View Full Version : Austerity economics based on an Excel error.

04-18-2013, 02:50 AM

No, your coding is the problem.

"You know the much-ballyhooed theory that high national debt always correlates to crappy economic growth? The one that's trotted out on a regular basis by politicians arguing for austerity budgets and sequestration? Well, according to new findings, the study that austerity proponents cite more than any other is based on an Excel error. A big one.

The glitchy data comes from a hallmark study on debt, Growth in a Time of Debt, from 2010. Since it was published, it's become a favorite of people like Paul Ryan, who mentioned it frequently during the Romney campaign. "


All those starving people. All the sick and dying who didn't get treatment. All the newly homeless, uneducated children, ghettos, etc. All the rich people getting richer. Thanks Excel!

Krugman having a field day on his blog, of course.

04-18-2013, 08:02 AM
If A equals B, and B equals C, then C must equal 17! !Booya!

El Minion
04-18-2013, 03:56 PM
Was going to post as new thread but posted in Ro's 2012 thread instead for better context and hindsight. nyuk response to my post just tells you that this new facts about old deceptions will not pierce the Republican and conservative reality distortion filed.

How an Excel error fueled panic over the federal debt (http://www.latimes.com/business/money/la-fi-mo-debt-excel-error-20130416,0,4073638.story)

Rep. Paul D. Ryan ponders the federal budget. (J. Scott Applewhite / Associated Press)

By Michael Hiltzik
April 16, 2013, 11:23 a.m.

One of the most fearsome statistics in the war against the federal deficit has always been the country's ratio of debt to gross domestic product. When this ratio reaches 90%, the argument goes, watch out -- lower economic growth is on the horizon. And that's scary, because that's where the U.S. has been heading.

This idea comes from Harvard economists Ken Rogoff and Carmen Reinhart, who featured it in a 2010 paper (http://www.reinhartandrogoff.com/user_uploads/RR%20Debt%20and%20Growth-01-18%20NBER.pdf) and popularized it in a book entitled "This Time is Different: Eight Centuries of Financial Folly (http://www.reinhartandrogoff.com/related-research/growth-in-a-time-of-debt-featured-in)."

Since then, the stat has been cited countless times, including by Rep. Paul D. Ryan in rationalizing the draconian spending cuts in his proposed budgets. Now it turns out the authors may have counted wrong.

A new study by three researchers at the University of Massachusetts finds that Rogoff and Reinhart made several mistakes (http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems) that invalidate their thesis.

In their analysis of growth rates of 20 industrialized countries, including the U.S., from the postwar period through 2009, Rogoff and Reinhart excluded data for three countries that had both high debt-to-GDP and high economic growth, which contradicted their finding. They tweaked other figures in a way that minimized overall growth rates for some high debt/GDP countries.

Most important, they made a spreadsheet error that resulted in their leaving five countries out of an all-important average of countries with higher than 90% debt-to-GDP ratios. By restoring the full average, the UMass authors say, the growth rate for countries in that range becomes 2.2%, not the -0.1% cited by Rogoff and Reinhart. That makes the average growth rate at that ratio "not dramatically different (http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf) than when debt/GDP ratios are lower."

Rogoff and Reinhart haven't yet responded to the UMass paper. But if the new analysis holds up, it knocks a key leg out from under the argument that our economic growth depends on cutting the deficit and reducing the national debt without delay.

One irony of the finding stems from the fact that the debt-to-GDP ratio always was something of a heffalump. As economist Robert Shiller pointed out in 2011 (http://www.slate.com/articles/business/project_syndicate/2011/07/deluded_about_debt.html), yoking the two statistics together doesn't necessarily tell you anything useful. Debt is measured in currency, he observed; GDP is measured in currency units per year. But there's "nothing special about using a year.... A year is the time that it takes for the Earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance."

If GDP were conventionally measured not over a single year but over five years, or 10, the ratio would look much lower -- indeed, that ratio might make more sense, because debt typically comes due over the long term, not in a year.

The one-year juxtaposition, however, did make for a convenient rhetorical yardstick because it generated big numbers, and as we all know, extreme numbers are the devil's debating tools.

04-18-2013, 05:03 PM
Was going to post as new thread but posted in Ro's 2012 thread instead for better context and hindsight. nyuk response to my post just tells you that this new facts about old deceptions will not pierce the Republican and conservative reality distortion filed.

The bubble of self-imposed stupidity cannot be pierced by anything we here possess.

04-19-2013, 04:41 PM
Ah ok, didn't read that thread, sorry Roh & Minion!


The Excel Depression
Paul Krugman

In this age of information, math errors can lead to disaster. NASA’s Mars Orbiter crashed (http://www.cnn.com/TECH/space/9909/30/mars.metric.02/) because engineers forgot to convert to metric measurements; JPMorgan Chase’s “London Whale” venture went bad (http://baselinescenario.com/2013/02/09/the-importance-of-excel/) in part because modelers divided by a sum instead of an average. So, did an Excel coding error destroy the economies of the Western world?

The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a Time of Debt (http://www.nber.org/papers/w15639.pdf?new_window=1),” that 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.

Ms. Reinhart and Mr. Rogoff had credibility thanks to a widely admired earlier book on the history of financial crises, and their timing was impeccable. The paper came out just after Greece went into crisis and played right into the desire of many officials to “pivot” from stimulus to austerity. As a result, the paper instantly became famous; it was, and is, surely the most influential economic analysis of recent years.

In fact, Reinhart-Rogoff quickly achieved almost sacred status among self-proclaimed guardians of fiscal responsibility; their tipping-point claim was treated not as a disputed hypothesis but as unquestioned fact. For example, a Washington Post editorial earlier this year warned against any relaxation on the deficit front (http://www.washingtonpost.com/opinions/debt-reduction-hawks-and-doves/2013/01/26/3089bd52-665a-11e2-93e1-475791032daf_story.html), because we are “dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.” Notice the phrasing: “economists,” not “some economists,” let alone “some economists, vigorously disputed by other economists with equally good credentials,” which was the reality.

For the truth is that Reinhart-Rogoff faced substantial criticism from the start, and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around, with poor economic performance leading to high debt. Indeed, that’s obviously the case for Japan, which went deep into debt only after its growth collapsed in the early 1990s.

Over time, another problem emerged: Other researchers, using seemingly comparable data on debt and growth, couldn’t replicate the Reinhart-Rogoff results. They typically found some correlation between high debt and slow growth — but nothing that looked like a tipping point at 90 percent or, indeed, any particular level of debt.

Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts (http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/) to look at their original spreadsheet — and the mystery of the irreproducible results was solved (http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems). First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these oddities and errors, and you get what other researchers have found (http://www.oecd-ilibrary.org/economics/public-debt-economic-growth-and-nonlinear-effects_5k918xk8d4zn-en): some correlation between high debt and slow growth, with no indication of which is causing which, but no sign at all of that 90 percent “threshold.”

In response, Ms. Reinhart and Mr. Rogoff have acknowledged (http://blogs.ft.com/ftdata/2013/04/17/the-reinhart-rogoff-response-i/) the coding error, defended their other decisions and claimed that they never asserted that debt necessarily causes slow growth. That’s a bit disingenuous because they repeatedly insinuated that proposition even if they avoided saying it outright. But, in any case, what really matters isn’t what they meant to say, it’s how their work was read: Austerity enthusiasts trumpeted that supposed 90 percent tipping point as a proven fact and a reason to slash government spending even in the face of mass unemployment.

So the Reinhart-Rogoff fiasco needs to be seen in the broader context of austerity mania: the obviously intense desire of policy makers, politicians and pundits across the Western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs.

What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 percent of G.D.P. But “economic research” showed no such thing; a couple of economists made that assertion, while many others disagreed. Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d like to think so. But I predict that the usual suspects will just find another dubious piece of economic analysis to canonize, and the depression will go on and on.

04-20-2013, 08:41 AM

No, your coding is the problem.

Nobody pay taxes. We'll just fix the excel code and keep on growing. This is a great discovery! :thumbsup:

04-23-2013, 01:34 AM


Austerity vs Stimulus. Any questions?

04-24-2013, 02:38 PM
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El Minion
04-25-2013, 10:56 AM
Austerity is working great for the spaniards!

Spanish unemployment tops 6 million (http://www.chicagotribune.com/business/sns-rt-us-spain-unemploymentbre93o06c-20130425,0,3597549.story)

04-25-2013, 11:10 AM
And instead of addressing how to solve the problem, the conservatives would just argue with you about how the number is calculated and whether or not it includes people who stopped looking for work.

"Don't mind me guys, I don't have a solution for you. I'm just here to muddy the discussion."

Bronco Yoda
04-25-2013, 01:41 PM
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04-25-2013, 01:44 PM
Seriously from an academic standpoint that has then blindly been quoted and put into practice in the real world, this is just a huge embarrassment and I'm appalled by those that defend it because even though the calculation is bad it doesn't matter and they are sticking with the conclusion anyway.