Wednesday, April 17, 2013

Austerity. Bogus?

This is interesting: a major foundation of the argument for the economic austerity which is touted by conservatives around the world and which is dragging Europe back into recession, and which is now pretty much the course on which the US, thanks to teabagging congress folk, is headed, is a paper written a while back by a couple of economists. Turns out, they sort of fudged some stuff.

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.
They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result. Let's investigate further:
They go on to do so.

Whenever I write about such things I make no claims to economic expertise. But it's always seemed logical and persuasive to me that in times of fiscal downturn, where no other has or is willing to put money to work, government is the only source to which to look for infusions thereof; and that the time for governmental austerity, if there is one, is during good times, not bad.

[Image originally from NYT, by way of here]

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