7 ms·

Grad Student Who Shook Global Austerity Movement

114 points by sreeix 13y ago

xijuan 13y ago
Here is Andrew Gelman's comment on this issue: http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogoff-i-think-its-best-to-admit-your-errors-and-go-on-from-there/ http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogo...
guelo 13y ago
Harvard should fire those two professors.
- fyi80 13y ago
  Harvard should keep them, and endure the reputation decrease as a result. This incident should stand as a long-term reminder that the Ivy League is does not have an infallible monopoly on genius.
louischatriot 13y ago
Impressive that his two professors took 1 whole month to finally believe him, even though the article gives the impression that the error was obvious (a bad formula). Summary of the article: http://tldr.io/tldrs/5171189e1a18dac804000170/meet-the-28-year-old-grad-student-who-just-shook-the-global-austerity-movement http://tldr.io/tldrs/5171189e1a18dac804000170/meet-the-28-ye...
- thomasz 13y ago
  It sounds like they grilled him until they got co-authorship for a paper with a with an uber high impact factor.
  - mattmanser 13y ago
    I suspect that without their co-authorship people wouldn't have read it. I'm not in the academic field but isn't it a signal that they back his work enough to put their name (and reputation) to it?
  - fyi80 13y ago
    Is it good for your career to get high impact factor for a paper that admits that your most famous work was a fraud that destroyed the economy of several nations?
    - thomasz 13y ago
      His co-authors are not those who fucked up the original study.
dade_ 13y ago
This story is a lesson on confirmation bias: Professors that immediately decide that the student is wrong, and must be convinced otherwise. The spreadsheet financial analysis that provided the expected results and therefore never checked for errors. A single study that gave economists, and clearly an awful lot of politicians, the confirmation they needed to strengthen their resolve in the face of opposition.
- fnordfnordfnord 13y ago
  A single study that gave economists, and clearly an awful lot of politicians, the confirmation they needed to strengthen their resolve in the face of opposition. Confirmation bias, at least in the politicians' cases, it just provided them with extra confidence to proceed with their agenda. Well, it may have also lent them some legitimacy.
  - fyi80 13y ago
    Lent, indeed. And now they default on those loans.
iwwr 13y ago
So what is the alternative to lowering "consistently high public debt"? Monetize it? Default on it? Debt in itself is not a problem if the growth rate is the same or decreasing as a proportion of the economy. At the current rate, some obligations would have to be forfeited, either to the direct creditors, or to those promised social services. Strangling the economy further with high taxes only makes the problem worse. I think most of the damage from so-called "austerity" has been decisions taken with little warning and at the very last possible moment.
- rjtavares 13y ago
  I'm Portuguese, and the amount of people here that think that "if the financial crisis in the US didn't happen we wouldn't have a problem" is mind-boggling. Because apparently having your debt rise from 50% to 70% of GDP in 7 years without recessions or crisis (2000-2007) [1] and running a budget deficit that never went below 3% [2] isn't a sign of a problem... [1] http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&ctype=l&met_y=gd_pc_gdp#!ctype=l&strail=false&bcs=d&nselm=h&met_y=gd_pc_gdp&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:non-eu&idim=country:pt&ifdim=country_group&hl=en_US&dl=en_US&ind=false http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&#... [2] http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&ctype=l&strail=false&bcs=d&nselm=h&met_y=edp_b9_pc_gdp&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:non-eu&idim=country:pt&ifdim=country_group&tstart=798246000000&tend=1303167600000&ind=false&icfg http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&#...
  - sergiosgc 13y ago
    Portugal entered the euro, and a couple of decades of economic stagnation while companies switch from producing cheap labor shoes to high value added goods was to be expected. Portugal did surprisingly well up until 2007, with small but consistent GDP growth and was clearly on the road to being a more evolved economy. 2007 saw a growth of 2.4%, by all measures good for an economy in transition. During the transition, some debt accumulation would be tolerable. Levels up to 120% were, prior to Reinhardt Rogoff considered acceptable. As such, the view that the timing of the financial crisis was particularly unfortunate for Portugal is, in my view, entirely correct.
deleted 13y ago
[deleted]
- skylan_q 13y ago
  But it hasn't. Almost every country that has faced an economic crisis continued to increase their budget expenditures. The new austerity is in reducing the increases by a fraction, which isn't what's suggested at all.
- nandemo 13y ago
  > The entire economic approach of some countries has been based, or at least heavily influenced by, on a paper that no one had bothered actually checking. Er, no. Reinhart and Rogoff's paper was published in 2010. The debate of keynesian stimulus vs. austerity vs. non-interventionism is much, much older than that.
- calibraxis 13y ago
  It's not such a big deal; imposing debt and austerity on others existed millenia before some paper. :) I liked Graeber's recent _Debt: The First 5000 Years_. If you can't easily obtain/afford it, IIRC the author recommended just downloading it from somewhere. (http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867 http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867) BTW, this quote from the article is telling: "But because he was a lowly graduate student asking favors of some of the most respected economists in the world, he got no reply, until one afternoon..." You know, the "favor" of doublechecking their dangerously buggy academic product for them. Maybe that was a terrible exaggeration from the journalist. Who knows what happened in this particular case? But in contrast, Graeber, who couldn't even be considered for a professor job in North America (but gets jobs elsewhere, like the London School of Economics), said: "What collegiality means in practice is: 'He knows how to operate appropriately within an extremely hierarchical environment.' You never see anyone accused of lack of collegiality for abusing their inferiors. It means 'not playing the game in what we say is the proper way.'" (http://chronicle.com/article/A-Radical-Anthropologist-Finds/138499/?key=QW0mcFFkNyoeZCkyY2kUZT8Gbnc9YRohNXAXOXF1bl9cEg%3D%3D http://chronicle.com/article/A-Radical-Anthropologist-Finds/...) (Afterwards, Graeber tweeted, "in the interview I added "you can be accused of 'lack of collegiality' for being too nice." That is, too nice to students." One reason the dismal pseudoscience gets even little things wrong.)
paulsutter 13y ago
The solution is for authors to routinely publish the datasets behind their research. Unlikely though, for the same reason that Herndon didn't contact Reinhart and Rogoff about the error. Academics are even more interested in getting attention than they are in getting to the truth. Which is why this episode is more likely to discourage publication of data than encourage it.
- michaelwww 13y ago
  > Academics are even more interested in getting attention than they are in getting to the truth. untrue and insulting > Which is why this episode is more likely to discourage publication of data than encourage it. Why would you expect this? It seems more likely that data and the software used to produce results will have to be open sourced and verifiable in the future.
confluence 13y ago
You would be surprised how many things that exist around you are based around faulty models based on incorrect data - that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. You have been warned - the further fields get from pure mathematics and isolated systems - the faultier they must become, and the harder they are to verify (although in this case - it was trivially easy - but then again IIRC the paper wasn't published in a peer-reviewed journal). Hence, before accepting X new fact in higher dimensional fields - do your own verification first. Also - who on earth thought austerity was ever a good idea? If you can afford to borrow - and consumer spending is dead - bring it back. The US should load up on as much debt as possible - I'd love to get cash at a 1-2% interest rate - it's a freaking awesome deal.
- knowtheory 13y ago
  > Also - who on earth thought austerity was ever a good idea? David Cameron, Angela Merkel and Paul Ryan to name just three prominent politicians. Additionally EU central bank policy has been geared almost solely around this principle. This is why after identifying that the Greek, Cypriot and Spanish economies were the victim of cheating, malfeasance and incompetence, all of the rescue plans involved pretty severe cuts to social welfare programs and government services. Remember, ALL Cypriots had to take a haircut on their savings in banks greater than 100k euros. International finance scammers fucked the Cypriot economy, and then the pro-austerity EU forced all Cypriots to choke down the bailout. It's like robin hood in reverse.
  - dualogy 13y ago
    Well it DOES send a message to these countries for the future. Wouldn't be surprised if the ECB --supranational and quite independent from day-to-day voter-pleasing politics-- had a longer range view. They do demonstrate to the world now two things: (A) the core tenets / stability principles backing the original EUR currency idea and philosophy are not sacrificied to the current temporary economic mismanagement of one individual nation state that chose to participate in the currency, knowing fully well broad / long-range philosophy of ECB. No quick fixes, no "reckless printing" (at least not without limit or getting the country to change its ways). (B) Big savers are encouraged to rediscover "the old ways" of saving, preserving or investing wealth -- not to hold it in "the US(D) way" of a self-feeding ever-expanding intransparent web of future promises, counterobligations, speculation. Aka "your bank account" these days. A small country such as Cyprus is ideal to send such a strong and lasting message. People in "bigger" countries get a strong signal to "rethink their ways". Everyone learns that EUR ways are different from the USD ways in some (important) respects. And should the world ever lose confidence in the USD and/or in markets driven largely by currency debasement, deficits, debts -- the world may well remember those "early stories of the young EUR".
Nursie 13y ago
Austerity is something the government should be practicing in the good times, instead of blowing everything on profligate rubbish. That way when the downturn comes, you're not already saddled with masses of debt and a vast public system that depends upon it. IMHO, of course, I am am not an economist. Not that they seem to agree on much either.
- AutoCorrect 13y ago
  yep, sustainability is not just for the biosphere, it's for the econosphere too. It's great to provide big benefits to everyone, but then when things turn down, we get the mess we are in today.
darrickwiebe 13y ago
If you look at the winners of the Underhanded C Contest [1], the subtle and deniable "errors" that are hidden in innocuous looking pieces of code remind me a lot of the type of error that this spreadsheet sounds like it contains. It's telling that now that their data is exposed as being incorrect, the original authors still are standing behind their conclusions. [1] http://underhanded.xcott.com/ http://underhanded.xcott.com/
fnordfnordfnord 13y ago
"I checked my e-mail, and saw that I had received a reply from Carmen Reinhart," he says. "She said she didn't have time to look into my query, but that here was the data, and I should feel free to publish whatever results I found." Last time that'll happen for a while.
- deleted 13y ago
  [deleted]
Riesling 13y ago
I think it is about time to create an open and standardized publishing model for academic papers, which also includes the datasets and the code used for all calculations.
squozzer 13y ago
What seems at issue -- besides whether an economist's work should be accepted at face value -- is under what conditions a country should borrow or impose austerity. Here's an analogy -- When times are good, governments frequently raise taxes, because hey, we can afford it. When times turn bad, governments frequently raise taxes, because hey, our tax base has eroded and we need it. It's a "heads I win, tails you lose" game.
- fyi80 13y ago
  That's not what happens. The problem is: When times are good, governments frequently LOWER taxes, because hey, we can raise the same revenue When times turn bad, governments frequently LOWER taxes, because hey, people can't afford it. borrow in bad times, pay back in good times, is well established. Governments are good at borrowing in bad times, but bad at paying back in good times. Look at late-90s US, when we briefly had a balanced budget, and instead of preparing for the bust, we rushed headlong into it.
danso 13y ago
What do people think about the researchers' rebuttal in the WSJ? http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-admit-excel-mistake-rebut-other-critiques/ http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-ad... I'm too much of a layperson in statistics and economics to tell, at this early in the morning without coffee, how much of this is eloquent backtracking BS: > So do where does this leave matters on debt and growth? Do Herndon et al. get dramatically different results on the relatively short post war sample they focus on? Not really. They, too, find lower growth associated with periods when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; over 90, 2.2%. Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt. They ignore the fact that these results are close to what we get in our Table 1 of our AER paper they critique, and not far from the median results in Figure 2 despite its coding error. And they are not very different from what we report in our 2012 Journal of Economic Perspectives paper with Vincent Reinhart—where the average is 2.4% for high debt versus 3.5% for below 90%
- akgerber 13y ago
  Note the phrase "associated" in the excerpt: "They, too, find lower growth associated with periods when debt is over 90%" This episode emphasizes that the original study found no causality; one would expect a country with low growth to need to rely more on debt and less on tax revenues to fund government, especially if expenditures were planned based on a higher-growth scenario.
- carbocation 13y ago
  If I recall correctly, their original result had negative growth (like -0.1%) when debt is above 90%, and the revised result has growth at 2.2%. The revised 2.2% is much closer than the original -0.1% to the rate at the next level down (3.2%). So now they are clinging to the fact that 2.2% growth is still less than 3.2%. It is, but it's much closer than the old, original -0.1% growth.
- dangerlibrary 13y ago
  The -0.1% mean growth rate was the silver bullet. It was everything - the only number anyone remembered or cared about after reading the paper. Without that, it's another data point correlating economic growth and sovereign debt - and not a very interesting one, either.
fleaflicker 13y ago
Curious analogy As a graduate student, he'd just found serious problems in a famous economic study — the academic equivalent of a D-league basketball player dunking on LeBron James.
- niggler 13y ago
  These are "Harvard economists", and AFAICT Harvard has one of the strongest econ departments in the academic establishment.
- mynewwork 13y ago
  And they were so close to getting it right too. Change "D-league" to "rookie year" and it's apt.
niggler 13y ago
Best comment from the WSJ article (in which Reinhart and Rogoff admit their mistake): "The two profs are incompetent enough to now be hired by Fox “Business” network."
vondur 13y ago
Hasn't Paul Krugman been saying this for quite a while? Judging by the performance of the Irish and British economies since the implementation of austerity programs, it looks to be verifiable.
laughfactory 13y ago
The grad student didn't "shake" the global austerity movement. He merely pointed out a minor error in a formula that didn't significantly affect the outcomes of the model. This isn't big news. Besides, to attack austerity as a "bad idea" is like attacking having a budget for your own home income and expenses. Individuals and families are well-acquainted with the reality that you cannot indefinitely spend more than you bring in. It's idiotic to assume that a government can simply suspend this assumption and not have any consequences. Perhaps a government has a bigger "credit card," but in the end all debts must be paid or defaulted on--just like in the real world you and I live in. It is absolutely essential for a countries long-term economic well-being to keep expenses within the neighborhood of revenue. Yet the far-left seems to persist with the belief that money literally grows on trees, and that surely there's enough to be able to afford every desirable program. They're totally out-of-touch with reality. So they poo-poo the "austerity" movement as just raining on their parade. Just like the Greeks who had the nerve as their country was going down the drain to strike, wave signs around, and complain when the Piper comes to claim his due. Last point. What we're calling "austerity" really isn't. It's a political fabrication which, in the case of the US (and I suspect many countries), means that the politicians have agreed amongst themselves to merely not increase the rate of spending as much as they had initially planned on. This is what they call "savings" and "cutting the deficit." I think people living in the real world would agree that such a definition is ridiculous. How can you be cutting the deficit when you're merely reducing the rate of the GROWTH in spending, not actually reducing the amount of spending. Does that make sense? So if they had planned to increase spending by 7% across the board, they call it "cutting the deficit" if they decide to only increase spending by 3%. Let's be real. Under Obama's recently released budget the US will hit 24 TRILLION in debt in the next decade. That's nearly DOUBLE what we're at today. Where are these horrible, painful cuts that are supposed to be reducing the deficit? Exactly. They're all wrapped up in some political hyperbole that allows the politicians on the right and left to spar without actually doing anything to make our nation more solvent.

114 points by sreeix 13y ago

Here is Andrew Gelman's comment on this issue: http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogoff-i-think-its-best-to-admit-your-errors-and-go-on-from-there/ http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogo...

guelo 13y ago

Harvard should fire those two professors.

fyi80 13y ago
Harvard should keep them, and endure the reputation decrease as a result. This incident should stand as a long-term reminder that the Ivy League is does not have an infallible monopoly on genius.

louischatriot 13y ago

Impressive that his two professors took 1 whole month to finally believe him, even though the article gives the impression that the error was obvious (a bad formula). Summary of the article: http://tldr.io/tldrs/5171189e1a18dac804000170/meet-the-28-year-old-grad-student-who-just-shook-the-global-austerity-movement http://tldr.io/tldrs/5171189e1a18dac804000170/meet-the-28-ye...

thomasz 13y ago
It sounds like they grilled him until they got co-authorship for a paper with a with an uber high impact factor.
- mattmanser 13y ago
  I suspect that without their co-authorship people wouldn't have read it. I'm not in the academic field but isn't it a signal that they back his work enough to put their name (and reputation) to it?
- fyi80 13y ago
  Is it good for your career to get high impact factor for a paper that admits that your most famous work was a fraud that destroyed the economy of several nations?
  - thomasz 13y ago
    His co-authors are not those who fucked up the original study.

dade_ 13y ago

This story is a lesson on confirmation bias: Professors that immediately decide that the student is wrong, and must be convinced otherwise. The spreadsheet financial analysis that provided the expected results and therefore never checked for errors. A single study that gave economists, and clearly an awful lot of politicians, the confirmation they needed to strengthen their resolve in the face of opposition.

fnordfnordfnord 13y ago
A single study that gave economists, and clearly an awful lot of politicians, the confirmation they needed to strengthen their resolve in the face of opposition. Confirmation bias, at least in the politicians' cases, it just provided them with extra confidence to proceed with their agenda. Well, it may have also lent them some legitimacy.
- fyi80 13y ago
  Lent, indeed. And now they default on those loans.

iwwr 13y ago

So what is the alternative to lowering "consistently high public debt"? Monetize it? Default on it? Debt in itself is not a problem if the growth rate is the same or decreasing as a proportion of the economy. At the current rate, some obligations would have to be forfeited, either to the direct creditors, or to those promised social services. Strangling the economy further with high taxes only makes the problem worse. I think most of the damage from so-called "austerity" has been decisions taken with little warning and at the very last possible moment.

rjtavares 13y ago
I'm Portuguese, and the amount of people here that think that "if the financial crisis in the US didn't happen we wouldn't have a problem" is mind-boggling. Because apparently having your debt rise from 50% to 70% of GDP in 7 years without recessions or crisis (2000-2007) [1] and running a budget deficit that never went below 3% [2] isn't a sign of a problem... [1] http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&ctype=l&met_y=gd_pc_gdp#!ctype=l&strail=false&bcs=d&nselm=h&met_y=gd_pc_gdp&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:non-eu&idim=country:pt&ifdim=country_group&hl=en_US&dl=en_US&ind=false http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&#... [2] http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&ctype=l&strail=false&bcs=d&nselm=h&met_y=edp_b9_pc_gdp&scale_y=lin&ind_y=false&rdim=country_group&idim=country_group:non-eu&idim=country:pt&ifdim=country_group&tstart=798246000000&tend=1303167600000&ind=false&icfg http://www.google.com/publicdata/explore?ds=ds22a34krhq5p_&#...
- sergiosgc 13y ago
  Portugal entered the euro, and a couple of decades of economic stagnation while companies switch from producing cheap labor shoes to high value added goods was to be expected. Portugal did surprisingly well up until 2007, with small but consistent GDP growth and was clearly on the road to being a more evolved economy. 2007 saw a growth of 2.4%, by all measures good for an economy in transition. During the transition, some debt accumulation would be tolerable. Levels up to 120% were, prior to Reinhardt Rogoff considered acceptable. As such, the view that the timing of the financial crisis was particularly unfortunate for Portugal is, in my view, entirely correct.

deleted 13y ago

[deleted]

skylan_q 13y ago
But it hasn't. Almost every country that has faced an economic crisis continued to increase their budget expenditures. The new austerity is in reducing the increases by a fraction, which isn't what's suggested at all.
nandemo 13y ago
> The entire economic approach of some countries has been based, or at least heavily influenced by, on a paper that no one had bothered actually checking. Er, no. Reinhart and Rogoff's paper was published in 2010. The debate of keynesian stimulus vs. austerity vs. non-interventionism is much, much older than that.
calibraxis 13y ago
It's not such a big deal; imposing debt and austerity on others existed millenia before some paper. :) I liked Graeber's recent _Debt: The First 5000 Years_. If you can't easily obtain/afford it, IIRC the author recommended just downloading it from somewhere. (http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867 http://www.amazon.com/Debt-First-5-000-Years/dp/1933633867) BTW, this quote from the article is telling: "But because he was a lowly graduate student asking favors of some of the most respected economists in the world, he got no reply, until one afternoon..." You know, the "favor" of doublechecking their dangerously buggy academic product for them. Maybe that was a terrible exaggeration from the journalist. Who knows what happened in this particular case? But in contrast, Graeber, who couldn't even be considered for a professor job in North America (but gets jobs elsewhere, like the London School of Economics), said: "What collegiality means in practice is: 'He knows how to operate appropriately within an extremely hierarchical environment.' You never see anyone accused of lack of collegiality for abusing their inferiors. It means 'not playing the game in what we say is the proper way.'" (http://chronicle.com/article/A-Radical-Anthropologist-Finds/138499/?key=QW0mcFFkNyoeZCkyY2kUZT8Gbnc9YRohNXAXOXF1bl9cEg%3D%3D http://chronicle.com/article/A-Radical-Anthropologist-Finds/...) (Afterwards, Graeber tweeted, "in the interview I added "you can be accused of 'lack of collegiality' for being too nice." That is, too nice to students." One reason the dismal pseudoscience gets even little things wrong.)

paulsutter 13y ago

The solution is for authors to routinely publish the datasets behind their research. Unlikely though, for the same reason that Herndon didn't contact Reinhart and Rogoff about the error. Academics are even more interested in getting attention than they are in getting to the truth. Which is why this episode is more likely to discourage publication of data than encourage it.

michaelwww 13y ago
> Academics are even more interested in getting attention than they are in getting to the truth. untrue and insulting > Which is why this episode is more likely to discourage publication of data than encourage it. Why would you expect this? It seems more likely that data and the software used to produce results will have to be open sourced and verifiable in the future.

confluence 13y ago

You would be surprised how many things that exist around you are based around faulty models based on incorrect data - that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. You have been warned - the further fields get from pure mathematics and isolated systems - the faultier they must become, and the harder they are to verify (although in this case - it was trivially easy - but then again IIRC the paper wasn't published in a peer-reviewed journal). Hence, before accepting X new fact in higher dimensional fields - do your own verification first. Also - who on earth thought austerity was ever a good idea? If you can afford to borrow - and consumer spending is dead - bring it back. The US should load up on as much debt as possible - I'd love to get cash at a 1-2% interest rate - it's a freaking awesome deal.

knowtheory 13y ago
> Also - who on earth thought austerity was ever a good idea? David Cameron, Angela Merkel and Paul Ryan to name just three prominent politicians. Additionally EU central bank policy has been geared almost solely around this principle. This is why after identifying that the Greek, Cypriot and Spanish economies were the victim of cheating, malfeasance and incompetence, all of the rescue plans involved pretty severe cuts to social welfare programs and government services. Remember, ALL Cypriots had to take a haircut on their savings in banks greater than 100k euros. International finance scammers fucked the Cypriot economy, and then the pro-austerity EU forced all Cypriots to choke down the bailout. It's like robin hood in reverse.
- dualogy 13y ago
  Well it DOES send a message to these countries for the future. Wouldn't be surprised if the ECB --supranational and quite independent from day-to-day voter-pleasing politics-- had a longer range view. They do demonstrate to the world now two things: (A) the core tenets / stability principles backing the original EUR currency idea and philosophy are not sacrificied to the current temporary economic mismanagement of one individual nation state that chose to participate in the currency, knowing fully well broad / long-range philosophy of ECB. No quick fixes, no "reckless printing" (at least not without limit or getting the country to change its ways). (B) Big savers are encouraged to rediscover "the old ways" of saving, preserving or investing wealth -- not to hold it in "the US(D) way" of a self-feeding ever-expanding intransparent web of future promises, counterobligations, speculation. Aka "your bank account" these days. A small country such as Cyprus is ideal to send such a strong and lasting message. People in "bigger" countries get a strong signal to "rethink their ways". Everyone learns that EUR ways are different from the USD ways in some (important) respects. And should the world ever lose confidence in the USD and/or in markets driven largely by currency debasement, deficits, debts -- the world may well remember those "early stories of the young EUR".

Nursie 13y ago

Austerity is something the government should be practicing in the good times, instead of blowing everything on profligate rubbish. That way when the downturn comes, you're not already saddled with masses of debt and a vast public system that depends upon it. IMHO, of course, I am am not an economist. Not that they seem to agree on much either.

AutoCorrect 13y ago
yep, sustainability is not just for the biosphere, it's for the econosphere too. It's great to provide big benefits to everyone, but then when things turn down, we get the mess we are in today.

darrickwiebe 13y ago

If you look at the winners of the Underhanded C Contest [1], the subtle and deniable "errors" that are hidden in innocuous looking pieces of code remind me a lot of the type of error that this spreadsheet sounds like it contains. It's telling that now that their data is exposed as being incorrect, the original authors still are standing behind their conclusions. [1] http://underhanded.xcott.com/ http://underhanded.xcott.com/

fnordfnordfnord 13y ago

"I checked my e-mail, and saw that I had received a reply from Carmen Reinhart," he says. "She said she didn't have time to look into my query, but that here was the data, and I should feel free to publish whatever results I found." Last time that'll happen for a while.

deleted 13y ago
[deleted]

Riesling 13y ago

I think it is about time to create an open and standardized publishing model for academic papers, which also includes the datasets and the code used for all calculations.

squozzer 13y ago

What seems at issue -- besides whether an economist's work should be accepted at face value -- is under what conditions a country should borrow or impose austerity. Here's an analogy -- When times are good, governments frequently raise taxes, because hey, we can afford it. When times turn bad, governments frequently raise taxes, because hey, our tax base has eroded and we need it. It's a "heads I win, tails you lose" game.

fyi80 13y ago
That's not what happens. The problem is: When times are good, governments frequently LOWER taxes, because hey, we can raise the same revenue When times turn bad, governments frequently LOWER taxes, because hey, people can't afford it. borrow in bad times, pay back in good times, is well established. Governments are good at borrowing in bad times, but bad at paying back in good times. Look at late-90s US, when we briefly had a balanced budget, and instead of preparing for the bust, we rushed headlong into it.

danso 13y ago

What do people think about the researchers' rebuttal in the WSJ? http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-admit-excel-mistake-rebut-other-critiques/ http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-ad... I'm too much of a layperson in statistics and economics to tell, at this early in the morning without coffee, how much of this is eloquent backtracking BS: > So do where does this leave matters on debt and growth? Do Herndon et al. get dramatically different results on the relatively short post war sample they focus on? Not really. They, too, find lower growth associated with periods when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; over 90, 2.2%. Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt. They ignore the fact that these results are close to what we get in our Table 1 of our AER paper they critique, and not far from the median results in Figure 2 despite its coding error. And they are not very different from what we report in our 2012 Journal of Economic Perspectives paper with Vincent Reinhart—where the average is 2.4% for high debt versus 3.5% for below 90%

akgerber 13y ago
Note the phrase "associated" in the excerpt: "They, too, find lower growth associated with periods when debt is over 90%" This episode emphasizes that the original study found no causality; one would expect a country with low growth to need to rely more on debt and less on tax revenues to fund government, especially if expenditures were planned based on a higher-growth scenario.
carbocation 13y ago
If I recall correctly, their original result had negative growth (like -0.1%) when debt is above 90%, and the revised result has growth at 2.2%. The revised 2.2% is much closer than the original -0.1% to the rate at the next level down (3.2%). So now they are clinging to the fact that 2.2% growth is still less than 3.2%. It is, but it's much closer than the old, original -0.1% growth.
dangerlibrary 13y ago
The -0.1% mean growth rate was the silver bullet. It was everything - the only number anyone remembered or cared about after reading the paper. Without that, it's another data point correlating economic growth and sovereign debt - and not a very interesting one, either.

fleaflicker 13y ago

Curious analogy As a graduate student, he'd just found serious problems in a famous economic study — the academic equivalent of a D-league basketball player dunking on LeBron James.

niggler 13y ago
These are "Harvard economists", and AFAICT Harvard has one of the strongest econ departments in the academic establishment.
mynewwork 13y ago
And they were so close to getting it right too. Change "D-league" to "rookie year" and it's apt.

niggler 13y ago

Best comment from the WSJ article (in which Reinhart and Rogoff admit their mistake): "The two profs are incompetent enough to now be hired by Fox “Business” network."

vondur 13y ago

Hasn't Paul Krugman been saying this for quite a while? Judging by the performance of the Irish and British economies since the implementation of austerity programs, it looks to be verifiable.

laughfactory 13y ago

The grad student didn't "shake" the global austerity movement. He merely pointed out a minor error in a formula that didn't significantly affect the outcomes of the model. This isn't big news. Besides, to attack austerity as a "bad idea" is like attacking having a budget for your own home income and expenses. Individuals and families are well-acquainted with the reality that you cannot indefinitely spend more than you bring in. It's idiotic to assume that a government can simply suspend this assumption and not have any consequences. Perhaps a government has a bigger "credit card," but in the end all debts must be paid or defaulted on--just like in the real world you and I live in. It is absolutely essential for a countries long-term economic well-being to keep expenses within the neighborhood of revenue. Yet the far-left seems to persist with the belief that money literally grows on trees, and that surely there's enough to be able to afford every desirable program. They're totally out-of-touch with reality. So they poo-poo the "austerity" movement as just raining on their parade. Just like the Greeks who had the nerve as their country was going down the drain to strike, wave signs around, and complain when the Piper comes to claim his due. Last point. What we're calling "austerity" really isn't. It's a political fabrication which, in the case of the US (and I suspect many countries), means that the politicians have agreed amongst themselves to merely not increase the rate of spending as much as they had initially planned on. This is what they call "savings" and "cutting the deficit." I think people living in the real world would agree that such a definition is ridiculous. How can you be cutting the deficit when you're merely reducing the rate of the GROWTH in spending, not actually reducing the amount of spending. Does that make sense? So if they had planned to increase spending by 7% across the board, they call it "cutting the deficit" if they decide to only increase spending by 3%. Let's be real. Under Obama's recently released budget the US will hit 24 TRILLION in debt in the next decade. That's nearly DOUBLE what we're at today. Where are these horrible, painful cuts that are supposed to be reducing the deficit? Exactly. They're all wrapped up in some political hyperbole that allows the politicians on the right and left to spar without actually doing anything to make our nation more solvent.