I was going to blog about the Reinhart-Rogoff thesis this morning, but Paul Krugman not only beat me to it, he (unsurprisingly) said it better.
What–you aren’t familiar with Reinhart-Rogoff? The term is shorthand for a paper circulated by two Harvard economists, Reinhart and Rogoff, in 2010. (It evidently wasn’t even a peer reviewed article–just a working paper.) The paper purported “to identify a critical “threshold,” a tipping point, for government indebtedness. Once debt exceeds 90 percent of gross domestic product, they claimed, economic growth drops off sharply.”
The paper was immediately seized on by proponents of austerity, despite the fact that other economists criticized the methodology, and still others tried but couldn’t replicate the findings. It became the basis of policy decisions throughout Europe. It was a justification for Paul Ryan’s budget. And then, when the authors finally shared their calculations, it turned out that a coding error–in lay language, a mistake in their use of the Excel computer program–invalidated their results.
There is a moral to this story, and it has nothing to do with economics, or the importance of peer review, or the tendency of a Harvard pedigree to lend unearned credibility to a scholarly product. This fiasco is another example of a growing phenomenon: ideologically-driven choices of reality. In today’s America, too many of us read everything selectively; we comb the news for evidence that supports our pre-existing beliefs. We read the bible and the Constitution selectively, conveniently ignoring the parts that conflict with our worldviews. We dismiss evidence that confuses us. Ambiguity and complexity become enemies.
The problem is, the clarity we achieve with our chosen authorities often conflicts with messy, ambiguous reality. And that makes matters worse.
17 thoughts on “Choosing our Authorities”
It wasn’t merely a “coding error.” According to the economists who debunked the Reinhart & Rogoff paper, there were three major methodological errors, including, somewhat shockingly, a weighting error that any high-school math student wod immediately recognize as flawed. Here’s just one glaring example from the study (according to article): England has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has only one year in the sample above 90 percent debt-to-GDP, with a negative growth rate of -7.6. In their final calculation, Reinhart and Rogoff give these two numbers, 2.4 and -7.6 percent, equal weight, as they average the countries equally — even though they have 19 times as many data points for England. See: http://www.nationalmemo.com/austerity-debunked-math-is-dead-wrong-in-major-study-cited-by-deficit-hawks/
I just can’t seem to escape reality imitating Frank Herbert.
If only Krugman could see his own errors as well.
I understand the gist of the paper and the analysis of said debunkers. The question that jumps out at me is simply “and?” So…. are we saying that our debt is NOT the problem we think it is? Surely we can’t “grow” our way out of the problem because the President lambasted Romney on taht one. Are we supposed to ignore the debt, as Krugman has previously suggested? Great reporting but I haven’t been able to find any decent analysis from either side…
All I know is it’s a lot more than it used to be, in fact public debt is the highest it’s ever been in my lifetime, and running deficits aren’t improving. My children will be inheriting it and I have a massive problem with that.
Marco: I think the point is that, before we make public policy premised on severe austerity, which we know has a negative effect on growth (at least when done in an across-the-board, as opposed to thoughtful, way), it would be nice to know the evidentiary basis for doing so — and the ramifications of each approach. Nobody can seriously say European-style austerity has improved economic conditions or even made for better long-term prospects for growth. I just wish we could move policy away from the realm of “faith”-based and to the realm of evidence- and data-based decision making. That has NOT been the GOP way for many years. All that said, I agree that high debt levels are bad and we should not spend recklessly. Of course, deficit levels ARE on the way down, and quite quickly.
It’s not hard for deficit levels to be down when they were at record highs a few years ago.
What “severe austerity” are you referring to, David?
Marco where was your outrage when your fav President ordered two wars and a drug plan on a credit card? It’s so obvious that when a liberal (so called) President is in charge, you scream Tax and Spend Democrats but the evidence shows that the GOP administrations are the ones that BLEW UP the debt of this country. Why aren’t you marching in the streets calling for their heads hmmmm?
President’s don’t “order” wars. Congress votes for them (and they did vote to go into both wars, unlike what we had under Obama with Libya).
Where have all of the anti-war protesters gone?
OMG! Are we at war with Libya?
The protestors were arrested, remember? I would have stood with them, but didn’t want to be labeled an enemy in the red state of Indiana.
Krugman is a pinhead whose Nobel Prize has nothing to do with the areas of economics and business on which he opines.
One either believes in unlimited government spending and debt, or believes in some type of restraint.
I think it’s important to remember the point of Sheila’s post and David’s (#5) statement, and let it sink in. Before we let talking points and mythology take over policies which will come back to bite us, we need to learn something from experience: evidence-based decisions are always better than decisions based on evidence-free ideology. Please do not miss the point. Actually, this bit of wisdom should be common sense. Why should it be such a revelation?
I agree Stuart, Krugman should stop believing in fantasies and try to come back down to reality from time to time.
This blog entry and Krugman’s comments would be less silly if the left would acknowledge:
1) the hard data on global warming shows there hasn’t been any global warming in 15 years, and that all the ‘experts’ are as wrong as the Duke rape accusers.
2) the hard data from an extensive study by HHS shows that Head Start is a complete waste of money, at best.
Why does the left deny scientific facts ?
Thank you David. Where I believe we have a misunderstanding is how the debt ties in to the economy. My understanding is that when we can print our own money and/or monetize our debt, and interest rates and subsequent debt payments stay low, the only factor on the short-term economy is whether or not those obligations can be met (i.e. when our credit rating got dinged.)
When you institute austerity measures, yes it would have a negative effect on the economy, because you’re taking money out of it to service that debt. Obviously the economy doesn’t really care where that money came from as long as it’s being poured back into itself. Conversely, of course, we’ve seen the little or no effect that stimulus spending has had on recovery as it didn’t work.
My pressing concern is that old folks and then my generation are just going to pass the buck. I want my kids to inherit a debt free life. If that means draconian austerity, then great! Obviously there will be very difficult short-term consequences to deal with, but truly you didn’t believe the debate talking points that we could sustain this level of spending and pay down the debt without sacrifice, did you?
AgingLittleGirl, yes he was my president. No I never voted for him. Yes he added debt, yes I was critical of it. So because he was a Republican, does that make his debt evil compared to the good debt that Clinton and Obama came up with? The principle difference being, of course, George Bush isn’t the President anymore. It’s hard to criticize one without the other. You cry drug plan on a credit card, well I was in college so I wouldn’t know. What I DO know is I just got kicked off my wife’s insurance in anticipation of Obamacare’s implementation. Is that good change then?
You didn’t vote for him and you were in college while he was President eh? Seems to me that Obamacare didn’t kick you off your wife’s insurance; the private insurance company she has did and I don’t believe a word of it. But because Obama is President, every thing is his fault right? It’s so disingenuous that conservatives complain about Obamacare when it’s nearly a replica of Romneycare and according to the people of MA, they love it. I was in Boston last May and several people we spoke to just gushed about wonderful it was.
ALG, perhaps the President shouldn’t have promised we could keep our insurance… hmmm? Methinks if the tables were turned you’d be blaming the Republican for making the poor business water down their customer service. Meh…
I’m not a Republican, contrary to popular belief just because people criticize the President that doesn’t make them hacks. There’s nothing wrong with being consistent with what one believes, so long as it’s not based on party affiliation. I didn’t really read anything else in your comment that addressed what I wrote so I’ll see you on the next one.
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