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Austerity?? – A small Excel spreadsheet error

17 Apr

I’m sure most have heard of this already,…. but I don’t think it can be repeated too much.

It’s a bigger thing than any conservative deficit/spending hawk will ever admit.

Here or in Europe.

Everything must be cut. Social Security, Medicare, school funding, infrastructure spending, cops, fireman.

Everything.

Austerity!!!!  Now!!!! 

Cut taxes on the money guys so that they’ll loosen up their wallets a little more. ( I’ve never seen a money guy not invest because he’d only realize a 50% gain, and not a 54.6% gain.  Have you?)

But one of the papers (studies) they’ve used as a guideline/bible to make their point, seems to have been,……. ummmmm,……… let’s say a little flawed. .

In a nutshell, people have suffered, are suffering, and will suffer more, in no small part  because of the incorrect use of an Excel spreadsheet formula setup.

The world is amazing. And a lot of the time it’s amazing in a bad way.

From Jared Bernstein at  On the Economy

Not to Pile On, But…Correcting Reinhart and Rogoff

Apr 16, 2013

 

I’m late to this and many excellent posts have already gone up citing a new paper that corrects what appear to be fundamental mistakes in Reinhart and Rogoff’s (R&R) influential finding that high debt levels lead to slower growth.  Specifically, they argued that when a country’s debt-to-GDP level gets above 90%, real GDP growth takes a big hit.

The authors of the new paper—Herndon, Ash, and Pollin—replicate R&R’s original work and make various corrections to a) methods and data choices and b) a ”spreadsheet error,” the latter where R&R appear to have left out some important data that has a big impact on their results.  When they correct R&R’s boo-boos, they get the results shown in the figure below.  It’s the last set of bars where Herndon et al’s corrections matter most.  In R&R’s work, countries in their top debt level category have a slightly negative average growth rate ; the corrected data find average growth rates of 2.2% in that category.

It’s a big difference, though I suspect R&R will say, assuming they acknowlege they messed up, that it still shows slower growth.  But that’s been the problem with their work from the beginning.  As I’ve written many times, riffing off of Bivens and Irons for one, if you mush everything together they way they do, you’re likely to get the causality backwards.  You’ll convince yourself that higher debt leads to slower growth when it’s more often the opposite.  Certainly in the US case, the most progress we’ve made against our debt ratios have been in periods of fast growth (and the biggest increases have been in periods of recession, slow growth, or war).

Get this wrong—which, thanks in part to R&R’s advocacy of their flawed results, has been the norm in countries across the globe—and you’ll be pulled, like a moth to a flame, towards austerity, the medieval leeching of growth from already weakened economies.

So kudos to Herndon et al for taking the time to get this right.  Let’s see what happens next, which could, as Matt Yglesias suggests, be nothing.  It’s not like facts are driving this debate.

 

R_Rcorrect

Source: Herndon, Ash, Pollin, Table 3.

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1 Comment

Posted by on April 17, 2013 in Economy, Education, Environment, Health, Politics

 

One response to “Austerity?? – A small Excel spreadsheet error

  1. healthiestbeauty

    April 17, 2013 at 2:45 pm

    Reblogged this on The healthiest beauty.

     

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