) should be the idea under scrutiny - employment prospects for people without college degrees have declined quite a bit since 1973. The present relatively high debt/deficit load was a result of an attempt to trade debt/deficits for higher employment using a ... somewhat intentionally-blown housing bubble. It didn't work. Something mysterious is "regulating employment down" in the system, and we don't seem to have a good handle on it. Tyler Cowen has posited a weakish "zero marginal product worker" hypothesis that does not seem to be easily decidable. Sachs' idea is that this has been developing since about 1973 and we haven't addressed it yet, and that this failure is a failure grounded in weaknesses of social science itself. I can't find a more evenhanded and clear statement of the problem than his.
jackcouch 13y ago
I think this is another example of why we must start with apriori approach to economics (and all learning for that matter) and only resort to posteriori methods as a secondary methodology. In this case we can prove logically that inflation reduces the investment capital available and that will always result in a decrease of production. If that is accepted arguing about how bad we can make something before X milestone seems a little less important.

367 points by rdp 13y ago

nhebb 13y ago

This article give a better explanation: http://www.businessinsider.com/thomas-herndon-michael-ash-and-robert-pollin-on-reinhart-and-rogoff-2013-4 http://www.businessinsider.com/thomas-herndon-michael-ash-an...

acqq 13y ago
The source is actually: http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems http://www.nextnewdeal.net/rortybomb/researchers-finally-rep... and the paper (including the data and code files upon which the results are based!) is: http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/ http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04dea...
- mey 13y ago
  Submitted the source to HN.
- nhebb 13y ago
  Thanks. I should have known better. I don't think Business Insider creates original content (well, they do create some, but not much).

trhtrsh 13y ago

Does economics have peer-review? Excel is tolerated in an academic journal?

rayiner 13y ago
What do you mean "Excel is tolerated in an academic journal?" Excel is a perfectly fine tool for doing all sorts of data analysis without knowing how to program. This same error could've been done in a "real" programming language just by messing up some subscripts.
- salman89 13y ago
  It is much harder to peer review for errors than code.
  - jpadkins 13y ago
    Not really. You start from the solution cells and work backwards. It might be easier than reviewing a functional programming language that does the same work. Think about all the accounting and financial decisions that is reviewed in excel. They are vitally important to get correct.
    - DanBC 13y ago
      The European Spreadsheet Risk Interest Group[1] has a list of spreadsheet errors. (http://www.eusprig.org/horror-stories.htm http://www.eusprig.org/horror-stories.htm) There are lots of errors in accounting and financial spreadsheets. It's vitally important that traders enter the correct numbers when making trades, but 'fat finger errors' happen pretty often. Ray Panko has a lot of useful research about spreadsheets. Part of the problems he identifies are difficulties in auditing and finding errors. [1] (http://www.eusprig.org/ http://www.eusprig.org/) [2] (http://panko.shidler.hawaii.edu/ssr/ http://panko.shidler.hawaii.edu/ssr/) My internet is flaky, and none of the links I find work.
    - salman89 13y ago
      Going cell by cell in a backwards fashion seems to be a tedious way of checking for errors, and goes against your normal logical flow (forwards).
      - rayiner 13y ago
        If you're a a programmer in a typical imperative language, sure. If your familiarity is with data flow or functional languages, you work backwards all the time (or rather, you work top down, from the highest level of generality to the lowest level of detail).
  - tbrownaw 13y ago
tptacek 13y ago
If you really don't believe Excel is safe for real analysis, you have much bigger things to be scared about than academic journals.
- gohrt 13y ago
  Such as the worldwide financial system.

ajanuary 13y ago

I wonder if this sort of error is less common in 2007+ thanks to the addition of tables.

pinko 13y ago
As ernardom points out above (below? predict-o-karma where are you!), this involved much more intellectually serious errors than just the calculation bug. They both missed (or possibly cherry-picked) countries and misweighted them.
- calinet6 13y ago
  I would venture to guess that they'd be entirely incompetent at whatever software they attempted to use.

bernardom 13y ago

Is The Reinhart-Rogoff Result Based On A Simple Spreadsheet Error? Oh my goodness, no. That's the least of it. They took all Commonwealth countries, found the periods where they had over 90% debt-to-GDP ratio, and EQUAL WEIGHTED them regardless of length or country. I won't do a better job of explaining this than the article: "U.K. has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally." Wow.

calinet6 13y ago
That in addition to the Excel error, this is just stupidity. I can't believe it got as far as it did, except that certain groups really wanted to believe its conclusions, even though they were false.
- bernardom 13y ago
  Yup. They also subjectively ignored the post-WW2 period for most countries; coincidentally when countries had high debt and grew like crazy. I bet that if you started with the desired results in mind for a study like this, you could create a list of variables to try and pick the combination that maximizes your metric. Then provide a post-hoc justification for each choice. For example: * debt-to-gdp 80%, 85%, 90%, 95% * Ignore years after ww2 (the war was an externality) * Don't ignore years after ww2 (why would we? they're years.) * Ignore years after ww2 for countries that got aid from US (removing an externality) * Ignore years after ww2 for countries that did not get aid from US (most countries did, don't want to mix the sample) * Ignore years after ww2 for countries that were in the European theater (removing an externality) * Ignore years after ww2 for countries that were not in the European theater (not affected by war like rest of globe) * Ignore years after any war (externality) * Weigh by population of country at time of study (lazy way to account for size of industry) * Weigh by population of country by year (better way to accounts for size of industry) * Equal weight for all countries (easy to explain) * For each country, take periods of high debt-to-gdp and compare against periods without high debt-to-gdp; then compare countries equally (easy to explain-ish) * Take each period of consecutive years with a high debt-to-gdp ratio and call each period one sample point. Average these inequal-length points together and compare against all years of low debt-to-gdp (Come on! Nobody would believe-- oh no.)

lbarrow 13y ago

Wait -- so apparently it's acceptable in economics to publish big important papers with broad-reaching public policy implications without releasing the data on which the paper was based? That would never fly in the sciences.

pc86 13y ago
Welcome to the social sciences. This is in part why I am a programmer now and why my Poli Sci degree is sitting in a drawer.
- cwbrandsma 13y ago
  I avoided Poli Sci at every turn, so this is actually an honest question: how much science is in Poli Sci? It actually seems a bit like Computer Science, in that, if the degree has the word Science in it, it probably isn't.
  - _delirium 13y ago
    There's quite a bit of data-anlytics type stuff in quantitative poli-sci these days. Now whether it's good science or not varies, much like in the rest of "big data", where there's no guarantee that either the data or the analysis is always good. There's some very careful stuff, and a lot of data-dredging on datasets of convenience (or over-extrapolation from limited data sets). More traditional poli-sci is scientific in the sense of the social sciences, which has a fairly long history of epistemological debate I'm only vaguely familiar with. I think I would probably call it scientific in a certain sense, but maybe a different word is needed. I'd group it vaguely with disciplines like anthropology, archaeology, and linguistics as areas with quite a bit of methodological diversity, but still a more empirical orientation than you find in the humanities. Part of the issue is that there is data, but how to interpret the data is complex ("there is no such thing as raw data"). Though for mostly institutional reasons there are some people who are more philosophers or historians who also happen to be in poli-sci departments.
    - pc86 13y ago

ColinWright 13y ago

Other discussion: https://news.ycombinator.com/item?id=5559483 https://news.ycombinator.com/item?id=5559483

cs702 13y ago

Stepping back for a moment, this thorough debunking of Reinhart and Rogoff's flawed paper means that now there is NO evidence that government debt exceeding 90% of GDP somehow negatively impacts growth. Let me repeat that: there is NO EVIDENCE that more government debt causes slower economic growth -- just theories. I wonder what all the government deficit scaremongers will say to this! -- PS. For reference, the often-cited paper by Reinhart and Rogoff can be downloaded at http://www.nber.org/papers/w15639.pdf http://www.nber.org/papers/w15639.pdf and the new paper debunking it can be downloaded at http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf http://www.peri.umass.edu/fileadmin/pdf/working_papers/worki... -- PS#2. An Excel typo was partly to blame for Reinhart and Rogoff's errors! Reminds me of the Excel typo that allowed the "London Whale" silently to rack up billions of dollars in unexpected losses at JP Morgan: http://baselinescenario.com/2013/02/09/the-importance-of-excel/ http://baselinescenario.com/2013/02/09/the-importance-of-exc...

bubbleRefuge 13y ago
There never was any evidence because they never published the data till now. Nobody could reproduce the results.
- w1ntermute 13y ago
  Why the fuck is this considered acceptable? Why should I listen to any boffin who refuses to release his data? It's not exactly difficult to upload a couple files to your damn website. I've been in the exact same position and I did it in 5 minutes. But it took them THREE FUCKING YEARS to release this shit. What a joke.
  - bubbleRefuge 13y ago
    Corporate controlled media ?
    - dmix 13y ago
      It's not even a corporate conspiracy... it's the markets demand for politics to be entertainment... not something based on empirical data. See: http://www.amazon.com/Amusing-Ourselves-Death-Discourse-Business/dp/014303653X/ http://www.amazon.com/Amusing-Ourselves-Death-Discourse-Busi...

danso 13y ago

> In a new paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff's data was constructed. What's amazing to me is that no one, until the researchers spotlighted here, apparently thought to ask to see the data? Isn't this part of peer-review? Things like this is why I love being part of the open-source community. People may brag about and diss each other's code performance to an unnecessary degree of hostility, but at least we can all check the code and run it for ourselves.

makr17 13y ago
> Isn't this part of peer-review? iirc, the paper wasn't published, let alone peer-reviewed. it was "discovered" and used as a justification by people who may or may not understand the deeper issues involved.
- sirclueless 13y ago
  That's not true, it was published in the American Economic Review, which is apparently a very well-respected journal. http://www.aeaweb.org/articles.php?hs=1&fnd=s&doi=10.1257/aer.100.2.573 http://www.aeaweb.org/articles.php?hs=1&fnd=s&doi=10...
  - ukapu 13y ago
    I believe it was published in a section of the journal that does not require peer-review.

jl6 13y ago

Isn't it more plausible that public debt is caused by government deficit spending, which causes economic growth, but a temporary kind of growth that is only as good as the government's ability to continue spending?

tunesmith 13y ago
Well, that assumes the non-existence of "multipliers". The concept of a multiplier is that if a government debt-spends on something, some of the effects will be able to continue on their own power and contribute to economic growth after the government spending stops. That would be economic growth that wouldn't happen if the debt-spending didn't happen. It's also sort of the heart of Keynesianism. The counterpoint is the more intuitive certainty that if times are tough, everyone should tighten their belts, including the government. That's sort of what drives the austerity efforts.
- jl6 13y ago
  Is there evidence for or against the existence of multipliers? Sorry if this is a basic question.
  - rayiner 13y ago
    The U.S. debt-spent to build most of the infrastructure we have today (highways, trains, power plants, etc), as well as to buy total U.S. military dominance in foreign affairs. It's been working pretty well for us so far.
  - tunesmith 13y ago
    That's the crux of the entire debate. There arguably is plenty of evidence of multipliers, but the problem is that when your lab is the entire society, there's no counterfactual - there's no control group. So you can never quite say that in the absence of the debt spending, the multiplier effect wouldn't have happened. Anti-keynesians (hayekians?) point this out regularly and like to say that the burden of proof is on the keynesians, which will of course be impossible for the keynesians to ever prove. So that's where they get their handhold on arguing against keynesian theory. (Note I'm only a hobbyist with this stuff so my explanations may be way off - this is just my own sense of it.) Now, there's something to be said for sometimes accepting something that is not potentially provably false. I think Darwinian evolution is an example of something that is not a strictly technical theory, but there's been such a body of experimentation over the years that you pretty much have to accept it as fact anyway. And there's work done in modern Causality about how to tease out causality from correlation in the absence of counterfactuals. I've been trying to struggle through a causality textbook by Judea Pearl but it's really weird advanced stuff.

mrcactu5 13y ago

I enjoyed reading "This Time is Different" I think their discussions of debt has motivated us to look at this concept in more depth. Maybe we can improve on their crude excel spreadsheet analysis. Then someone should do it!

crapshoot101 13y ago

This surprises me - Reinhart and Rogoff are both very well respected economists, and neither is a culture warrior type - they've published enough (Including "This Time Its Different", a great book to understand the history of financial crises) that I almost wonder if there's more to this than meets the eye at first glance. I realize the first tendency is to "burn the witch", but I'd like to learn more.

3am 13y ago
"both very well respected economists" Not any more. This is a career killer. I wouldn't be surprised to see them accepting posts with the American Enterprise Institute or Cato in short order. EDIT: also, Barry Ritholtz is generally perceived as an honest broker on these things, and his commentary is here: http://www.ritholtz.com/blog/2013/04/did-reinhart-rogoff-screw-up-their-debt-research/ http://www.ritholtz.com/blog/2013/04/did-reinhart-rogoff-scr...
- crapshoot101 13y ago
  I realize most of HN is left-of-center, but Cato in particular is not fluff. Specifically on the two, Rogoff was Chief Economist of the IMF (I spent a summer interning when he was there), and no one considers either of these economists as crazy-right wing types (the IMF, by American political standards, is probably a centrist Democratic type, even if it does make some very stupid calls for austerity from time to time). There's always room for disagreement because economics is the dismal science (as one famous line put it, Harry Truman wanted to find a one-handed economist - so they wouldn't always answer "X could happen, on the other hand, Y could happen), and answers aren't as binary as they sometimes are in the hard sciences. I'm curious to see what Rogoff and Reinhart respond to this with. Edit: thanks for the Ritholz piece - hadn't seen that. I certainly am not claiming that there's no mistake - I just want to see what the defendants in this have to say, so to speak.
  - 3am 13y ago
    I wasn't casting aspersions on their previous credentials, but if anything that magnifies the seriousness of this situation. It looks a lot like unethical cherry picking of data (the 'coding error' is really of secondary importance to me). I know economics can be considered on the transition from hard to soft sciences, and even within the field you have very soft-science schools like the Austrians to very quantitative approaches like 'freshwater'. But that doesn't seem to apply here. Maybe if they added caveats to their methodology it would have been different. I'm also not dismissing Cato or AEP out of hand, but nobody can deny that they are partisan think tanks. Their primary purpose is to provide cover for policy proposals, not original research.

martythemaniak 13y ago

The most incredible and depressing aspect of this is that it will have no impact whatsoever on policy makers, leaders or their supporters. Can anyone imagine Paul Ryan or Cameron/Osborne coming out and admitting their policies are based on nothing more than gut feelings unsupported by anything? What about the countless pundits who've spent years squawking about austerity? The notion is laughable.

Vivtek 13y ago
Worse than that: the people who like a Ryan and his type actually respect gut feelings better than wonky data.
- dmix 13y ago
  Well, we were all born into a political system based on the whims of politicians and bureaucrats...and not people like engineers who respect strong data. Which is why I personally put more trust in the irrationality of markets and business over the irrationality of elected lawyers who gain power via rhetoric (and not production).
- rbanffy 13y ago
  There is another study that explains these events: http://www.livescience.com/18132-intelligence-social-conservatism-racism.html http://www.livescience.com/18132-intelligence-social-conserv... /sigh
- specialist 13y ago
  Nah. The most depressing part for me is: challenging people's flawed beliefs reinforces those flawed beliefs. Creationism, Iraq had WMDs, anthropocentric climate change, etc. I used to believe that if only we all just talked things out, we'd come to an agreement. No more. Now I focus on better organizing. Rallying the troops.
- bob13579 13y ago
  With the computation, they still find 0-30 debt/GDP, 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; 90-120, 2.4% and over 120, 1.6% I wonder what you'll conclude with that data.

jdrobins2000 13y ago

Putting on my tinfoil hat, I wonder if this error was intentional or unintentional? Was the errant conclusion known to be false by any who propagated it? If so, by whom and to what end? For example, perhaps the US and Euro governments wanted to justify some tough measures of fiscal restraint and increase public support, and they wanted to keep it from being delayed until collapse was impossible to avoid. (See, I'm not totally jaded. But I can think of plenty of worse scenarios too.) The "flaws" seem to be too large (and some deliberate) to be unintentional, but maybe I give too much credit. I've just noticed too much misinformation being spread by those who should know better, and coincidentally seem to benefit the most from it. I'm suspending my judgement until I learn more, but anyone else have any insights?

pyalot2 13y ago

They accidentially, the whole economy.

cletus 13y ago

This actually isn't news. Questions have already been raised as this paper was never peer reviewed [1] (Jan 2013), which states: > According to their C.V.s [2], it's been published in the May 2010 issue of the American Economic Review, which is a special non-reviewed "papers and proceedings" issue. So I really don't know why anyone listened to this in the first place other than it furthered their pre-existing political agenda. This is why any paper should be required to release: - the raw data supporting it; - the assumptions, exclusions and weightings made to produce the final data; and - any code used for a model. All of these issues are particularly problematic when it comes to climate science. [1]: http://www.nextnewdeal.net/rortybomb/no-90-percent-debt-threshold-hasnt-been-proven http://www.nextnewdeal.net/rortybomb/no-90-percent-debt-thre... [2]: http://www.carmenreinhart.com/c.v./cv-in-pdf/ http://www.carmenreinhart.com/c.v./cv-in-pdf/

JumpCrisscross 13y ago
"This actually isn't news" This is news. "We can't replicate" a landmark study (yes, it was an intercontinental landmark study) is very different from "we have found the specific errors that make this study faulty".
pharrington 13y ago
So I really don't know why anyone listened to this in the first place Maybe because this seems to be standard for research publications. http://www.gwern.net/DNB%20FAQ#flaws-in-mainstream-science-and-psychology http://www.gwern.net/DNB%20FAQ#flaws-in-mainstream-science-a... e: downvote with comments please
gruseom 13y ago
Deleting a comment in one thread (especially a parent comment) and reposting it in another is not a very good practice. Also, this is obviously news. Also, a gratuitous reference to climate science in this context is flamebait—luckily it hasn't set anyone off. Fully agree about releasing both data and code.

helmut_hed 13y ago

This is also good evidence for why you should release your data online, so it can be properly vetted Reinhart and Rogoff may reach exactly the opposite conclusion, given the embarrassing publicity. For me this is an illustration of why publishing just your conclusions without data (or code, or whatever details are germane to your field) is so common.

deleted 13y ago

[deleted]

johngalt 13y ago

Debt and growth are obviously separate entities that are hard to correlate. Intuitively it makes sense that debt doesn't inherently slow growth, and could even speed growth. Reducing the problem to a personal level, you borrow money to buy a good car which enables you to work a higher paying job. This scenario makes the case that debt causes growth. From a policy standpoint if you borrow money for long term infrastructure and growth opportunities you could easily see debt as a net positive. OTOH, you run up your credit cards to buy a better TVs or to buy 'friends'. In this instance debt can only lead to eventual poverty and ruin. Which type of spending do you think is happening more often at a federal level?

api 13y ago

It seems clear to me that government debt in modern fiat-credit economies isn't really debt in the same sense that private debt is debt. It doesn't behave like private debt. I don't think debt is even the correct term for it. Maybe we need a new one.

jaekwon 13y ago

Where do I find the paper that links GDP to sustainability or quality of life? You can have a compulsive debt driven society and still have strong economic activity, no? Or is "economic growth" really an indicator of economic sustainability?

Uhhrrr 13y ago

I see a lot of comments here to the effect that this means debt is a free lunch now. Would that it were so - we could get rid of taxes, as well as Medicare and Social Security withholding. And nix the Obamacare penalty. And, of course, buy everyone a pony. Sadly, ponies are a finite resource until such time as the government figures out how to print more of them. Debt still has a multiplier less than 1 - far less, for large amounts of debt. All this article means is the magic number where debt starts to cause deep hurting is somewhere above 90% of GDP.

TallGuyShort 13y ago

Serious question - not trolling. Even if increasing the deficit does not affect GDP (and I'm in no position to even comment on whether or not I think it does) - how is that sustainable? I mean, AFAIK the argument behind increasing government spending is as simple as "it solves problems" - it provides help to those in need, affects the economy, etc. But why won't this at some point collapse? And if it will at some point collapse, why do we think politics will allow the government to behave any differently as we near that time? So again - serious question - I fail to see how we can expect government spending to grow without eventually consuming 100% of everyone's income or collapsing entirely (and I understand that many people may consider the former a good thing). edit: And this may be because I don't know where the money comes from to begin with. If I keep getting bigger and bigger loans and there's no way my income will allow me to pay these loands back in the foreseeable future, then won't everyone just cease doing business with me at some point? Does "debt" in a government context act differently, and if so, why?

derefr 13y ago
> I fail to see how we can expect government spending to grow without eventually consuming 100% of everyone's income or collapsing entirely (and I understand that many people may consider the former a good thing). Both options sound good to me, in that if people manage to keep eating and living in houses and raising their children after this happens, we will have officially entered a post-scarcity economy.
bloaf 13y ago
Some historical notes: http://en.wikipedia.org/wiki/File:USDebt.png http://en.wikipedia.org/wiki/File:USDebt.png The US national debt during WWII was around 120% of GDP. In the years that followed, that ratio fell to below 40%. However, we didn't appreciably pay off our debts, the real dollar amount stayed a little over $2 trillion. We accomplished this feat, of course, by substantially increasing the GDP. It is easy to realize that it is fine for debt to continuously grow, so long as the GDP grows faster. Also, the only president to entirely pay off the national debt, Andrew Jackson, triggered one of the deepest depressions in US history.

auctiontheory 13y ago

Apparently economics is harder than chess.

kybernetikos 13y ago

Are we describing running the same formulae on the same numbers as 'replicating' these days? Did real economists always consider these results provisional/dubious/bogus and the fact that they were used as the basis of policy is to the shame of our policy makers and press, or is the field of economics so messed up that research based on schoolboy errors can become the accepted view within the field?

trotsky 13y ago

It's interesting to note that one of the authors of the original paper, Ken Rogan, was the chief economist at the IMF 2001-2003. He also joined the group of 30 in 2008, an economic policy organization that is very influential in things like the Basel accords, IMF governance and matters of finance in Brussels. Many of these organizations rely on private data to support their policy decisions, or rely on private analysis from similar organizations. That's hard to criticize because at least some of it would cause serious harm to the folks who provided it, or enable high finance players to front run policy actions to huge profit. But what to make of an insider like that refusing to release data that had no market risk or legal restrictions in place. It's not hard to imagine that his primary goal was support of an economic philosophy and would have been just as happy to publish a paper that claimed high debt/gdp rations promote growth. It certainly makes me wonder if this kind of approach is part of the culture in some of these policy and international finance organizations. If the data relied on by the IMF/ECB/etc as they've effectively reformed governments and imposed major budget changes can't be made public, then you're highly reliant on them to be ethical and extremely diligent. If there's any significant amount of philosophy trumping science in the european restructuring, one begins to wonder if some of the weaker euro members are still actual democracies.

narrator 13y ago

Mainstream economics is centered around recommending policies that ensure bond-holders are paid. It all leads back to that. If there is too much debt destroying the underlying economy causing bond interest payers to default, lower rates. If rates go to zero, print money to pay the bondholders. If that causes inflation raise taxes and cut spending to pay the bondholders (a.k.a austerity), etc. The political economic dimension of the relationship between bondholders and the people who pay there interest is an important missing component from our understanding.

yekko 13y ago
Hmm no, if there is inflation, enact a one time wealth tax and then cancel those money. Also, you can print money to increase supply, this is what the Asian miracle is all about after all. Too bad they didn't print money to increase demand...

afterburner 13y ago

The point is: don't copy Europe's austerity disaster.

xenonite 13y ago

Official response to the critique by Reinhart and Rogoff: https://news.ycombinator.com/item?id=5560829 https://news.ycombinator.com/item?id=5560829

kochb 13y ago

> In fact, [the past] tells us that a larger deficit right now would help us greatly. That conclusion is quite a jump from Reinhart-Rogoff is flawed.

bob13579 13y ago

The correction actually bolsters the claim that more debt leads to lower growth. 0-30 debt/GDP, 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; 90-120, 2.4% and over 120, 1.6%

anigbrowl 13y ago
there's a big difference between claiming that >90% debt leads to (slower) growth of 2.2% and claiming that it results in (negative) growth of -0.1%. In the first scenario, you don't grow as quickly as you'd like, in the second scenario your economy is actually shrinking and you're entering a death spiral.
- bob13579 13y ago
  You're setting up a straw man. That's not my argument. The argument is that the data bolsters the claim that more debt correlates with slower growth.
  - anigbrowl 13y ago
    No I'm not. I know what your argument is, and it's disingenuous. It's like saying that you only have one pet in your apartment while glossing over the fact that the pet is an elephant. Nobody disputes the idea that more debt can result in slower growth. But there's a huge difference between saying that growth with high debt levels has historically been about 2.2% (compared to a more desirable 3%+ with lower debt) and saying that high-debt-growth has been -0.1%. That's an error of 220% in the wrong direction.

seoguru 13y ago

Mike Norman called out the flaws in Reinhart and Rogoff a while back: http://www.youtube.com/watch?v=JkKxN1H1P10&list=UUZhuQXtpH2dXeEAX_5MKGow&index=4 http://www.youtube.com/watch?v=JkKxN1H1P10&list=UUZhuQXt...

seoguru 13y ago

Randy Wray's view: http://www.economonitor.com/lrwray/2013/04/17/no-rogoff-and-reinhart-this-time-is-different-sloppy-research-and-no-understanding-of-sovereign-currency/ http://www.economonitor.com/lrwray/2013/04/17/no-rogoff-and-... concluding paragraph makes so much sense: "More than five decades ago, Abba Lerner gave the answer to this question. If there are involuntarily unemployed (we would add underemployed) people it means the deficit is too low. The government should either cut taxes or increase spending. It is certainly debatable which one is a better policy, but that’s beyond the scope of this paper. When is the deficit too large? When it’s over 3%, 7%, 10%? Again, there is no magic number and anyone who comes up with a universal number simply misunderstands the modern monetary regime and macroeconomics. In opposition to magic, Lerner proposed “functional finance”—the notion that the federal government’s budgetary outcome is of no consequence by itself, but rather, what is important is the economic effects of government spending and taxing. When total spending in the economy, including government spending, is more than what the economy is able to produce when employed at full capacity, the government should either lower its spending or raise taxes. A failure to do so will lead to inflation. So inflation is the true limit to government spending not lack of financing. Government debt is merely the result of government deficit and hence the same applies to debt as well."

ArkyBeagle 13y ago

Dropping back the frame for a bit - Jeff Sachs is on EconTalk this week, and he says what ( IMO ) should be the idea under scrutiny - employment prospects for people without college degrees have declined quite a bit since 1973. The present relatively high debt/deficit load was a result of an attempt to trade debt/deficits for higher employment using a ... somewhat intentionally-blown housing bubble. It didn't work. Something mysterious is "regulating employment down" in the system, and we don't seem to have a good handle on it. Tyler Cowen has posited a weakish "zero marginal product worker" hypothesis that does not seem to be easily decidable. Sachs' idea is that this has been developing since about 1973 and we haven't addressed it yet, and that this failure is a failure grounded in weaknesses of social science itself. I can't find a more evenhanded and clear statement of the problem than his.

jackcouch 13y ago

I think this is another example of why we must start with apriori approach to economics (and all learning for that matter) and only resort to posteriori methods as a secondary methodology. In this case we can prove logically that inflation reduces the investment capital available and that will always result in a decrease of production. If that is accepted arguing about how bad we can make something before X milestone seems a little less important.