Austerity Bites, especially if you can't Math
April 16, 2013 12:50 PM Subscribe

"[a]ll I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel."

Mike Konczal, Dean Baker, and Paul Krugman respond to newly uncovered errors in the widely cited research by Carmen Reinhart and Ken Roghoff underpinning much of the intellectual argument for economic austerity in the United States and Europe.

posted by T.D. Strange (165 comments total) 55 users marked this as a favorite

Relevant sound effect.

I suspect a lot more policy is done for reasons like this than we know.
posted by JHarris at 12:53 PM on April 16, 2013 [8 favorites]

George Osborne should ease off on austerity, IMF warns - "International Monetary Fund cuts UK growth forecasts and urges chancellor to show greater flexibility in deficit-reduction strategy"
How The IMF Became The Friends Who Wants Us To Work Less, Drink More
posted by the man of twists and turns at 12:56 PM on April 16, 2013 [1 favorite]

*pours out a 40 for my incompetent research assistant homies*
posted by theodolite at 1:06 PM on April 16, 2013 [20 favorites]

On the one hand: Oh, for fuck's sake.

On the other hand, I strongly suspect that this is a justification after the fact, rather than before. When there's a choice to be made between (1) understanding the basics of Keynsian economics in order to avoid the mistakes of history and (2) screwing the underclass, it's hard to imagine what passes for thought leadership in the West these days ever picking door number one.

I mean, not only does that sound like socialism, but worse, it's like we'd need to do some reading or something; don't we pay the Cato and American Enterprise people to make it look like we've done all that already?
posted by mhoye at 1:06 PM on April 16, 2013 [24 favorites]

Is The Reinhart-Rogoff Result Based on a Simple Spreadsheet Error?

This is literally the most influential article cited in public and policy debates about the importance of debt stabilization, so naturally this is going to change everything.

Or, rather, it will change nothing. As I've said many times, citations of the Reinhart/Rogoff result in a policy context obviously appealing to a fallacious form of causal inference.

posted by zombieflanders at 1:09 PM on April 16, 2013 [9 favorites]

I am becoming more and more convinced that Excel should only be used for sketches and and actual work needs to be done in a real programing language using reproducible research techniques.
posted by shothotbot at 1:10 PM on April 16, 2013 [16 favorites]

From Krugman's comments, QFT:
The sad reality is this is unlikely to produce any change in the discussion about austerity we are having. The reason being that the embrace of austerity never really had much to do with the serious study of economics anyway. It has always been based on fuzzy thinking about morality, where the austerityite is a version of the disappointed parent, disciplining an unruly child.
posted by dhartung at 1:10 PM on April 16, 2013 [76 favorites]

If only it were about the data. Austerity is an easy sell to the simple-minded small government, low taxes right wing crowd who time and time again draw parallels between personal financial responsibility and government fiscal policy.

Nevermind that guys like Krugman have been screaming that austerity is bad for as long as it's been discussed recently - only listening to academics when it's convenient (see also: climate change) isn't cool.
posted by jimmythefish at 1:10 PM on April 16, 2013 [2 favorites]

The spreadsheet error looks (to me) to be minor compared to dropping high gdp / good growth (46-50, for AU, NZ, CA and one more) data for some undocumented reason.
posted by shothotbot at 1:11 PM on April 16, 2013 [4 favorites]

Just for intellectual completeness, here is the response from Reinhart and Rogoff.
posted by ILuvMath at 1:12 PM on April 16, 2013

The austerity crowd never cared that it was lie. Certainly the people that quoted this endlessly (Paul Ryan, pick up the red discourtesy phone!) knew it was a lie, and the people that believe in it won't care Because of Reasons.
posted by zombieflanders at 1:12 PM on April 16, 2013 [2 favorites]

I find it interesting whenever this story gets reported as a mistake in an Excel spreadsheet. Yes, that was one issue. But there were two additional errors ("selective exclusion of available data, and unconventional weighting of summary statistics") that suggest either deceptive intent or incompetence.

Unless it's an ethics violation, always release the data and the source code. If you don't, we have to assume you have something to hide, or at least that you're more concerned with looking bad than with improving the sum of human knowledge.
posted by daveliepmann at 1:12 PM on April 16, 2013 [11 favorites]

The spreadsheet fuckup is a lot more minor than the other issues but it gets the ink because everyone can understand what it means, and because it's so obviously a goof rather than some kind of potentially justifiable data interpretation thing.
posted by theodolite at 1:15 PM on April 16, 2013 [8 favorites]

The UK Treasury has already started making noises indicating that the IMF will be ignored - As the chancellor said at the budget, we are slowly but surely fixing this country's economic problems.

Gideon is like a medieval leech, prescribing bloodletting for every malady. Each day he returns, and if the patient is faring worse, then the answer must be more bloodletting. Suspect reasoning at the best of times, but when the owner of the largest leech farm in the world shows up and tells you to lay off, you might think it cause to pause and rethink. But not our bold hero. To austerity and beyond!
posted by Jakey at 1:15 PM on April 16, 2013 [18 favorites]

Unless it's an ethics violation, always release the data and the source code.

I think of these guys as pretty awesome on this front, all the data from This Time Is Different is online and of course they sent the spreadsheet to these guys to replicate. So good on them.
posted by shothotbot at 1:21 PM on April 16, 2013 [3 favorites]

I suspect a lot more policy is done for reasons like this than we know.

I suspect a lot more everything is done for reasons like this when we know. By "everything", I think I really mean science. So little peer review involves verifying the numbers, or even can be done by verifying the numbers.
posted by Going To Maine at 1:26 PM on April 16, 2013

According to the comments, this paper did not go through a refereeing process.

Shothotbot, I was going off of the CEPR link that says "Mr Rogoff and Ms. Reinhart have declined to adhere to standard ethics within the economics profession and have refused to share the data on which they base their conclusion with other researchers."
posted by daveliepmann at 1:30 PM on April 16, 2013 [1 favorite]

I was going off of the CEPR link that says..
Fair enough, I read about this from another source a few hours ago...
posted by shothotbot at 1:32 PM on April 16, 2013

Based on what I learned in college, my impression of Keynesian economics (and I use the term "economics" loosely) was that you are supposed to increase government spending (thus incurring a deficit) during a recession to stimulate the economy, and then lower government spending (thus incurring a surplus) during a period of properity in order to cancel out the debt incurred. If the government doesn't do this, then debt will continuously increase in proportion to GDP until finally that government is spending most of their budget to pay off the interest from debt. That's basic math - it doesn't take a genius to figure out that in the long term, revenue must balance spending. Anybody who has ever had a credit card can see how obvious this is.

Yet one fact that Keynesians always deliberately avoid or overlook is that somehow, this never seems to happen. For some reason, everybody seems willing to follow Keynesian advice when it comes to spending money and incurring debt, but oddly enough, nobody is ever willing to make the kind of cutbacks needed to balance that spending. In fact, since 1969, the only president who did not run a deficit every single year was Bill Clinton.

Perhaps if "Keynesian economists" spent more time studying psychology and the gritty reality of how the economy interacts with politics (ie, like an abusive husband) as opposed to their abstract theories which are laughably based on human beings as rational actors who make intelligent long-term decisions, Keynesian economics might have some useful practical applications eventually. As it is, in the past 73 years, the US has only managed to have surpluses in 11 of those years, and those surpluses were dwarved by the size of the deficits. Keynesian economics has failed us because it doesn't take into account the reality that few politicians are willing to risk pissing off the electorate by making huge spending cuts in times of economic prosperity. Until Keynesians can figure out a way to make that work, austerity is the only way to cut spending since a recession is the only time that the bovine masses are fearful enough that they are willing to make spending cuts.
posted by wolfdreams01 at 1:34 PM on April 16, 2013 [5 favorites]

here is the response from Reinhart and Rogoff.

Hmmm. Paper points out three serious problems/assumptions with your work, and your response is "well, their findings aren't all that different." I am far more intrigued at seeing them respond to the questions about weighting and data exclusions than the spreadsheet error.
posted by never used baby shoes at 1:40 PM on April 16, 2013 [2 favorites]

The issue is not Keynsianism, though, as the austerity programme is not really about deficits. On both sides of the Atlantic, the Austerians have deliberately conflated the size of the deficit with the size of the government. They have pursued policies that were unlikely to, and have thus far failed to, reduce the size of the deficit. The policies have been targeted at eroding social provisions and lowering the tax burden on the rich, and have been reasonably successful in this regard. That's why so many people express doubt as to whether this finding will change anything
posted by Jakey at 1:48 PM on April 16, 2013 [11 favorites]

Always clean your data. Always check your math. Always.

But first and foremost, rationalize and set your model assumptions before you look at the data. It appears there was some tinkering with the weighting scheme to get the desired answer.
posted by Mental Wimp at 1:51 PM on April 16, 2013 [1 favorite]

Wait. You mean that Paul Ryan is full of poopoo? REALLY?
posted by NedKoppel at 1:52 PM on April 16, 2013

here is the response from Reinhart and Rogoff.

I guess I would characterize their response as these guys found an effect going in the same direction as we did: higher debt:gdp ratio is associated with lower growth. But we need time to figure out exactly what they did. I start with a lot of respect for them, even though I dont buy what they are selling in the 90% hard limit paper.
posted by shothotbot at 1:54 PM on April 16, 2013

Based on what I learned in college, my impression of Keynesian economics (and I use the term "economics" loosely)

Oh, the irony.

you are supposed to increase government spending (thus incurring a deficit) during a recession to stimulate the economy, and then lower government spending (thus incurring a surplus) during a period of properity in order to cancel out the debt incurred

Which is unsurprisingly both wrong and incredibly simplistic. Part of what Keynes advocated for was both increased revenue (i.e. higher taxes) and deficit spending aimed at employment (i.e. large amounts of infrastructure and other stimulus-style spending) and equalizing wages.
posted by zombieflanders at 1:57 PM on April 16, 2013 [1 favorite]

austerity is the only way to cut spending since a recession is the only time that the bovine masses are fearful enough that they are willing to make spending cuts.

Hey. Those are my friends you're talking about.

There's this truism on the right, it's been there since Athens, about how democracy can only last until the public, in their infinite bovinity, learn that they can vote themselves largess out of the public treasury. I think what you're saying is related to that truism — you're saying something like "we have to have contractionary policy during contractions because the people aren't farsighted enough to make cuts otherwise." You're proposing that the public is cold stupid, a bunch of cows, but by fortune or design our stupidities cancel each other out. It's stupid to spend a lot of money in an expansion, it's stupid to make budget cuts in a contraction, but so long as we have both stupidities we'll muddle through.

This seems, well, not to reflect the actual extant situation — one where we face a set of crises generated not through public bovinity, but through active looting by elites.
posted by You Can't Tip a Buick at 1:57 PM on April 16, 2013 [24 favorites]

shothotbot: these guys found an effect going in the same direction as we did: higher debt:gdp ratio is associated with lower growth

But the point heralded by austerity fans wasn't the trend or correlation: it was that at 90% debt/GDP growth went negative. That's not true in the corrected result, as this graph illustrates.
posted by nicwolff at 2:00 PM on April 16, 2013 [1 favorite]

Yet one fact that Keynesians always deliberately avoid or overlook is that somehow, this never seems to happen. For some reason, everybody seems willing to follow Keynesian advice when it comes to spending money and incurring debt, but oddly enough, nobody is ever willing to make the kind of cutbacks needed to balance that spending. In fact, since 1969, the only president who did not run a deficit every single year was Bill Clinton.

Also, if you're going to link to statistics from 1940 onward but only count 1969 onward just because you feel like it, you don't across as being fundamentally serious about your argument. Especially when you miss some of the largest non-military stimulus programs in history.
posted by zombieflanders at 2:09 PM on April 16, 2013 [8 favorites]

Is there information somewhere about who funded their research? Edit - sorry, I mean the R-R paper.
posted by codacorolla at 2:33 PM on April 16, 2013

nobody is ever willing to make the kind of cutbacks needed to balance that spending. In fact, since 1969, the only president who did not run a deficit every single year was Bill Clinton.

"Nobody ever does this" and "this guy did it" are mutually exclusive statements.

The remaining pieces of your argument convince me to remain disappointed in Bush II for squandering the surplus found himself in charge of. It does not convince me that we should abandon Keynesianism.
posted by daveliepmann at 2:35 PM on April 16, 2013 [5 favorites]

Perhaps if "Keynesian economists" spent more time studying psychology and the gritty reality of how the economy interacts with politics

For someone overly concerned about the supposed failure of Keynsian economics in real-world laboratories, you quite pointedly forget to provide a single instance of austerity working in the real world either. Like, say, the UK, which is in the middle of a double-dip recession and possibly headed for a third, unless they listen to the repeated warnings of most economists and continue the only thing showing improvement in their economy, namely quantitative easing and stimulative measures such as--surprise!--infrastructure improvements and other public sector spending ahead of the Olympics.
posted by zombieflanders at 2:41 PM on April 16, 2013 [3 favorites]

> Is The Reinhart-Rogoff Result Based on a Simple Spreadsheet Error?

Betteridge's law of headlines holds! It would be great if miscalculations were the biggest source of error in economics, but as others have noted, torturing the data had a greater effect on the result. Here's a secret: your favorite economist has probably done this too.
posted by ecmendenhall at 2:42 PM on April 16, 2013

Certainly the people that quoted this endlessly (Paul Ryan, pick up the red discourtesy phone!) knew it was a lie

I don't know if Ryan is smart enough to know it's a lie. So far as I can tell he knows nothing about policy. His skills lie in hucksterism directed at Beltway VSPs.
posted by professor plum with a rope at 2:44 PM on April 16, 2013 [5 favorites]

Reinhart and Rogoff Respond

I would note in particular that the entire debate completely fails to acknowledge the main flaw in the R&R research. As they themselves acknowledge in the response, the empirical correlation that we're arguing about is completely irrelevant to the policy debate at hand. They write that "we are very careful in all our papers to speak of 'association' and not 'causality.' " This genuinely ought to settle the debate. Nothing Reinhart and Rogoff present, under any interpretation or any methodology offers any reason to believe that a high debt:GDP ratio causes slow growth. Yet much political rhetoric, including some from Reinhart and Rogoff themselves, presents their work as offering important policy guidance.

It's great that when challenged they retreat to the more defensible claim that their work is actually irrelevant, but many policymakers and pundits seem to feel otherwise.

Also:

@brianbeutler: Just got the R-R statement, timestamp 5:07p.m. Clearly placement on their priority list inversely related to debt/earnings ratio.

Hee!
posted by zombieflanders at 2:54 PM on April 16, 2013 [2 favorites]

Wolfdreams01: So, you boil this down to, "people are stupid and so we should accept stupid policy and the people with the good ideas should shut up...? And nobody ever did this correctly, except that one guy who was President for eight years and was widely successful and popular..." Hey, I also took Econ 101 but I remembered the parts where macro and microeconomics are totally different animals (spare us your personal finance credit card analogies) and where there is a healthy rate of debt growth so long as the burden is proportional to GDP. I would say proportional to population, but let's be honest here and recognize that the debt payback ability of the 99% is squat compared to the power wielded by million and billionaires at this point.

And that's what this is really about. Recessions mean that the rich use their resources to get richer more slowly and the poor get poorer more quickly. Boom times mean the rich get richer more quickly and the poor muddle along. The gap is always growing and government intervention is the only thing that keeps it in check short of a peasant revolt. Cutting off that intervention is a great way for the rich to widen that gap until it hits a break and I'm supposing that they think they can handle the revolt this time? Maybe mass media will save them or the drones will make the difference?
posted by Skwirl at 3:18 PM on April 16, 2013 [5 favorites]

I suspect a lot more everything is done for reasons like this when we know. By "everything", I think I really mean science. So little peer review involves verifying the numbers, or even can be done by verifying the numbers.

In a lot of ways all of us, even Nobel winners and EU financial ministers, are just muddling through life, doing generally the same stuff that worked OK once until we get a sharply negative reaction of some sort.
posted by Copronymus at 3:20 PM on April 16, 2013 [3 favorites]

Austerity has always been about redirecting public spending into your friend's pockets, not reducing spending outright.
posted by jeffburdges at 4:15 PM on April 16, 2013 [4 favorites]

I've always been deeply dubious about the level of scholarship in this field, but this is pretty damning.

First, I simply can't believe that anyone didn't try to replicate their statistics from their data - or even just look at the data and try to estimate it to see if they got the right values, it's really that gross (if you're someone who does numbers a lot).

Consider another academic area - mathematics. Now, the reasoning in mathematics is at a much higher level than economics papers like this. I have a degree in math and some post-grad and frankly I find most mathematical papers incomprensible beyond the vaguest idea of what they're on about. The few that I have enough information to understand I find extremely slow going...

But people relentlessly find errors in these obscure math papers. Consider the proof of Fermat's Last Theorem - hundreds of pages of subtle reasoning, and yet people zeroed into a subtle but crucial error in the first month and then it took Wiles and Taylor almost a year to figure out how to get past it. I'm a (somewhat rusty) specialist in that field and yet I cannot explain to you what that error was because I have zero understanding of it myself...

Compare and contrast with these papers - where the mathematics is simple enough that I can just sit down and read them and look up some terms and perhaps scribble for a half an hour. It's baby math - I'd expect any science person to be able to do this, or to be able to spot both problems in the paper if asked to check the results.

Let me repeat that - you could have handed that paper to any bright engineer, physicist, mathematician - heck, perhaps even a chemist! (;-) sorry, Phil!) - handed the paper to any numerically handy scientist with no expert knowledge of economics, and expected them to have found these errors.

That they got this wrong is inconceivable to start with.

And in fact, note that there are two errors - there is not only a spreadsheet error but they cherry-picked the data to get rid of the countries that went against what they were trying to prove. I can perhaps believe that the formula error was accidental - the cherry-picking seems like it must have been deliberate.

But that the whole field cited this for years and no one thought to check the numbers till 2013 boggles the mind. Do they expect a skeptical person to believe any of their work after this?
posted by lupus_yonderboy at 4:35 PM on April 16, 2013 [29 favorites]

Oh, wow. Keynesians cling to an artificially idealized model of human behavior, and therefore we should implement the empirically proven principles of austerity, for the good of the cowple whether they like it or not? This is the greatest thread ever.

I had to look up cowple. Cow people, I presume? Like an even less linguistically elegant version of sheeple?

Please, do tell me more about your ideas, because now I'm intrigued.
posted by codacorolla at 5:09 PM on April 16, 2013

So is this the "founders were wrong so the whole field of study must topple" argument?

The science-is-a-mighty-Oak argument?

Science is kudzu, it grows wherever it finds the materials; the first paper in an area doesn't need to be right, it needs to have grandchildren -- be cited later by other work looking into the interesting questions raised.

Findings change over time. It's the new stuff that's important; if the old paper's flawed, no surprise. Early papers don't get it all documented correctly; they find something odd or puzzling and interesting and show others that, it looks like, there's something there.

Later work furthers.
posted by hank at 5:09 PM on April 16, 2013 [2 favorites]

Krugman: Reinhart-Rogoff, Continued:

Third, they point out that even cleaned-up data do show a negative association between debt and growth. Yes, but that’s where the issue of reverse causation comes in.
...
But I’ve coded the points by country — and if you look at it, you see that most of the apparent relationship is coming from Italy and Japan; Britain didn’t seem to suffer much from its high debt in the 1950s. And it’s quite clear from the history that both Italy and (especially) Japan ran up high debts as a consequence of their growth slowdowns, not the other way around.

posted by tonycpsu at 5:10 PM on April 16, 2013

Keynesians cling to an artificially idealized model of human behavior, and therefore we should implement the empirically proven principles of austerity, for the good of the cowple whether they like it or not?

I think it's more that Keynesians prescribe a course that requires some thought and consideration to implement, but it's a lot easier to demagogue a bunch of nonsense that will actually hurt everybody, so therefore we should go with the demagoguery.

in other words:
Professor Farnsworth: Consider the philosophical and metaphysical ramifications of the-
Fry: Banana, banana, banana!
posted by bjrubble at 5:15 PM on April 16, 2013

Seconding "science is kudzu".

Science has errors and mistakes and misunderstandings ALL. THE. TIME. That's how things work. It's fundamentally very hard to know you're doing something right if nobody else has done it before, and that's what science is supposed to be doing, right?

No need to get all bent out of shape and start declaring these authors to be the Worst People in the World. People make mistakes. Even scientists and economists. If you have like an email between the two saying "Let's sabotage the result in order to make everyone else's lives worse", then we can start discussing how terrible they are, but mistakes and weird statistics are not fraud and not scientific misconduct.

And just to clarify something from earlier, not releasing source code is not scientific misconduct. I don't even own the copyright to code I write for my work, it's technically the university's property. I think that's an incredibly problematic issue, but that's how their lawyers see things.
posted by kiltedtaco at 5:35 PM on April 16, 2013 [1 favorite]

Science is kudzu, it grows wherever it finds the materials; the first paper in an area doesn't need to be right, it needs to have grandchildren -- be cited later by other work looking into the interesting questions raised.

They're not talking about science, they're talking about economics.
posted by fullerine at 5:44 PM on April 16, 2013 [15 favorites]

killedtaco, that's a solid bureaucratic reason to keep things as they are, but it's not a moral or practical one. I didn't mean to claim that not releasing source code is misconduct under the current standards of science; I was suggesting that the standards of science be changed.
posted by daveliepmann at 5:52 PM on April 16, 2013

Okay, so there's a good question to ask here. I think. Are people citing this paper because of its methodologies, or because of its findings? Because if it's the former, then fine; other people picked up some aspect of R-R's method and have found it useful and as such it doesn't matter (for those subsequent papers) that R-R's actual facts are wrong.

But the impression I get from this thread and from other threads on this scandal is that the paper was actually cited because of its findings. That it's not valuable because it gave other researchers ideas with how to proceed, but instead because it prescribes certain courses of action in the real world based on specific findings. Findings based on figures that turn out to be cooked. I don't think that is something that the statement "science is kudzu" really applies to, even though in a broader sense it's very important indeed to keep in mind science's rhizomatic qualities.

Basically, um, the impression I get is that this is stuff that undergrads shouldn't get away with. Total complete intellectual bankruptcy.

I would love to be proven wrong here.
posted by You Can't Tip a Buick at 5:59 PM on April 16, 2013

I see less people declaring the authors Worst People in the World and more pointing out the fact that, essentially, the last several years of economic fuckery was people using these authors as excuses to implement some of the most regressive socioeconomic policies possible in order to make people rich.

...

Okay, so there's a good question to ask here. I think. Are people citing this paper because of its methodologies, or because of its findings? Because if it's the former, then fine; other people picked up some aspect of R-R's method and have found it useful and as such it doesn't matter (for those subsequent papers) that R-R's actual facts are wrong.

But the impression I get from this thread and from other threads on this scandal is that the paper was actually cited because of its findings.

R-R was the favorite citation behind the Ryan Budget and our current bipartisan deficit-mania on both sides of the Atlantic.
posted by T.D. Strange at 6:02 PM on April 16, 2013

Hmm, let's see.

1. R+R write a paper on austerity.
2. That paper has multiple massive analysis errors, at least one of which can't possible be by accident.
3. Those errors are consistently in favor of their right-wing political bias.
4. That paper is heavily cited all over the world.
5. Austerity budgets are passed everywhere based on it.
6. Hundreds of millions of people suffer for a generation.

So Worst People In The World is pretty accurate.

Really - think of the tremendous cost to human health and happiness from the current austerity climate. To think that these two bastards deliberately lied in order to bring that about about me sick. That they can't even be bothered to address the meat of the current argument, that their entire analysis was wrong from beginning to end, makes me doubly sick.
posted by lupus_yonderboy at 6:16 PM on April 16, 2013 [11 favorites]

As the chancellor said at the budget, we are slowly but surely fixing this country's economic problems.

Really? I hadn't heard anywhere about busloads of bankers going to jail for 20 to life.
posted by Twang at 6:16 PM on April 16, 2013 [1 favorite]

Are people citing this paper because of its methodologies, or because of its findings?

I'm confused why this distinction matters. Obviously the whole point of science is to obtain useful "findings" not just "methodologies". But as I was arguing, "findings" have errors. It happens. That's just how science works. That's why scientists don't put much weight on single results that haven't been independently verified. I'm sorry your politicians might do so, but there's no way to magically make the entirety of science devoid of mistakes just to prevent that.

deliberately lied

Show me that. Mistakes and bad data analysis choices are not deliberate fraud, no matter what some politicians decided to do. If I got this outraged at every single paper I saw that used an analysis I thought was stupid, I'd never get any work done. And if I accused every one of those authors of deliberately lying, I'd rightly be considered a psychopath by the rest of my field.

I was suggesting that the standards of science be changed.

Entirely legitimate argument to have. But I'd hope to get some consensus on that issue before proceeding to accuse people who don't release code of misconduct via "having something to hide".
posted by kiltedtaco at 7:10 PM on April 16, 2013

Yes, deliberately lied.

It's conceivable that you could see the formula error as accidental. Deliberately not including countries that disproved your hypothesis as part of your analysis, that's lying.

Note that they didn't "forget" these countries - they mentioned they dropped some countries in the paper, without mentioning which. It was the rebuttal, the post mortem paper, which ferreted out the fact that the countries they decided to drop just happened to be the ones that refuted their ideas...
posted by lupus_yonderboy at 7:21 PM on April 16, 2013 [6 favorites]

Perhaps if "Keynesian economists" spent more time studying psychology and the gritty reality of how the economy interacts with politics (ie, like an abusive husband) as opposed to their abstract theories which are laughably based on human beings as rational actors who make intelligent long-term decisions, Keynesian economics might have some useful practical applications eventually.

The argument you're making is that Keynesian economics prescribes some actions for governments to take in response to certain economic situations but that governments aren't willing to take those actions. You're not saying that the actions prescribed don't work, just that we won't do them. And you blame Keynesian economists?

I'm not saying that Keynesian economics is a panacea or anything but it would be better than we're doing now. The problem isn't Keynesians, its the politicians and the public that votes for them.
posted by VTX at 7:37 PM on April 16, 2013 [1 favorite]

I see less people declaring the authors Worst People in the World and more pointing out the fact that, essentially, the last several years of economic fuckery was people using these authors as excuses

Just to be clear, I'm totally on board with this sentiment, and particularly the version from Krugman as quoted above.

the countries they decided to drop just happened to be the ones that refuted their ideas...

Really not as clear cut as that. The spreadsheet error dropped the first few countries alphabetically. The other complaint arises from the data on three countries not starting at 1946. The authors of this paper do not show that the missing years are "the ones that refuted their ideas"; they show that including New Zealand does make a difference, but there is no word on the other two countries (presumably because they're insignificant compared to New Zealand). There's no way to jump from this to "deliberately lied".
posted by kiltedtaco at 7:46 PM on April 16, 2013

I'm confused why this distinction matters. Obviously the whole point of science is to obtain useful "findings" not just "methodologies". But as I was arguing, "findings" have errors. It happens. That's just how science works. That's why scientists don't put much weight on single results that haven't been independently verified. I'm sorry your politicians might do so, but there's no way to magically make the entirety of science devoid of mistakes just to prevent that.

You seem to think this is science we're talking about here. It's not; it's economics. At it's best, economics can approach science but in many circumstances cannot.

For instance, if an experiment shows (and I'm makin' shit up here) that E. coli grow faster when presented with heavy metal music, other researchers can go off and get some bacteria and some Slayer CDs and produce an independent result. And maybe they will confirm it, or maybe they will find a problem in that the original slides were contaminated or something. There could be dozens of conflating factors that lead to an incorrect result, from specific techniques to contamination to environmental factors, and yes, including a math error by the scientists.

But with economics (and particularly macroeconomics), the paper is based in part on, for example, how New Zealand's economy performed in 1951. Another group of researchers can't produce an independent New Zealand in 1951 and see how that one's economy performed. So of all of the interactions (and economies in the wild have waaay more variables than bugs in a petri dish) that lead to the specific result of how New Zealand's economy did in 1951 are baked in. Barring the discovery of new data (very unlikely given that we're talking about historical data reported on by official sources), the number is the number. So the only error you could ferret out by replicating a study is a mathematical/analytical one.

Furthermore, the possibility of creating replacement data is essentially nil. In the hypothetical biology experiment, a bunch of labs can try variations and report what the results are. In a study like this, there are 20 countries and 60 years at play, and there aren't any more that are really eligible. We're making new data at the rate of one year per year, and revisiting this study in 60 years to look at the new data isn't a helpful approach, given that economics is not a pure science but is intended to produce informed policy.

So in science, a bunch of totally independent trials can be undertaken, which will reduce the chance that the effect seen is due to some odd circumstance of the initial trial; these additional trials produce a more robust measure of the thing we're looking at. In this sort of macroeconomics, all you can do is check the math and argue about the statistics and the cause/effect relationships. And it would be unprofessional for economists to stick their noses in the air and pretend that their results don't have effect on politicians.
posted by Homeboy Trouble at 7:55 PM on April 16, 2013

Really not as clear cut as that. The spreadsheet error dropped the first few countries alphabetically. The other complaint arises from the data on three countries not starting at 1946. The authors of this paper do not show that the missing years are "the ones that refuted their ideas"; they show that including New Zealand does make a difference, but there is no word on the other two countries (presumably because they're insignificant compared to New Zealand). There's no way to jump from this to "deliberately lied".

Table 2 shows all of the countries with high debt-to-GDP; the missing years from the late start were (in addition to NZ) from Australia and Canada, both of which would include all of their high debt-to-GDP years; Australia had 3.8% growth and Canada had 3.0% growth. And the missing years mean that New Zealand went from +2.6% growth in high debt years to -7.9%. As the paper notes, the other two Anglo countries to have high debt-to-GDP in the postwar 1946-1949 period had that period kept; the US with negative growth, and the UK which was quite different in that they had high debt-to-GDP well past 1950 (and in their case, the economy was flat in 1946-1949).

Even using RR's bizarre country weighting methodology, these would have had a significant impact, as it would add two more countries to the eight in the high debt-to-GDP, and would make the country with the strongest negative growth positive. (Table 3 says that it would have made the growth for high debt-to-GDP countries positive instead of the negative value they reported.)
posted by Homeboy Trouble at 8:11 PM on April 16, 2013 [1 favorite]

I suppose that it's impossible to absolutely prove that they did this deliberately. The fact that they have multiple significant errors in a single short analysis and one of them just involved "some data magically vanishing" (which is the number one classic way to bias a result) seems like astonishingly bad performance for professionals in the field. The fact that the errors systematically moved the results in one direction is also dodgy - generally, errors tend to cancel somewhat - but it's not proof.

So, yes - you can't rule out massive levels of incompetence and chance. Perhaps the error rate when economists make simple calculations is so very great that multiple errors will inevitably slip in, even with two authors reviewing each others' work. I don't believe it, but yes, there's plausible doubt...
posted by lupus_yonderboy at 8:13 PM on April 16, 2013 [2 favorites]

Here’s the bigger problem highlighted by Yeva and Me: [Reinhart and Rogoff] do not know what they are talking about. Sovereign countries that issue their own floating currency cannot be forced into involuntary default no matter what the debt ratio. For that reason, even if their results had not been tainted by bad research, it would have been irrelevant to the situation of any country that issues its own floating currency, such as the USA, the UK, Japan, and so on. No matter what the debt ratio, a sovereign government that issues its own currency can choose to grow the economy.
posted by moorooka at 8:14 PM on April 16, 2013 [2 favorites]

moorooka: No matter what the debt ratio, a sovereign government that issues its own currency can choose to grow the economy.

If only I could get the imbeciles that clog up my Facebook to understand that.
posted by ob1quixote at 8:29 PM on April 16, 2013 [1 favorite]

ob1quixote: " If only I could get the imbeciles that clog up my Facebook to understand that."

Well, it's actually a bit more complicated than that. There's a difference between "you can always crank up the printing press and you'll never default" and "you can always crank up the printing press and nothing bad will happen." The former is of course correct and pretty self-explanatory, but the latter is a statement that's only true if you believe in the tenets of Modern Monetary Theory (MMT), which isn't by any means universally accepted, even on the left. (Krugman, for example, has been at times pretty hostile to the MMT crowd on his blog.)

The problem as I understand it is that, sure, you can always "grow the economy", but once all that money gets out there, you need to soak it up at some point to avoid inflation. I'm no MMT expert, but I think their answer at that point is to raise taxes to absorb that liquidity, but of course raising taxes in nominal terms is politically difficult, and it's not clear to me what happens to the money the government collects if they can't find valuable things to spend it on -- do they just destroy it? Store it in vaults somewhere?

Also, since taxes are only collected once a year, it's unclear to me what happens if the inflation is spiking in the shorter term. I guess abandoning the income tax and using something like a VAT would help in that regard, but at that point we're talking about Candy Land fantasies that have no chance in hell gaining traction in a world where two assholes who can't even use Excel properly can somehow make a majority of the Western world force its citizens to wear hairshirts so that the one percenters don't have to slim down their yacht fleets.
posted by tonycpsu at 9:04 PM on April 16, 2013 [6 favorites]

I think the main point is that it was already clear that their methodology was flawed even before these glitches were found:

We noticed that their data just did not add up. Leave to the side the silliness of simply aggregating across 8 centuries of experience, and adding up debt ratios of countries as disparate as the USA today or, say, Greece in 1932, let alone some feudal state operating on a gold standard a couple of hundred years ago. As I’ve remarked, any real historian would find the methodology ludicrous.

More importantly, they have no idea what sovereign debt is. They add together government debts issued by states on gold standards, fixed exchange rates and floating rates. They aggregated across governments that issue debt in their own currency and states that issue debt denominated in foreign currency. It is not even possible to determine from their book exactly what is government debt versus private debt.

When we couldn’t make sense of their results, Yeva wrote to them to get the data. After all, their book touted their contribution to good research by proclaiming they were accumulating all this data for the good of humanity. They ignored our request. I have heard from several other researchers that Rogoff and Reinhart also ignored their repeated requests for the data.

So, finally, someone was able to obtain the data. And as we suspected, it did not add up. Rogoff and Reinhart committed the cardinal sin of academics: while their purported results fit their theory, the data they supposedly used does not. Either they fudged or they erred. It really doesn’t matter. Their results were completely, utterly wrong. And their own data proves it.

Of course being completely utterly wrong is not a disqualification in academic economics, as long as it's the "Right" type of wrong.
posted by moorooka at 9:41 PM on April 16, 2013

at that point we're talking about Candy Land fantasies that have no chance in hell gaining traction in a world where two assholes who can't even use Excel properly can somehow make a majority of the Western world force its citizens to wear hairshirts so that the one percenters don't have to slim down their yacht fleets.

pure gold, my friend
posted by j_curiouser at 11:46 PM on April 16, 2013

Krugman: "The intellectual edifice of austerity economics rests largely on two academic papers that were seized on by policy makers, without ever having been properly vetted, because they said what the Very Serious People wanted to hear."

Great, those assholes again.

Desperately Seeking “Serious” Approval
posted by homunculus at 11:53 PM on April 16, 2013

lupus_yonderboy: " The fact that the errors systematically moved the results in one direction is also dodgy - generally, errors tend to cancel somewhat - but it's not proof."

I agree with most of your points, but this is not correct. Considering the implicit selection bias of publication, this is exactly what you'd expect - any researcher who didn't make compounding errors in one direction just didn't find a publishable result.
posted by ivancho at 1:06 AM on April 17, 2013 [1 favorite]

the man of twists and turns: "George Osborne should ease off on austerity, IMF warns"

Well, to be fair to the UK government they're blowing £10 million on Thatcher's funeral.
posted by brokkr at 1:37 AM on April 17, 2013 [1 favorite]

Also, since taxes are only collected once a year, it's unclear to me what happens if the inflation is spiking in the shorter term.

Taxes are collected continuously, or at least in the case of income tax, every pay period. The only thing that happens once a year is the resolving of the amount collected and the determination of a refund, if any.
posted by rocket88 at 5:03 AM on April 17, 2013 [1 favorite]

So in science, a bunch of totally independent trials can be undertaken, which will reduce the chance that the effect seen is due to some odd circumstance of the initial trial

Congratulations, you have just proved that astronomy isn't science.

In this sort of macroeconomics, all you can do is check the math and argue about the statistics and the cause/effect relationships.

This isn't true at all. What you can do is tease out observable implications of your theory at hand that haven't been tested and aren't the "big dumb object" you care about. That is, unless your theory is at the Dark Helmet level of "Debt causes low growth because debt is dumb," you should have a specific mechanism in mind, and you can and should check to see whether other aspects of that mechanism are corroborated by data. *Especially* data that hasn't been examined in this context before.
posted by ROU_Xenophobe at 5:09 AM on April 17, 2013 [5 favorites]

wolfdreams01: " Yet one fact that Keynesians always deliberately avoid or overlook is that somehow, this never seems to happen. For some reason, everybody seems willing to follow Keynesian advice when it comes to spending money and incurring debt, but oddly enough, nobody is ever willing to make the kind of cutbacks needed to balance that spending. In fact, since 1969, the only president who did not run a deficit every single year was Bill Clinton."

I shot down this nothingburger of an argument the last time you tried it, and here you are throwing it on the wall again. At least you brought your own data this time, but as it turns out, the chart you've linked to shows raw deficit numbers, not deficits as a percentage of GDP, which is the accurate metric for measuring the effect of deficits on your economy.

Come on, man. Come correct. This stuff is important.

Tony, you didn't "win" that debate by stumping me. You referenced a 95-page paper full of technical jargon and assured me that this paper would prove the validity of your point of view, if I only put in the effort to read it.

Well, guess what? I did read it, and once I got through the paper I found it didn't prove anything at all like what you suggested. As I suspected, the flaw in the paper was not what the author put in but what he left out - namely, he made the implicit assumption that when we increased taxes the deficit was going down. If he had actually taken a look at the history of our deficit, he would have seen that this was not the case - many of our tax increases actually coincided with us having a deficit. In other words, when the government got more revenue from taxes, instead of using it to pay down the debt they just spent even more. Despite all the econ-babble in that paper, this is a pretty basic error - the kind of thing that even an Accounting 101 student would pick up: ie, "Revenue does not equal earnings. Earnings equals Revenue minus Expenses."

The reason I didn't respond to you in that thread wasn't because I was dumbfounded by your wisdom. It was because by the time I got through your entire 95-page paper and compared the tax increases on a line-by-line level to our nations historical surpluses and deficit, the thread had already been archived and was closed to new comments. In other words, you basically used cheap tactics to end the discussion, and you lost all credibility in my eyes by referencing a garbage paper that I wasted a lot of my time fact-checking simply because you weren't skeptical enough to examine your own sources with a critical eye. Next time you cite a link to an econ-paper to prove a point, please make it shorter (or better yet, summarize). I wasted enough of my life going over your last 95-page citation which turned out to have some pretty basic logical flaws in it.
posted by wolfdreams01 at 5:52 AM on April 17, 2013

If he had actually taken a look at the history of our deficit, he would have seen that this was not the case - many of our tax increases actually coincided with us having a deficit. In other words, when the government got more revenue from taxes, instead of using it to pay down the debt they just spent even more.

These two things -- spending more and running a deficit -- are not the same thing.

It is true that in most cases where revenues increased, the government was still running a deficit. But it is definitely not true that in most cases where revenues increased, the government simultaneously increased spending.

Take another look at tony's helpful graph: a one image summary of his argument.

You will see that in the periods 1959-1960, 1971-1973/74, 1975-1980, 1983-1998/90 (to a lesser extent -- this one is pretty flat), and 1992-2001, federal expenditures (in red) went down and federal receipts (in green) went up. The periods are chosen here because they are non-recessions (or as close as I could guess by eye-balling from the graph).

The Historic Federal Budget Tables (pdf) basically agree with this claim. (You don't have to read the whole thing, just look at Table 1.1, which starts on page 23 and has the above-mentioned dates on page 24.) In those periods, the government ran a deficit, yes, but the deficit tended to decrease in size over each period: from -12,849 to -3,335, from -23,033 to -14,908/-6,135, from -207,692 to -152,693/-221,036 (as I said, that one was pretty flat), and from -290,321 to +128,236. Negative numbers are deficits, the positive number is a surplus. These are, of course, all just end-points, but I think that if you look at the points in between and do regressions to get trends you will find those trends going in the predicted direction ... I might do this later when I have some time. (Note that I do not think those regression coefficients will come out significant. They probably won't except for the 1992-2000 period, which was a longer period with a larger change, making any signal easier to detect.)

One thing that makes things hard to see in tony's graph is that things have not corrected very quickly following recessions since the 1970s. It took about twenty years to bring spending back down from the impact of the recessions in the 70s and 80s. By 2000, spending was roughly at the level it was in 1970 (relative to GDP), but that is a long time at high-than-previously spending levels.

During the pretty good economic years between 2000 and 2008, spending increased some, and revenue first nose-dived and then recovered but did not increase. The most recent recession / depression had a very large impact on federal expenditures, and it will take time to bring expenditures back down. (It should take time: right now, we should be spending more in order to get the economy into better recovery, and not doing that will slow things down in the medium-run.) But since the recession officially ended, federal expenses have gone down and federal revenues have gone up, which is what you want when the economy is healthy. And if I thought the economy were really healthy enough to stomach the austerity, I would be happy with what I'm seeing.
posted by Jonathan Livengood at 7:00 AM on April 17, 2013 [2 favorites]

OK, you shouldn't use Excel for serious work. And of course mistakes happen and you're less inclined to question results that fit your priors. But the impact of the excluded NZ years is eyebrow-raising.
posted by hawthorne at 8:31 AM on April 17, 2013

wolfdreams01: "Tony, you didn't "win" that debate by stumping me. You referenced a 95-page paper full of technical jargon and assured me that this paper would prove the validity of your point of view"

I did no such thing. Let's roll the tape.

You: Herein is where I debunk Keynesian economics, with link to purported debunking, in which you completely ignore the tax side of the ledger while making the claim that politicians can't possibly cut spending except during recessions:

However, in practice, it's political suicide to cut spending during a healthy economy, so Keynesian economics usually ends up with the government spending more during a recession (as a stimulus package) and then even more when the recession ends (because the economy is healthy).
...
However, recessions are the only time that it is possible to make significant long-term cuts to government spending since it's the only time that the bleating masses are frightened enough that they will allow politicians to take an axe to all that dead wood without fear of hurting their careers.

Me: Or at least you tried to, where I show that your claim about never cutting spending during the good times was false, citing the obvious example of Bill Clinton. Unlike your "debunking", my rebuttal pays attention to the taxation side as well, showing that Clinton did the Keynesian thing on both taxes and spending, with time series data plots to prove my point:

From 1993-2001, spending as a percentage of GDP went down significantly, and taxes as a percentage of GDP went up significantly.

Note that I haven't even cited the Romer paper at this point, because it's not at all central to my rebuttal of your theory that Keynesianism can't work because of political pressure to spend when the economy is healthy. By this point in the conversation, I've already shown a counterexample that undermines your point. You said it was impossible, Bill Clinton showed it was possible.

You: Bill Clinton (who is my personal hero) is the exception that proved the rule... You cede the point that 1993-2001 was a counterexample, but claim that it was only his superhuman powers of political persuasion that let him do the politically difficult thing, and continue to focus only on spending while ignoring that he also raised taxes:

Most politicians are nowhere near Clinton's level of competence, and thus will not be able to get the public to accept the cutbacks that he did. A sensible economic system should understand and allow for this level of mediocrity. Keynesian economics does not - it assumes a government that is capable and willing of forcing the public to accept cutbacks during times of economic prosperity.

Me: Keynes wasn't very particular about which side of the ledger did the counter-cyclical work.. At this point, I'm annoyed that you keep focusing on the spending and not the taxes, so I point out outer examples where taxes were raised in a healthy economy.

Increasing taxes and reducing spending during boom times are both appropriate Keynesian interventions, and there are other examples outside of the Clinton years where taxes were raised during good times to avoid overheating the economy, e.g. in the early to mid 1950s and the mid to late 1960s.

(Side note: it's quite rich to be getting a lecture now on how "Earnings equals Revenue minus Expenses" from someone who wasn't able to understand that Earnings equals Revenue minus Expenses" in our previous interaction.)

I went on to cite the Romer paper that you falsely claim that I based my entire argument on, but, contrary to this false claim, I was only using the paper to show that the taxation matters as much as the spending (which you kept ignoring), not as the lynchpin of my argument, a fact I explained to you in my next comment on that post:

I only cited the Romer/Romer paper to show that I'm not substituting my own judgement for which tax cuts were explicitly counter-cyclical and which just happened to occur during boom times. It's by no means the core of my argument.

But here you are trying to claim that because you don't agree with the paper, my argument is flawed. I can't tell if this is a lack of reading comprehension or a willful misreading of my argument, but it's bush league stuff, and I won't be engaging you in further discussion if that's how you're going to play ball.

We went back and forth a bit, with other folks joining the discussion, and at one point you re-entered the conversation to re-assert your original point without any additional evidence. I responded, begging for you to provide some sort of justification, and, again, pointing out that you don't have to read the paper, you can just bring your own evidence to the table:

If you're too busy to read the paper or whatever, I'd settle for an affirmative case for your original position that Presidents/Congresses don't do Keynesianism during booms. You keep saying these things as if they're established fact, but they're not. There are several more falsehoods, generalizations, and fact-free assertions in your comment, but I'm not going to bother rebutting those unless you can back up your original point that all of this is built on.

You later return to the thread with at least something resembling a justification for your skepticism. You start by praising the quality of the paper's research, which is funny, because now you're claiming that it's so fundamentally flawed. You then go on to make an argument that the paper is only concerned with taxes, and not any spending increases that would have offset those taxes. But, of course, I showed earlier with those two charts that there were many times where the countercyclical action was taken on both taxes and spending, a point I drive home with a chart I put together in my final comment in the thread before the 30 day window closed:

Since you haven't tried to connect those dots yourself, I created this chart showing expenditures and receipts as a percentage of GDP on the same graph to make it easier. A 100% ideal application of Keynesian economics would mean that red (spending) goes up and green (taxation) goes down in the shaded regions, with the opposite (red goes down, green goes up) in between them. (This gets a bit fuzzy, since you can be outside the shaded recession area but still not have a healthy enough economy to begin increasing taxes and cutting spending, (e.g. right now) but it's close enough for this discussion.)

So let's take a look. We could just eyeball the graph, but I wanted as accurate a look as possible, so I pulled the source data into Excel. What I've found is that, of 23 distinct intervals in the graph (12 "booms" and 11 "busts"), Keynesian spending was correctly applied 18 times, and Keynesian tax policy was correctly applied 21 times. In boom times (the times you said politicians always increase spending) spending as a percentage of GDP went down 9 out of 12 times, and taxes as a percentage of GDP went up 10 out of 12 times.

And now, here we are, with you somehow claiming that me asking you to read a 95 page paper was dirty pool, when I explicitly said you didn't have to read it, and gave you many other sources of data proving my point. You were free to analyze my charts, go find your own, or whatever, but I guess it's much easier to misrepresent my original argument in the hopes that I'll just lose patience with your obfuscation.

(We can take this over to the gray if you'd like, but since much of our last exchange was germane to this discussion of austerity, I thought it would be useful to include it here.)
posted by tonycpsu at 8:46 AM on April 17, 2013 [23 favorites]

Jonathan Livengood: "These are, of course, all just end-points, but I think that if you look at the points in between and do regressions to get trends you will find those trends going in the predicted direction ... I might do this later when I have some time."

Well, for what it's worth, I found the spreadsheet I used to analyze the source data of that FRED graph, and uploaded it to Google Docs for anyone who wants to check my work. The source data is measured at fiscal quarter resolution and I did my best to collapse boom/bust cycles together for purposes of measuring whether spending went up/down during each cycle. (You can see the individual quarter-by-quarter data if you turn off the data filter.)

The columns are:



observation_date: beginning of the recession or healthy economic period being measured

Recession?: whether the observation period is a recession or not

FGEXPND_GDP: federal spending as a percentage of GDP

FGRECPT_GDP: federal receipts as a percentage of GDP

SpChg: Spending at the end of the period minus spending at the beginning of the period

KS: 1 if spending during the observation period was countercyclical, i.e. if it went up during recessions and down during non-recession periods.

RcChg: Revenues at the end of the period minus revenues at the beginning of the period

KR: 1 if tax revenues were countercyclical i.e. went down during recessions and went up during non-recession periods

At the bottom, the summary rows show how I arrived at my 18/23 successful Keynesian spending and 21/23 successful Keynesian revenue numbers. I'm not really much of an Excel ninja, so there are probably better ways to analyze the data that might arrive at different results, but I did the best I could given that nobody on the other side of the argument seemed to be putting any work at all into finding their own data.

And, yeah, I know, this thread is about Excel errors blowing up the world economy, but in my defense, I'm just some guy posting on MetaFilter, not an economist who gets cited by policymakers to justify starving people. If I were, I'd use something other than Excel, and then shoot myself in the head.
posted by tonycpsu at 9:26 AM on April 17, 2013 [3 favorites]

wolfdream01: Your arguments in this thread and the last are as follows:

1) These guys are wrong because I say so!
2) I took economics in college, therefore I'm one of the most capable people to address this!
3) It doesn't matter if they were wrong, but if they were, better the shit sandwich than trying to educate the sheeple!
4) The only reason any economist does what they do is to be incredibly wealthy, therefore if they are not they can't possibly be right!
5) I'm the only MeFite that gets this deep and erudite understanding, therefore I must be right!

You haven't provided a single shred of evidence for #1, you haven't even managed to find the right definitions of #2 (see: deficit vs deficit/GDP) let alone any deep knowledge of economics, your presentation of #3 requires such abstraction from empathy as to be worrying, your conclusion in #4 discounts a number of factors including personal motivation (did you ever think some economists are in it for the science and/or helping people), and #5 ignores the last several centuries of scientific methodology and logical progression.

So when people are telling you to try harder, maybe you should listen.
posted by zombieflanders at 10:44 AM on April 17, 2013 [4 favorites]

#1. Economists found the error. Don't write off the profession because folks made the error, write off those who made the error and failed to release their methodology. Write off those who ran with the error that didn't understand the math / were too lazy to check it and instead pushed forth the ideas because some economist agreed with them. As for the liberal economists not finding this sooner - well, not having access to the data used does make it pretty damn hard to synthesize the results. Three years to do so isn't really all that bad

#2. Who does any portion of their economics work in excel? There are about 20-30 better programs that I can think of off the top of my head that are designed for economic analysis. SAS / SPSS / STATA come to the top of my head as the heaviest hitters that ensure you avoid errors like this. Basically, these jackasses aren't paying attention to the stats behind their data. I'd personally have used JMP (a SAS-related environment) if I was manipulating my flat file to get overall stats like this. On quick reconsideration, I might stick with straight SAS though, since that would force me to save a significant amount of my work. (JMP is good for manipulation but since it is less code driven it can obfuscate how you get there from here).
posted by Nanukthedog at 11:48 PM on April 17, 2013

note: comment on excel directed at Carmen Reinhart and Ken Roghoff not at tonycpsu...

The difference being two folks are professors at Harvard, are subject matter experts, and published papers on the subject, while the other is more rigor than most comments on metafilter...
posted by Nanukthedog at 12:05 AM on April 18, 2013

Austerity policies in Greece are working so well that schoolchildren are showing signs of malnutrition.
posted by rtha at 6:07 AM on April 18, 2013 [1 favorite]

Further Thoughts on Reinhart and Rogoff

A statistical study that merely establishes the existence of a broad correlation between high debt and slow growth is uninteresting in this context because the correlation is easily explained by reverse causation (slow growth causes high debt:GDP ratio) and the interest rate channel. The question is whether there's some other reason—macroeconomic dark matter—to worry about debt accumulation even when the interest rate channel is irrelevant.

The allegedly interesting Reinhart and Rogoff empirical finding in this regard was the discovery of a debt tipping point that occurs at a debt:GDP ratio of 90 percent. Such a tipping point is difficult to explain in terms of interest rate dynamics, and thus is either a random statistical artifact or else evidence for the existence of dark matter. Since the original publication of their study, R&R have been engaged in a loud and noisy political activist campaign in favor of the dark matter interpretation of their research. What we see not only from their critics but also from their response is that there is no evidence of dark matter.

When pressed R&R disavow having evidence for any strong causal claims. It's also clear that their research method is inappropriate for judging the tipping point question. What they did was put countries into different buckets and discovered that growth was slower in the >90% bucket than in the <9>

posted by zombieflanders at 6:19 AM on April 18, 2013

3) It doesn't matter if they were wrong, but if they were, better the shit sandwich than trying to educate the sheeple!

...really? "Eating the shit sandwich?" Is that the level of the metaphors we're using now?

Look at it this way. If I were a therapist, I wouldn't tell a shopaholic that "it's OK to buy on credit as long as they monitor their spending to pay for it later." If I were an AA councilor, I wouldn't tell an alcoholic that "it's OK to go to the bar as long as they just have one or two drinks." This might be reasonable advice to give to a healthy, well-balanced person, but that same advice given to a person who clearly has self-control issues would be irresponsible and would only enable their self-destructive behavior. Yet this is exactly what Keynesian economists are doing when they recommend that the federal government "spend now, make cutbacks later." The past 50 years of data (which I linked to above) make it blindingly obvious that the federal government is incapable of making cutbacks in prosperous times to the level that is needed for Keynesian economics to be effective, so it's grossly irresponsible for Keynesian economists to prescribe a plan that they ought to know will only encourage out-of-control spending, then throw their hands up and say "Hey, it's not my fault they didn't stop when I told them to!" That's like the AA councilor in our example above saying "Hey, I told the alcoholic to stop after one drink! It's not my fault he couldn't follow my advice!" It shows a shameful lack of responsibility and awareness on the part of the advice-giver.

An economist's job is to understand human economic behavior. If they can't do that, what use are they? Understanding human economic behavior shouldn't just include the behavior of the public as a whole, it includes the behavior of the institution that they are given advice to. If the past 50 years of data had demonstrated that an alcoholic was utterly unable of walking into a bar without getting drunk, the best advice would not be "drink in moderation," it would be to try to avoid bars altogether. The federal government has shown itself to be utterly incapable of generating the surpluses necessary to compensate for their deficit, so the best advice for them would be to try to avoid deficits altogether.

That's what I was saying, and I think it shows a fundamental lack of understanding on your part to translate that as "the shit sandwich."
posted by wolfdreams01 at 6:41 AM on April 18, 2013

Wolfdreams01, have you considered addressing any of the substantive critiques of your argument instead of just restating your original position? Because that would be the logical thing to do.

People have pointed out that you're ignoring exceptions, constraining the data without good reason, and misunderstanding (or at least ignoring) the difference between deficits and deficits/GDP as well as running a deficit versus increasing spending. Your sole statement in this thread has been "Keynesianism fails because nobody ever cuts spending except via austerity during contractions", but that's been shown to be false. Why would you continue to say or believe something that's been shown to be false? Metaphors don't cut it.
posted by daveliepmann at 6:58 AM on April 18, 2013 [7 favorites]

Your metaphors fall apart when 1) you make "the federal government" a single, unchanging entity over the last 50 years instead of an ever-changing set of policies and governing bodies that changed economic approaches every 2 to 4 years, and 2) repeatedly and deliberately stick with 50 years because ignoring the other 20 in the data that you linked is extremely inconvenient to your thesis.

I mean, seriously: If we were to use your metaphor on psychology and behavior, you're basically saying that a person who has at least six distinct personalities (President D, House D, and Senate D, President R, House R, and Senate R) who are each at differing times alcoholics, teetotalers, or casual drinkers (often times simultaneously) is in fact just one normal guy that you think maybe kinda is an alcoholic. And not only that, you believe that because you refuse to look at their medical records for time periods when they were doing OK and, oh by the way you took some psychology courses in college and are reading off this chart that doesn't tell you how to diagnose alcoholism, but we should trust that you're a professional doctor.
posted by zombieflanders at 7:06 AM on April 18, 2013

People have pointed out that you're ignoring exceptions, constraining the data without good reason, and misunderstanding (or at least ignoring) the difference between deficits and deficits/GDP as well as running a deficit versus increasing spending. Your sole statement in this thread has been "Keynesianism fails because nobody ever cuts spending except via austerity during contractions", but that's been shown to be false.

I think you're quibbling too much on minor details and failing to see the big picture. My overall point is that Keynesian economics fails because the federal government can't ever seem to make surpluses match deficits (or even come close), and successful Keynesian relies on a roughly balanced ratio of deficits to surpluses. Quibbling about the reasons why the government can't raise the surpluses needed is pointless - whether it is because the federal government can't make cutbacks, or because they can't raise enough taxes, is totally tangential. The point is that they can't, for whatever reason, and the data of the past 50 years clearly indicates that.

Going on at length about "GDP" is just an attempt to obfuscate that stark economic reality. Several variables in the GDP metric are based on cost of goods, and we all know that cost is based on inflation, right? Since the Federal Reserve (and by extension, the government) controls the money supply, they can influence the variables in the GDP calculation, artificially making it look like the economy is healthy when it is in fact going down the toilet.
posted by wolfdreams01 at 7:14 AM on April 18, 2013

Matt Yglesias: Arin Dube Demolishes Reinhart/Rogoff Causal Argument

"Stepping back I want to make the point that it's striking that R&R didn't even check this. I don't begrudge any academic's right to rush into publication with an interesting empirical finding based on the assembly of a novel and useful dataset. I don't even begrudge them the right to keep their dataset private for a little while so they can internalize more of the benefits. But Reinhart and especially Rogoff have spent years now engaged in a high-profile political advocacy campaign grounded in a causal interpretation of their empirical work that both of them knew perfectly well was not in fact supported by their analysis. The natural step between interesting correlation that doesn't establish causation and political advocacy campaign based on an unsupported causal inference is do some further statistical work to test different causal theories."
posted by T.D. Strange at 7:15 AM on April 18, 2013

I think you're quibbling too much on minor details and failing to see the big picture. My overall point is that Keynesian economics fails because the federal government can't ever seem to make surpluses match deficits (or even come close), and successful Keynesian relies on a roughly balanced ratio of deficits to surpluses.

Apart from the fact that this does not, in fact, prove Keynesian economics is a failure, the reason I characterized you as advocating for the shit sandwich is because your only solution was "austerity is the only way to cut spending since a recession is the only time that the bovine masses are fearful enough that they are willing to make spending cuts." Nevermind that you have yet to provide any evidence that austerity is not, in fact, a shit sandwich and that myself and others have showed that it is, you're still clinging to an incomplete concept of Keynesian economics (and indeed, large parts of economics as a whole).
posted by zombieflanders at 7:37 AM on April 18, 2013 [1 favorite]

Why GDP Figures Are Fooling and Misleading Us
posted by wolfdreams01 at 7:38 AM on April 18, 2013

Me: "People have pointed out that you're ignoring exceptions, constraining the data without good reason..."

Wolfdreams01: "the data of the past 50 years clearly indicates that [the government can't raise the surpluses needed]."

Uh...I believe we're at an impasse.
posted by daveliepmann at 7:41 AM on April 18, 2013 [2 favorites]

wolfdreams01: "I think you're quibbling too much on minor details and failing to see the big picture."

Details matter. "Big picture" economic arguments are a dime a dozen, and mean nothing without models and data backing them up. If you just want to use this thread to proselytize your gospel of austerity, you're going to have to deal with people asking you for reasons why they should believe you, and if you're going to use raw debt numbers without dividing by something to represent the overall size of the economy, people are going to point and laugh at such an obviously flawed argument.

wolfdreams01: "Going on at length about "GDP" is just an attempt to obfuscate that stark economic reality. Several variables in the GDP metric are based on cost of goods, and we all know that cost is based on inflation, right? Since the Federal Reserve (and by extension, the government) controls the money supply, they can influence the variables in the GDP calculation, artificially making it look like the economy is healthy when it is in fact going down the toilet."

Omitted: evidence that this manipulation is occurring.

You can't simply say "you do know the government can cook the books, don't you?" and then say "I've proven my point that the government is spending like a drunken sailor." Evidence of book-cooking is required. You cannot prove your point with nominal deficit numbers. You must divide by something resembling the size of the economy. If you don't have anything better than GDP, then you have no valid argument.
posted by tonycpsu at 9:25 AM on April 18, 2013 [5 favorites]

Wolfdreams01, we're not quibbling over minor details, we're saying that the big picture looks decidedly different from the way you are describing it.

Both of the following claims are true about the last 70 years of U.S. federal spending and revenue.

In general, over the last 70 years, when the economy has not been in a recession, annual deficits have tended to decrease. The Clinton era (1992-2000) was only unusual in that it was a long period without any recessions. Other periods exhibited the same trend but did not last long enough to reach budget surpluses.

The overall trend of the last 70 years has been increasing spending, flat or only slightly increasing revenues, and hence, increasing deficits. How can this be, given the previous point? The answer is that during recessions, spending increased and revenue decreased, effectively resetting the baseline for deficits after each recession. After each recession, deficits fall slowly from the new baseline. And that is fine if the periods between recessions are long enough and/or if recessions are short or shallow enough, which is basically the lessen of the Reagan-Bush-Clinton years. It took 20 years to correct for the recession in the early 80s, with one short recession during that period.

So, what's the relevance? Well, the Keynesian model that you are criticizing says (very, very roughly) that government should increase deficits in bad times and decrease them in good times. And you say that the government never or only rarely has the political will to do this, instead just increasing spending even more every time it takes in extra revenue. That is then supposed to explain why annual deficits keep growing. You then draw the moral that Keynesian economic models are failures because they cannot be implemented in practice.

But you are wrong in three ways. First, the explanation for increasing deficits is wrong: we don't have run-away increases in spending that always (or even usually) exceed increases in revenue.

Second, the accusation against Keynesian economics is misdirected (and the alcohol analogy is broken). Economics is the study of the economy, and Keynesian economic models are theories about how the economy works. It is a deep confusion -- and one I have pointed out before -- to say that the economic model is wrong because politicians refuse to do what the model says is optimal under the circumstances. You should have a beef with the politicians, not with the models provided by economists.

Your analogy is broken somewhere along in here because an economic model is not a policy proposal. The model just tells you what the economy will do if this or that policy is implemented. Even if you are ultimately concerned about what is practically, politically possible, you should still use Keynesian models! You just shouldn't use those models to find globally optimal solutions. Instead, you should use the very same models to find the best policies among the politically feasible ones.

Third, your claim that there has been no political will (and never will be any) to implement Keynesian ideas is false. Recall the bumper-sticker Keynesian idea that you reduce deficits in good times and increase them in bad times. What we see over the last 70 years is exactly that: a pattern of decreasing deficits year-over-year in good times, and sharply increasing deficits in bad times. If there is a problem here at all (and there might not be), it is that recessions are inappropriately managed such that the economy does not recover quickly and solidly enough so that deficits become actual surpluses in periods between large recessions.
posted by Jonathan Livengood at 10:00 AM on April 18, 2013 [8 favorites]

You are arguing with a brick wall. You will never get through to someone who insists on using personal responsibility metaphors to describe governmental action. No matter what you say, "moral" intuition will tell them they are right and you are wrong, and you can't argue with that.
posted by Steely-eyed Missile Man at 11:10 AM on April 18, 2013 [3 favorites]

Steely-eyed Missile Man: "You are arguing with a brick wall."

I'm inclined to agree, but when someone dishonestly tries to summarize a previous discussion on this topic and then cites sham data sources to make his case, it can lead to the appearance that his argument has merit, which could convince others who don't know any better.

I've just about given up on convincing wolfdreams01 that his arguments are weak at this point, but I'm certainly not going to sit idly by while he obfuscates what transpired in the previous thread, and I'm going to call bullshit when he points to data that don't actually provide quantitative support for the case he's trying to make.
posted by tonycpsu at 11:22 AM on April 18, 2013 [7 favorites]

Interview with authors and obligatory memes.
posted by jeffburdges at 2:16 PM on April 18, 2013

Meet the 28-Year-Old Grad Student Who Just Shook the Global Austerity Movement
posted by homunculus at 3:21 PM on April 18, 2013

Tonycpsu, I confess that I'm a little baffled by the duality of political opinion expressed on MetaFilter. People on this website will cheerfully express that government is a corrupt system, that we oppress Third World Nations for access to their oil and resources, and that corporations have an incredible amount of influence in politics. But when I point out that the GDP equation is an artificial measurement that can be easily manipulated by the head of the Federal Reserve simply by raising or lowering the interest rate (something which it is his job to do), and that he might have a vested interest in performing said job in a way that makes his employer look good, suddenly it's like I dropped a stink bomb at a banquet. What a preposterous suggestion! Our government would never do something so corrupt! Kill innocent people with drones for profit, sure, but manipulating GDP via inflation (something which is completely legal and which is impossible to even prove) no, our government is far too ethical for that. Seriously, Tony? This is the argument you're making?

Even if manipulation isn't occurring, the fact is that GDP is a completely ridiculous unit by which to measure the state of the economy because when you get right down to it, all it basically measures are the quantity of internal financial transactions. Hurricane Katrina actually raised our GDP by half a percentage point because of all the money spent on cleanup. Shit, if you gave me an army of accountants I could theoretically pump our GDP up to infinity simply by setting up a recursive sales loop between a closed circle of corporations. A metric that is this pitifully easy to exploit - and this ignorant of the different between positive economic development and negative economic development - is simply a terrible standard by which to measure economic health.

Even the creator of the GDP Simon Kuznets in a 1934 report to the US Congress acknowledged the GDP’s flaws as an economic indicator, “The welfare of a nation can scarcely be inferred from a measure of national income. If the GDP is up, why is America down? Distinctions must be kept in mind between quantity and quality of growth. Goals for more growth should specify more growth of what and for what.” His words, not mine.
posted by wolfdreams01 at 7:16 AM on April 19, 2013

That's three paragraph's worth of "NUH UH," there. You've been asked multiple times to come up with an alternative and/or anything to supplement your single link on the deficit that you have and continue to misrepresent in terms of definition and timeframe. If you can't do that, just admit it and move on.
posted by zombieflanders at 7:31 AM on April 19, 2013 [1 favorite]

wolfdreams: Literally no one is making the argument or having the response that you claim. (Pointing out that you aren't backing up what you're saying is not the same as arguing that "our government is far too ethical" to manipulate GDP.) You are simply ignoring all the other problems with your argument and zeroing in on GDP as a flawed metric. But that doesn't help your argument at all: even if you're right, and no one should use the poisoned well of GDP for anything, that doesn't help your argument against countercyclical Keynesian efforts.

I think that a large part of the argument for Keynesian economics relies on GDP to make false claims of economic health. So getting people to re-examine GDP is key to my argument, since that's the fallback position that Tonycpsu will eventually retreat to when defending his assumption that Keynesian economics has empowered our economy.

Logically, you could propose an alternative metric to use instead of GDP, or you could address any of the other fatal flaws in your argument, or you could admit your argument is weak. Other options are incoherent. I hope that as someone who endeavors to be rational that you can see this.

But I do have an alternative metric to use. I know that this may sound like a wild and farfetched idea, but when I want to measure my personal economic health, I don't base it on the "number of transactions I conduct" but rather on "whether I can pay my bills at the end of the day and have a positive balance rather than a negative one." So - yes, it sounds crazy, I know, but please bear with me here - maybe the U.S. could do the same thing! I recognize that using this common-sense system of "surplus vs deficit" would eliminate a lot of the need for economists to make up artificial metrics that we should be worrying about (at least until the next new fad metric comes along), but IMO that's a feature, not a bug. Just out of curiousity, when was the last time that you saw an economist actually produce something of value, rather than an analysis that they convinced you was important? It's sort of similar to the way consultants say their job is to help their clients, but really their job is to produce a need for more consulting work.
posted by wolfdreams01 at 8:04 AM on April 19, 2013

but when I want to measure my personal economic health, I don't base it on the "number of transactions I conduct" but rather on "whether I can pay my bills at the end of the day and have a positive balance rather than a negative one." So - yes, it sounds crazy, I know, but please bear with me here - maybe the U.S. could do the same thing!

You mean, run a gov't budget ... like a household?

The Government is Not A Household, And Here's Why
The Government is Not A Household
The Federal Budget Is Not Like A Household Budget via The US Government Is Not Like A Household

Happy reading!
posted by the man of twists and turns at 8:18 AM on April 19, 2013 [7 favorites]

So wait a minute....

All the global austerity programs were based on one paper? One paper and a whole lot of the ideological bias of elites? In a notoriously fickle and contradictory field like economics?

The term "single point of failure" leaps readily to mind.
posted by JHarris at 8:24 AM on April 19, 2013 [1 favorite]

No, Budgets Aren't Like Family Finances. But the Analogy Is Telling About the Fiscal Debate.

It's an imperfect analogy, experts say. The United States has important levers that families do not: It can tax citizens, and it has enormous access to global credit markets, so government can treat debt differently. Still, the comparison is appealing to politicians eager to explain and simplify their budget strategies. And, limited though it may be, putting federal and household budgets side by side reveals the basic philosophical differences between the two parties.

Deprogramming Progressives Indoctrinated Into Supporting Austerity

A little bit of economics can be a truly terrible thing, for the introductory classes in micro and macro-economics are the most dogmatic and myth-filled part of the neo-liberal curriculum. Dogmas that have been falsified for 75 years (such as austerity) are taught as revealed truth. The poor indoctrinated student is then launched into the world “knowing” that austerity is the answer and that mass unemployment and prolonged recessions are small prices to be paid (by others) to achieve the holy grail of a balanced budget. Students are taught that national budgets are really just like household budgets. These dogmas are not simply false, they are self-destructive and cruel.

posted by the man of twists and turns at 8:24 AM on April 19, 2013

Just out of curiousity, when was the last time that you saw an economist actually produce something of value, rather than an analysis that they convinced you was important? It's sort of similar to the way consultants say their job is to help their clients, but really their job is to produce a need for more consulting work.

"The field of study on which you base your arguments is a titanic fraud."

My eyes can't roll hard enough.
posted by Rustic Etruscan at 8:30 AM on April 19, 2013 [2 favorites]

Mr. Etruscan, make sure you warm up before doing eye rolls like that. You're liable to pull something.
posted by daveliepmann at 8:44 AM on April 19, 2013

wolfdreams01: "So getting people to re-examine GDP is key to my argument, since that's the fallback position that Tonycpsu will eventually retreat to when defending his assumption that Keynesian economics has empowered our economy."

Perhaps, instead of resorting to passive-aggressive predictions that I will retreat to a "fallback position" in a hypothetical future discussion, you could address the fact that, as shown above, you blatantly lied in how you characterized our previous exchange on this topic.

Your strategic dishonesty gives me no reason to assume you'll argue in good faith if I continue our interaction, so if you won't do me the courtesy of addressing why you deceptively summarized what happened the last time, I'm just going to sit this one out and enjoy the show as you continue to spew shopworn cliches and fact-free pablum while everyone else points and laughs.
posted by tonycpsu at 8:58 AM on April 19, 2013 [1 favorite]

This is one of the worst intellectual drubbings I have ever seen on MetaFilter. The only thing worse is that I am 100% convinced that wolfsdream01 will learn absolutely nothing from all of this. Hopefully someone else does, though.
posted by Steely-eyed Missile Man at 9:21 AM on April 19, 2013 [2 favorites]

the man of twists and turns: A lot of those articles you are referencing make assumptions that are total bullshit. For example, take this comment:

"Private households and firms are financially constrained. They must earn, borrow or otherwise obtain currency before they can spend it. The government, in contrast, is not financially constrained. It faces resource and political limits, but not revenue constraints other than those voluntarily self-imposed."

That's utter nonsense. Governments most certainly are financially constrained. The constraints may not be hard limits, nor are they immediately apparent to the casual thinker (and the lack of depth in these analyses certainly sounds "casual" to me), but they most definitely exist. If governments tax too much, they ruin investment spending and fewer new businesses get created. If they print too much money, then inflation runs out of control and the currency collapses in favor of alternate black-market currencies that are more stable. If they default on their debt, then institutions and other nations charge a disproportionate amount for goods and services to compensate for the risk they are taking in accepting that currency, and they we're back to the hyperinflation scenario again. Zimbabwe's economic crisis is an example of what happens when governments don't recognize their financial constraints. Failing to recognize that governments do have financial constraints is a grave misunderstanding of how economies work.
posted by wolfdreams01 at 9:39 AM on April 19, 2013

That's an MMT position, and not one that I'm confident to speak on. I included it to illustrate that both the "orthodox" line of economic thought and one of the "heterodox" positions that has sprung up recently agree that the "whether I can pay my bills at the end of the day and have a positive balance rather than a negative one." position might work great for a checkbook, but that it's a stupid and non-productive analogy to use for a government.
posted by the man of twists and turns at 9:52 AM on April 19, 2013

If governments tax too much, they ruin investment spending and fewer new businesses get created. If they print too much money, then inflation runs out of control and the currency collapses in favor of alternate black-market currencies that are more stable.

You know, if you're trying to make a point that government finances are totally similar to household finances, using examples like taxation and money printing that have zero applicability to household finances is not going to help your argument
posted by zombieflanders at 9:53 AM on April 19, 2013 [3 favorites]

The Baseline Scenario: Fatal Sensitivity

Here’s another way to put it. Let’s concede the weighting point for the sake of argument. If Reinhart and Rogoff had not made any spreadsheet errors in their original paper—that is, if the only factors at issue were country weighting and data exclusion—they would have calculated average GDP growth in the high-debt category of 0.3%. If they then added the additional country-years as they expanded their data set, while sticking with their preferred weighting methodology, that figure would have jumped to 1.9%—and the 90% “cliff” would have completely vanished. (See Herndon et al., Table 3.) What happened is that Reinhart and Rogoff’s choice to weight by country rather than country-year makes their method extremely sensitive to the addition of new data.

The question to ask is this: If a method produces results that can drastically change by the addition of a few more data points, are those results worth anything? The answer is no.

posted by the man of twists and turns at 10:00 AM on April 19, 2013

wolfdreams01:

If governments tax too much, they ruin investment spending and fewer new businesses get created. If they print too much money, then inflation runs out of control and the currency collapses in favor of alternate black-market currencies that are more stable. If they default on their debt, then institutions and other nations charge a disproportionate amount for goods and services to compensate for the risk they are taking in accepting that currency, and they we're back to the hyperinflation scenario again.

Those sound an awful lot like the "resource and political limits" that you quoted. (As a layman, I might rephrase it as "economic consequences".) My layman's understanding is that "financial constraints" in this context means "must earn, borrow or otherwise obtain currency before they can spend it". So what you're arguing is not a refutation of the quote, but rather agreement with it.
posted by daveliepmann at 10:33 AM on April 19, 2013

You know, if you're trying to make a point that government finances are totally similar to household finances, using examples like taxation and money printing that have zero applicability to household finances is not going to help your argument

My point, since you clearly missed it, is that the reason many liberal economists think government finances are not like household finances is because they incorrectly assume that unlike households, governments can always use taxation or printing currency to increase revenue, and my examples are meant to demonstrate how foolish and poorly thought-out that assumption is. When you actually take the time to consider those economic "options" in more detail you'll see that governments really can't use either of those alleged options to any significant degree (at least, not without dire economic repercussions, as Zimbabwe's case illustrates).

Those sound an awful lot like the "resource and political limits" that you quoted. (As a layman, I might rephrase it as "economic consequences".) My layman's understanding is that "financial constraints" in this context means "must earn, borrow or otherwise obtain currency before they can spend it". So what you're arguing is not a refutation of the quote, but rather agreement with it.

The difference is that in their article they suggest that these "resource and political limits" are self-imposed, and that's nonsense. It's like suggesting that my decision not to shoot myself in the head is a voluntary choice.
posted by wolfdreams01 at 10:40 AM on April 19, 2013

the reason many liberal economists think government finances are not like household finances is because they incorrectly assume that unlike households, governments can always use taxation or printing currency to increase revenue

Take the word "always" out of the equation, and you'd be closer. Of course it changes your whole argument, but I get the feeling you already know that by now.
posted by zombieflanders at 11:06 AM on April 19, 2013

When you actually take the time to consider those economic "options" in more detail you'll see that governments really can't use either of those alleged options to any significant degree (at least, not without dire economic repercussions, as Zimbabwe's case illustrates).

The operative phrase here is "significant degree."
posted by Rustic Etruscan at 11:10 AM on April 19, 2013

OK, so clearly one of the main roots of our disagreement is that we differ on the degree of flexibility that governments have to raise debt. You seem to think that governments have a lot more flexibility to raise revenue than I do. Since abstract terms like "amount of flexibility on something" are almost impossible to quantify and thus argue about in purely logical terms, it's unlikely that we're going to reach agreement here, so let's put a pin in this for now.

Instead of arguing how much flexibility the government has to take on new debt, let's examine the reasons for taking on that debt. It's been suggested in some of the linked articles that taking on debt increases GDP. But if GDP is a false measurement of economic health, then why should we be trying so hard to raise it in the first place? Several people have explained to me upthread that nobody here is trying to defend GDP as being an accurate unit of economic health, and yet the linked articles suggest that one of the main purposes for taking on more debt (as opposed to paying it down) is because up to a certain point, it stimulates GDP. So even if you believe (wrongly, in my opinion) that the government can afford to take on new debt, why does it follow that it should? Being able to do something isn't ever a good justification for doing it.
posted by wolfdreams01 at 11:36 AM on April 19, 2013

Several people have explained to me upthread that nobody here is trying to defend GDP as being an accurate unit of economic health

Who has conceded you the unimportance of the debt:GDP ratio and the GDP?
posted by Rustic Etruscan at 11:52 AM on April 19, 2013

If you're going to ask people to explain Keynesianism to you from first principles, the first step would be to read the links people give, and then refrain from changing the subject when people point out errors in your interpretation of those links.
posted by daveliepmann at 11:53 AM on April 19, 2013 [1 favorite]

Rustic, I believe he's referring to me. I didn't concede the unimportance of debt:GDP, but rather pointed out that saying "GDP isn't a perfect metric" doesn't help his argument against countercyclical efforts unless he modifies his argument to use an alternative metric and address the other fatal flaws pointed out.

His alternative metric was the household metaphor, that is, the claim that the only metric of national economic health is whether we're in the red or the black. I see that as affirming the antecedent, but hey, to each their own.
posted by daveliepmann at 11:58 AM on April 19, 2013

I see that as affirming the antecedent, but hey, to each their own.

Agreed. The importance of the GDP and its derivatives as metrics has been the question of the argument, so it surprised me to read that others had conceded his point.
posted by Rustic Etruscan at 12:05 PM on April 19, 2013

The astute among you will notice that I should've said "affirming the consequent". Mea culpa.
posted by daveliepmann at 12:49 PM on April 19, 2013

Brad DeLong: Understanding Our Adversaries - Who Are The Foes Of Expansionary Fiscal Policy And Why? (it's a PPT, lots of charts, graphs and slides)

Right now I am having trouble in wrapping my mind around the thinking of the intellectual adversaries of my little band, my Light Brigade of believers that fiscal policy right now is not expansionary enough. I am having a hard time figuring out not who our intellectual adversaries are--we know who they are--but how and why they think. What is the case they want to make against the aggressive use of expansionary fiscal policy right now, given the very sad state that the OECD economies are in? ...

this isn't a Hayekian recession in which we invested too much in housing capital and must suffer until the housing overhang is worked off.
It’s thus a great moment for the government to print money and buy stuff and so put people to work. From a societal point of view, it doesn’t cost anything--nobody's taxes have to go up to amortize the interest-bearing debt because their is no interest bearing debt. From a societal point of view, it is win-win. What is the downside? ...
I divide the adversaries into three groups. The first group is the pain caucus: the people who think that depression is in some strong sense functional and healthy for an economy...
The second group of adversaries is the "we don’t do our homework" caucus--people who say things they really shouldn’t say....
But there is also a third troop of adversaries: serious doubts from real economists. ... This is what John Quiggin now calls "zombie economics". No matter how many times they are defeated and staked, the same ideas keep coming back, and back, and back.

6,500 words and pretty pictures.
posted by the man of twists and turns at 12:51 PM on April 19, 2013

It's hard to know where to start, so I'll just dive in with this one:

My point, since you clearly missed it, is that the reason many liberal economists think government finances are not like household finances is because they incorrectly assume that unlike households, governments can always use taxation or printing currency to increase revenue, and my examples are meant to demonstrate how foolish and poorly thought-out that assumption is. When you actually take the time to consider those economic "options" in more detail you'll see that governments really can't use either of those alleged options to any significant degree (at least, not without dire economic repercussions, as Zimbabwe's case illustrates).

Two things with respect to monetary expansion, and then one thing about GDP. First, the obvious snark. Are you saying that households are different from governments in only being able to print money sometimes? Point being that one might think that there are times when a government should print money and times when it should not. But households never have this option (legally, at least), and that is a non-trivial difference between the two kinds of thing.

Second, do you really think that we are in a similar economic position as Zimbabwe? Really? We tripled the monetary base in the period 2008-2011. Zimbabwe (according to your linked article) increased its monetary base by 170 times! Perhaps there is a difference in scale that matters here? More to the point, when we tripled the monetary base, what happened to inflation? Nothing. What happened to interest rates? Nothing.

Finally, GDP. In an earlier comment, I pointed out that deficits -- in real dollars as reported in federal historic budget tables -- have typically decreased from year to year in non-recession years since the middle of the 20th century. That is, in good years, spending has increased more slowly than revenues. (The main factor explaining the overall upward trend in deficits is the size and frequency of recessions in the second half of the twentieth century.) The claims I made do not depend on GDP, though the budget numbers are adjusted for inflation, I think. Since those numbers also seem to disagree with your claims about government spending, political will, and so forth, what is your explanation for them? Has the government also cooked these books? How deep does the conspiracy go?
posted by Jonathan Livengood at 3:08 PM on April 19, 2013 [3 favorites]

If you don't mind taking a pause from the debate, I'd like you guys to step back, breathe for a moment, and carefully consider the debate position you're putting me in. My initial assumption was that your economic theorems are based on the typical assumption that GDP is a valid measure of economic growth. So the first logical avenue of attack was naturally to take aim at kicking down that illusion.

At this point, Daveliepmann seemed to say that I was talking past people, and that literally nobody was defending GDP or using GDP as the basis for their economic theories. So I assumed (quite pleasantly surprised) that everybody already knew how ridiculous GDP is and that - now that the fallacy of this fundamental first principle that so many liberal economists base their theories on had been established - I could now build on this fact and move on to the meat of my argument, while at the same time addressing a few of the other points that people made. But now - as I'm just about to get started on this - I see Rustic Etruscan saying, no, wait - GDP IS actually important, maybe. And so we come right back to square one. So what's the current consensus among you all: is GDP important or isn't it? Because in order to understand even the first thing about my economic analysis, we need to be on the same page about what a screwed up metric GDP is and how economic theorems that use GDP as their measurement of success are measuring the wrong thing. It might be helpful if you could talk amongst yourselves and come up with a consensus about what specific metric you're using to measure the "success" of Keynesian economics. I do plan to address your other points, but it's pointless to even start on those unless I get you on the same page about a few fundamental economic principles that may fly in the face of what you have been taught, and the use of GDP as a metric is the most important one of these.

Also, before we proceed, I want you to take a minute to consider how fundamentally unfair this argument is. I have six or seven people who are trying to argue with me all at once. If I fail to notice even a single point somebody makes, I'm accused of ignoring the most critical piece of somebody's argument. But if I try to respond to everybody, then the mods accuse me privately of trying to derail threads and make them all about me. (This is not hyperbole - it has already happened in the past.) So really you're putting me in a no-win situation and I ask you to have a little understanding of that. If I fail to respond to a point, it's not because I'm arguing in bad faith or deliberately ignoring a "devastating" argument: it's simply that I'm selectively choosing what to respond to so that I don't get slapped down by the mod-hammer for derailing the conversation. It's a pretty hard balancing act to achieve, and it's not make easier by comments like this - where you have people not even trying to pretend they can hold an intellectual conversation, but instead randomly insulting me because they dislike my political views. For the rest of you who are here to discuss things in good faith, I'm not asking you to "go easy" on me in terms of your arguments, I'm just saying that a little understanding of how deeply biased this conversation is might not go amiss. So if I don't address your point immediately, it doesn't mean I'm ignoring it, it just means I want to marshal my points in logical fashion and completely shoot down one argument before turning to another. Can you give me the benefit of the doubt on that, at least?
posted by wolfdreams01 at 9:35 PM on April 19, 2013

At this point, Daveliepmann seemed to say that I was talking past people, and that literally nobody was defending GDP or using GDP as the basis for their economic theories.

And indeed, that's what he said: He said that Keynesian economics does not rely - does not rely - on GDP for its validity. Yet because you began your argument from the assumption that the debunking of GDP means the debunking of Keynesianism, you have talked past everyone here. From Daveliepmann's "concession":

You are simply ignoring all the other problems with your argument and zeroing in on GDP as a flawed metric. But that doesn't help your argument at all: even if you're right, and no one should use the poisoned well of GDP for anything, that doesn't help your argument against countercyclical Keynesian efforts. [Emphases mine.]

You have ignored those who have told you that your understanding of Keynes is incomplete; you have ignored those who have told you that, like Reinhart and Roghoff, you have selected the data that prove your case, avoiding those that break its spine; and you have not shown that your hackneyed comparison of a state to a household bears any relation to reality. Instead, you have ground your nose into the supposed folly that is GDP.

It's true: You're only one person. You can hardly be expected to rebut every counterargument. But when you enter a thread claiming orthodox economics to be bunkum, you should have a stronger argument than "GDP is a lie; states are like households," and you should be prepared to defend such a broad claim against all comers.

You came in claiming to be able to lift yourself into the air by your bootstraps. Don't complain now that people demand a demonstration.
posted by Rustic Etruscan at 10:26 PM on April 19, 2013 [2 favorites]

, it doesn't mean I'm ignoring it, it just means I want to marshal my points in logical fashion and completely shoot down one argument before turning to another. Can you give me the benefit of the doubt on that, at least?

No. Past experience shows that you're just going to ignore the most damaging criticisms of your positions (whatever they are) and potentially later on misrepresent the content of the thread.

Your other major mistake is thinking that everyone here holds the same position. Your question "So what's the current consensus among you all: is GDP important or isn't it" assumes that every single other person in the thread is in agreement on all aspects of economics, which is not true. Some might have Keynesian viewpoints, some neo-Keynesian, some are Austrians, some Chicago school, some may be MMTers or flat-out goldbugs.

If you have a position, your arguments have to be robust.
posted by the man of twists and turns at 5:32 AM on April 20, 2013

My initial assumption was that your economic theorems are based on the typical assumption that GDP is a valid measure of economic growth. So the first logical avenue of attack was naturally to take aim at kicking down that illusion.

Well, not really. It took you four comments and the better part of two days to get from your initial argument (deficit data shows you are wrong) to the initial and at the time incomplete version of your current argument (we can never ever use GDP and there is no alternative but household budgeting).

If I fail to respond to a point, it's not because I'm arguing in bad faith or deliberately ignoring a "devastating" argument: it's simply that I'm selectively choosing what to respond to so that I don't get slapped down by the mod-hammer for derailing the conversation.

This argument would have more weight if it wasn't for the fact that there are a couple points that you're rather pointedly being selective in avoiding. For instance, just about everybody in this thread has pointed out that you keep in constraining data from the evidence you yourself provided (ironic, given that the original topic is about that same thing) since just after your first comment, and yet you remain silent on it. Just how charitable are we supposed to be in interpreting that?

It's a pretty hard balancing act to achieve, and it's not make easier by comments like this - where you have people not even trying to pretend they can hold an intellectual conversation, but instead randomly insulting me because they dislike my political views.

Out of 123 comments, you managed to find one that kind of does this, and true to form so far, it doesn't actually illustrate your point. Is it an uncharitable comment? Sure. Does it say anything about your political views? Not unless your political view is that you can never admit you're wrong or misusing data. Also, considering that you have repeatedly sneered at both "Keynesians" and "liberal economists" from your very first comment and to a far wider extent than anyone has even addressed your political views, I sense that there's more than a little projection going on here.

I'm not asking you to "go easy" on me in terms of your arguments, I'm just saying that a little understanding of how deeply biased this conversation is might not go amiss.

You can't claim "bias" in a thread just because everybody disagrees with you and has evidence to disprove your theories. Especially when you're engaging in some (at best) shifty exclusions/manipulations of your own evidence merely out of inconvenience.

So if I don't address your point immediately, it doesn't mean I'm ignoring it, it just means I want to marshal my points in logical fashion and completely shoot down one argument before turning to another. Can you give me the benefit of the doubt on that, at least?

Between this thread and the last, you've attempted to assert your intellectual "dominance" several times, going so far as to point out that entire schools of thought are invalid because you took some economics classes and made some good investments. You've also repeatedly shown yourself unwilling to address fundamental flaws in your evidence, your logic, and your methodology. At one point you spent three paragraphs complaining about how you supposedly never had the chance to respond to a 95-page paper that it turns out you had a month to read and formulate an argument about, at the end of which you claimed was bunkum for reasons that you have still yet to provide a basis or evidence for.

To be honest, I think you've been getting the benefit of the doubt for the last four days, and it's wearing thin.
posted by zombieflanders at 5:47 AM on April 20, 2013 [4 favorites]

TL;DR: The mods are not here to defend you from your mistakes.
posted by zombieflanders at 5:49 AM on April 20, 2013

It's true that one-person-vs.-all-comers isn't really what MetaFilter does best. wolfdreams01, you may want to try to summarize your position (I'd suggest including as many specific references as possible) and then step out.

I'd also like to note that wolfdreams01 has a point about the difficulty of using fiscal policy to stabilize the economy. In the US, where legislative action is an extremely slow and messy process, it's especially hard to control demand in real time through fiscal policy. But even in countries where it's easier for governments to take action (Canada, for example), it's far easier to run deficits than it is to run surpluses. Politically, it's not hard to bring in new spending programs or tax cuts--who's going to object to having more money? But cutting spending (which concentrates suffering on a well-defined group of people, often those most in need of help) or raising taxes (which takes money out of people's pockets) is immensely difficult. So you get a one-way ratchet effect.

The Canadian experience was that deficits got steadily worse during each recession, and eventually the government had to take drastic and painful action (in the mid-1990s), cutting both federal spending and transfers to the provinces by 20%. Fortunately Canadian exports to the US were very strong during this period, so there was enough demand to keep the economy going. But nobody wanted to go through that again.

The Great Moderation consensus, roughly from the 1990s to the 2008 crash, was that an independent central bank should use monetary policy to stabilize the economy, while the government would maintain a balanced budget over the course of the business cycle (with a very limited role for fiscal policy in the form of "automatic stabilizers" like unemployment insurance). Paul Krugman explains how this works in a 1997 article: the Federal Reserve controls overall demand by raising interest rates (when demand is too high, causing inflation) or by lowering interest rates (when demand is too low, causing unemployment).

That said:

It turns out that after a big enough crash, you do need active fiscal policy after all. Monetary policy isn't enough, because you can't lower interest rates past zero. (I made a MetaFilter post on the subject.)

No matter how difficult and messy fiscal policy is, waiting for demand to recover on its own is not a good solution. Matthew Yglesias describes the long-term damage from high unemployment:

The high-status thing to say is always that politicians focus too much on the short term and we ought to be worried about the long-term fundamentals. And back in 2009 and 2010, you certainly heard a lot of this kind of rhetoric that was aimed at establishing the seriousness of the speaker by disparaging the idea of juicing the economy in favor of the need to work on the long-term economic fundamentals. But six months is a relatively short span of time in the course of human history. And it turns out that a six-month spell of unemployment leads to a significant decrease in a potential worker's attractiveness to employers. That means a six-month spell is relatively likely to turn into a yearlong spell or a two-year one. And that kind of prolonged absence from the labor force doesn't just represent lost income and economic output for two months or 24 months. It represents lost opportunities to learn on-the-job skills and build organizational capital. It represents a worker who'll probably drop out of the workforce altogether if he can get himself eligible for disability benefits or plausibly recast herself in a socially validated housewife role.

Back in the 1940s, our Depression-era version of this problem was solved by World War II. When mass conscription is on the agenda, suddenly weak labor force attachment or statistical discrimination against the long-term unemployed isn't a big deal. But we (hopefully) won't have a new gigantic war. Consequently, 10 or 20 years from now, we're going to be poorer than we would've been had we responded more effectively in 2009 and 2010 to restore full employment. The failure to adequately and appropriately address the economic short term is proving to be a long-term disaster.

Draft slides on Fiscal Policy as Stabilization Policy: What do we think now that we did not think in 2007?, by Brad DeLong and Laura D'Andrea Tyson. Matthew Yglesias still thinks legislative action is too slow and messy, and that it'd be better to have the central bank handle fiscal stabilization policy as well.
posted by russilwvong at 9:24 AM on April 20, 2013 [8 favorites]

Okay, thanks for clarifying. Since you're not willing to give me the benefit of the doubt that I'm arguing in good faith ("No. Past experience shows that you're just going to ignore the most damaging criticisms of your positions (whatever they are) and potentially later on misrepresent the content of the thread.") since you insist on classifying my prioritization of which people to respond to as some sort of weakness in my arguments ("You have ignored those who have told you that your understanding of Keynes is incomplete; you have ignored those who have told you that, like Reinhart and Roghoff, you have selected the data that prove your case, avoiding those that break its spine; and you have not shown that your hackneyed comparison of a state to a household bears any relation to reality. Instead, you have ground your nose into the supposed folly that is GDP.") then I really don't see any point in engaging in this further. Essentially you're stating that you're unwilling to give my ideas a fair hearing, and you just want the opportunity to trash them in an environment that is heavily skewed in your favor.

But fine, whatever. I asked if you were willing to engage me fairly, and since the majority of responses basically boiled down to "no", I don't see any point in engaging any further. We can fight over whose ideas are right the traditional, old-fashioned way - by voting for the candidates whom we think support our ideas best, and working through political channels to do our best to shape the world into our own unique vision of what it should be. That automatically gives us a level playing field, and honestly I think it would be more satisfying and emotionally gratifying anyway (not just for me, but for you as well) to simply do our best to stomp the other person's team into the dirt - not on Metafilter, but in the real world, where it counts. It's just that I try to be a fair-minded person, and to me that means reaching out to people who disagree with me and trying my best to understand their point of view rather than automatically classifying them as hostiles whose political ideals need to be extinguished. But if you're unwilling to extend the same courtesy for me, that's entirely your prerogative and I won't force you.
posted by wolfdreams01 at 9:32 AM on April 20, 2013

since you insist on classifying my prioritization of which people to respond to as some sort of weakness in my arguments ("You have ignored those who have told you that your understanding of Keynes is incomplete; you have ignored those who have told you that, like Reinhart and Roghoff, you have selected the data that prove your case, avoiding those that break its spine; and you have not shown that your hackneyed comparison of a state to a household bears any relation to reality. Instead, you have ground your nose into the supposed folly that is GDP.")

Since the people that you listed fall under "pretty much everybody in the thread," there isn't actually any prioritization that needs to be done here. That's why this, among other things, is being pointed out to you. The weakness isn't necessarily in your arguments (although there are many valid criticisms there), the weakness is that you refuse to address anything that you can not yourself control the conversation on.

This thread is about a criticism of austerity. You chose to make it about criticism of Keynesian economics. You were able to prove neither that austerity works nor that Keynesian economics has proven to be a failure. Indeed, multiple examples were given with evidence refuting both, including use of data sets that you provided, to which you responded by proceeding to cherry-pick data (i.e. continually refuse to use data pre-1969) and criticize liberals. It seems pretty clear who was willing to engage whom fairly and classify the other side as hostile here. That is why it is so hard to give you the benefit of the doubt that you're arguing in good faith. The fact that it is part of a pattern on this site is almost inconsequential at this point.
posted by zombieflanders at 10:05 AM on April 20, 2013 [2 favorites]

The only thing worse is that I am 100% convinced that wolfsdream01 will learn absolutely nothing from all of this.

Truly. I've never seen anyone squirm so hard to continue believing something which all the evidence roundly contradicts.
posted by Mental Wimp at 10:27 AM on April 20, 2013

I feel like Mike Konczal has been reading this thread: Reinhart/Rogoff-gate isn’t the first time austerians have used bad data

The counter-Keynesian arguments fell into two broad categories. The first is that the economy has no short-term, demand-driven cyclical problems that the government can address and that the real problems come from the supply constraints of our economy. The second focuses on the discovery of serious limits to how much debt a country can carry, as well as evidence that austerity can create enough growth to offset itself.

Though austerity seekers move effortlessly between the two, those are separate lines of argument, the first having to with the issue of supply, the second with the issue of universal limits. And neither has done particularly well in the past several years.

The interesting part of the first set of arguments is that despite their pessimistic view of government’s effectiveness, they usually depend on government-provided data rather than market information. Worse, those data usually turn out to be wrong.
[...]
As for the second line of argument, anyone who’s read Timothy Mitchell’s excellent book on the creation of the Egyptian economy through colonialism, “Rule of Experts,” should know that when economists show up claiming to have found “principles true in every country,” you should watch out. And sure enough, the most notable thing about the second wave of arguments was how they were meant to abstract from the specific situations countries face.

posted by zombieflanders at 11:17 AM on April 20, 2013 [2 favorites]

We can fight over whose ideas are right the traditional, old-fashioned way

By proposing ideas and marshaling evidence for and against?

by voting for the candidates whom we think support our ideas best

Oh, silly me.
posted by Rustic Etruscan at 11:53 AM on April 20, 2013 [2 favorites]

more Brad DeLong: Reinhart-Rogoff Weblogging: No, Their Argument For Austerity Didn't Make Sense

First: note well: no cliff at 90%.

Second, RRR present a correlation--not a causal mechanism, and not a properly-instrumented regression. There argument is a claim that high debt-to-GDP and slow subsequent growth go together, without answering the question of which way causation runs. Let us answer that question.

The third thing to note is how small the correlation is.

HBR: Remember: A Country Is Not a Company

You are insolvent when you can't pay your debts. Households and firms have struggled with insolvency for centuries. Insolvency is usually a balance sheet concept based around the valuation of assets. When the value of your assets is less than the value of your liabilities, you are insolvent. Usually you work out a repayment schedule with your creditors via a restructuring process.

For countries the notion of national insolvency is a newer, and potentially very misleading, idea. Countries aren't corporations. Technically almost every country would be insolvent if if was asked to pay all of its debt using its available assets. All governments in practice secure their national debts on their abilities to levy taxes. You can't really repossess a country, in fairness.

posted by the man of twists and turns at 12:15 PM on April 20, 2013 [1 favorite]

DeLong: A Dose Of Reality: Deficit Cutting Right Now Is Extraordinarily Imprudent

Adam Posen: A dose of reality for the dismal science: A casual perusal of 20th-century economic history, let alone more rigorous econometric analysis, turns up multiyear periods in the UK and US following the second world war, and in Belgium, Italy, and Japan in the past 20 years, when public debt was greater than 90 per cent of GDP but nothing much happened. Either stagnation in economies led to slowly rising debt levels, as in Italy or Japan of late, or growth returned and debt levels declined, as in the UK and US in the 1950s.

posted by the man of twists and turns at 12:51 PM on April 20, 2013 [1 favorite]

Krugman: The Good Glitch

Other Austerity Bloopers
posted by homunculus at 3:14 PM on April 20, 2013 [1 favorite]

comments like this - where you have people not even trying to pretend they can hold an intellectual conversation, but instead randomly insulting me because they dislike my political views

I'm not even sure what your political views are. You certainly have gone out of your way to avoid stating any views other than, "Keyensian economics is bad" and, "government is like a household budget". Perhaps what I should really say is that you have gone out of your way to avoid giving any justification for your views. Stating my opinion that I am witnessing a drubbing is not an insult, nor is stating my opinion that you will learn nothing from it. It is true that my comment was uncharitable, but after witnessing this same behavior from you (state inflammatory opinion, defend it bullheadedly against all comers, never seem to grapple with alternative views) in a diverse array of threads, I feel no particular compunction to be charitable where this is concerned. Neither was my statement in any way random. As I said, I have seen this many times before.

I do tip my hat to you, though, for not just disappearing when the heat gets turned up. Many do. Kudos to you, sir.
posted by Steely-eyed Missile Man at 4:03 PM on April 20, 2013

I am writing this comment to ask for a Thomas Herndon tag - seems he's the guy who actually found the error. Pity he didn't make it to the fancy list in the FPP.
posted by infini at 7:49 AM on April 21, 2013 [1 favorite]

Krugman: Destructive Creativity

You can already see quite a few people reacting to this affair by declaring that macro is humbug, we don’t know anything, and we should just ignore economists’ pronouncements. Some of the people saying this are economists themselves!

But the truth is that basic macroeconomics — IS-LM type macro, the stuff that’s in Econ 101 textbooks — has performed spectacularly well in the crisis.

The true test of an analytical framework is how it performs in unusual or extreme circumstances, how well it predicts “out of sample”. What we have experienced since 2007 is a series of huge policy shocks — and basic macroeconomics made some very counterintuitive predictions about the effects of those shocks. Unprecedented budget deficits, the model said, would not drive up interest rates. A tripling of the monetary base would not cause runaway inflation. Sharp government spending cuts wouldn’t free up resources for the private sector, they would depress the economy more than one-for-one, so that private spending as well as public would fall.

Quite a few people considered these predictions not just wrong but absurd; they braced for soaring rates and inflation, they waited for the good news from austerity. But the model passed the test with flying colors. Remember how Romer and Bernstein were savaged for assuming a multiplier of around 1.5? Four years later, after much soul-searching from the IMF about why it underestimated the costs of austerity, estimates seem to be converging on a multiplier of … about 1.5.

posted by tonycpsu at 9:47 AM on April 21, 2013 [3 favorites]

because ... Zimbabwe.

Yeah. That happened.
posted by Hello, I'm David McGahan at 8:15 PM on April 21, 2013 [2 favorites]

Krugman: Very Sensitive People

When it comes to inflicting pain on the citizens of debtor nations, austerians are all steely determination – hey, it’s a tough world, and hard choices have to be made. But when they or their friends come under criticism, suddenly it’s all empathy and hurt feelings.

posted by the man of twists and turns at 7:07 AM on April 22, 2013 [3 favorites]

I am writing this comment to ask for a Thomas Herndon tag

Agreed, oversight corrected.
posted by T.D. Strange at 7:04 AM on April 23, 2013 [1 favorite]

The Economist - Free Exchange: Reinhart-Rogoff reprise

And indeed, the Reinhart-Rogoff paper that began the threshold discussion, which was published as a working paper in January of 2010, was a contribution to a discussion that was already well under way. In 2009, the IMF's Fiscal Monitor was already sounding the alarm. Barack Obama's 2010 State of the Union speech which also dated to January of 2010, warned of the dangers of high debt and included plans for a spending freeze. There was no world in which elected leaders didn't begin to worry about and move to address indebtedness.

That's not to excuse analytical errors, of course. But it is important to keep things in perspective. Critics of austerity have argued often enough that their opponents are immune to facts. To then blame a piece of research for their opponents' position seems unfair.

Its important to note (which I think many people have) that the R&R paper was not a driver of austerity programs, but rather a piece of evidence that fit into an already-accepted framework of ideas. It was a part of an information system that reinfored and upheld a preexisting narrative (austerity as necessary, if not desirable).
posted by the man of twists and turns at 10:05 AM on April 23, 2013 [1 favorite]

an already-accepted framework of ideas...an information system that reinforced and upheld a preexisting narrative (austerity as necessary, if not desirable).

One part just-so story about finances, one part economics-as-morality-play, and one part libertarian ideology that will take evidence of any quantity or quality to show that government should be pared down.
posted by daveliepmann at 10:43 AM on April 23, 2013 [1 favorite]

EconLog: The Grave Evil Of Unemplyoment

I'd be delighted if my fellow free-market economists' high theory and belittling quips were entirely correct. But they aren't. The high theory's wrong: Nominal wage rigidity is both strong and durable. And the quips are far less insightful than they sound. Yes, unemployment insurance discourages job search; but this hardly means that most unemployed people affirmatively prefer the dole to a job. Yes, the unemployed could move to North Dakota; but in a market-clearing model of the labor market, workers wouldn't have to flee their state to sell their skills. Yes, some workers overestimate their own abilities; but the typical unemployed carpenter is competent in his craft. Yes, many workers have low marginal products; but almost no one has a marginal product of zero.

posted by the man of twists and turns at 12:47 PM on April 23, 2013

The Colbert Report:

Austerity's Spreadsheet Error: Carmen Reinhart and Kenneth Rogoff's 2010 debt study inspires austerity around the world, but grad student Thomas Herndon debunks the results.

Austerity's Spreadsheet Error - Thomas Herndon: Graduate student Thomas Herndon identifies little staggering omissions in a prominent academic paper, "Growth in a Time of Debt."
posted by homunculus at 4:16 PM on April 24, 2013 [2 favorites]

On National TV Last Night, The Austerity Movement Became A Laughingstock
posted by jeffburdges at 4:17 PM on April 24, 2013 [2 favorites]

Once again, Stephen Colbert proves he's good people.
posted by JHarris at 11:39 PM on April 24, 2013

GDP grows by 0.3 per cent

The "government" sector, which shrunk by 0.9 per cent last quarter, grew by 0.5 per cent this quarter. That means it goes from contributing a 0.2 per cent contraction to the headline figure in Q4 2012 to adding 0.1 per cent to the headline figure this quarter. As the government has quietly put its deficit reduction plan on hold, shrinking PSNB by nominal amounts, it has been able to start spending on infrastructure. We're now seeing that effect.

posted by zombieflanders at 7:40 AM on April 25, 2013

Brad DeLong: Brad DeLong: Mike Konczal: Reinhart-Rogoff a Week Later: Why Does This Matter?: "Well this is progress. We are seeing distancing by conservative writers on the Reinhart/Rogoff thesis."

That's not actually what they said, and if you read Holtz-Eakin in February Reinhart-Rogoff is sufficient evidence to enact the specific plans he wants. Now there's no defense of the "danger zone" argument; just the idea that the stimulus failed. Retreat!

posted by the man of twists and turns at 7:49 AM on April 25, 2013 [1 favorite]

Jacobin: After Austerity [full of links]

Austerity is collecting a lot of high-flying enemies these days. In the past month the manager of PIMCO, the largest bond-buying firm in the world, top figures at Blackrock, one of the most influential investment banks in the world, the President of the European Commission, Jose Manuel Barroso, and Martin Wolf, world-renowned finance commentator for the Financial Times, have all come out vigorously against austerity.

Meanwhile, a recent IMF report shows (again) in painstaking econometric detail that some of the most influential European research purporting to show the merits of “expansionary austerity,” and which showed up in ECB reports, basically cooked its books. Most embarrassing of all, a famous paper by Ken Rogoff and Carmen Reinhart, quoted by austerians as diverse as the EC’s Olli Rehn and the US’ Paul Ryan, has been shown to be based on bad data, dodgy assumptions, and a basic inability to use Microsoft Excel. Suddenly the sado-monetarists look less like a counter-revolutionary fiscal vanguard and more like petty crewmen busily rearranging their intellectual deck chairs while the rest run for the anti-austerity lifeboats.

posted by the man of twists and turns at 10:10 AM on April 25, 2013 [1 favorite]

I don't know if Ryan is smart enough to know it's a lie. So far as I can tell he knows nothing about policy. His skills lie in hucksterism directed at Beltway VSPs.

Speaking of the zombie-eyed granny-starver: Paul Ryan intern charged with sextortion (he may have also dressed up as Newt's elephant)
posted by homunculus at 11:57 AM on April 25, 2013 [2 favorites]

Reinhart & Rogoff Call Backsies
posted by zombieflanders at 6:14 AM on April 26, 2013 [1 favorite]

I don't think any of us consider a constant cycle of eternal borrowing a good thing. But everything pushing the current austerity drive is for the wrong reasons: we're borrowing mostly from the Chinese, forcing our foreign policy to appease them ever more regardless of other factors, we've been borrowing to support woefully ill-considered wars, and most of the drive for it has been used as a wedge issue by conservatives, in the U.S., mostly as a smokescreen and blatantly transparent excuse to prevent a Democratic president from getting anything the fuck done. It's infuriating.
posted by JHarris at 8:21 AM on April 26, 2013 [2 favorites]

I don't know if Ryan is smart enough to know it's a lie. So far as I can tell he knows nothing about policy. His skills lie in hucksterism directed at Beltway VSPs.

I live in his district, and no, he's not that smart, but he knows how to talk like he's smart, even smarter than you, and slather on a layer of "Wisconsin nice" that make him appear apologetic and even humble for having to screw you over. He lost his hometown and his home county in his Congressional election last year, though; unfortunately, there's a lot of red, rural townships within the boundaries as well, and he's their fucking hero in a cape, maybe even the next President.
posted by dhartung at 2:25 PM on April 26, 2013

Paul Krugman: Economics In The Crisis, transcript of a speech given at Lisbon

To say the obvious: we’re now in the fourth year of a truly nightmarish economic crisis. I like to think that I was more prepared than most for the possibility that such a thing might happen; developments in Asia in the late 1990s badly shook my faith in the widely accepted proposition that events like those of the 1930s could never happen again. But even pessimists like me, even those who realized that the age of bank runs and liquidity traps was not yet over, failed to realize how bad a crisis was waiting to happen – and how grossly inadequate the policy response would be when it did happen.

And the inadequacy of policy is something that should bother economists greatly – indeed, it should make them ashamed of their profession, which is certainly how I feel. For times of crisis are when economists are most needed. If they cannot get their advice accepted in the clinch – or, worse yet, if they have no useful advice to offer – the whole enterprise of economic scholarship has failed in its most essential duty.

And that is, of course, what has just happened.

posted by the man of twists and turns at 4:02 PM on April 27, 2013

quick note, that Krugman piece above is from 2012.

Think Progress: Austerity: The Biggest Roadblock To Progressive Change
posted by the man of twists and turns at 4:41 PM on April 27, 2013 [1 favorite]

Business Insider: The Economic Argument Is Over — Paul Krugman Has Won

The discovery of this simple math error eliminated one of the key "facts" upon which the austerity movement was based.

It also, in my opinion, settled the "stimulus vs. austerity" argument once and for all.

The argument is over. Paul Krugman has won. The only question now is whether the folks who have been arguing that we have no choice but to cut government spending while the economy is still weak will be big enough to admit that.

Paul Krugman: Evidence And Economic Policy

But will any of this make a difference? The story of the past three years, after all, is not that Alesina and Ardagna used a bad measure of fiscal policy, or that Reinhart and Rogoff mishandled their data. It is that important people’s will to believe trumped the already ample evidence that austerity would be a terrible mistake; A-A and R-R were just riders on the wave.

posted by the man of twists and turns at 8:02 PM on April 27, 2013 [2 favorites]

I've one small nitpick with the Krugman Has Won article : I'd agree the "American government needs to come together and figure out a smart long-term plan for containing health care and military costs," but add law enforcement too. Law enforcement accounts for 11% of the increase in federal spending since 1972, that money is entirely waste or even harmful. As an aside, healthcare cost increases entirely due to rent seekers since real costs have shrunk dramatically.
posted by jeffburdges at 11:16 PM on April 27, 2013 [2 favorites]

Amusingly, the Ruy Teixeira article potentially provides another argument for reducing the work week.

"Austerity’s lineage goes back to the early [economically] liberal thinkers, John Locke, David Hume and Adam Smith, all of whom played a role in theorizing and legitimizing market economics and all of whom tended to counterpose the virtues of market economics to the problem of predatory [monarchies] .. whose powers of taxation and debt issuance made [them] a parasite on the economy. Locke and Hume [saw] almost all government debt as bad. Smith had a somewhat more balanced view but [still saw government debt] as eroding the private savings that lead to dynamic economic growth. Hence the need for a state that was as austere as possible."

"[These] anti-state and anti-public debt views eventually became codified into a system of economic thinking we know as classical economics. .. According to classical economists, the overall economy tended toward a full employment equilibrium where all resources were productively employed. While this equilibrium could be temporarily disturbed .. the economy would quickly return to a full employment equilibrium once these distortions were eased."

"The role for government in responding to recession was therefore to do nothing, letting prices and wages fall to their natural levels or, even better, to do less, since government spending simply crowds out the private spending necessary to get the economy back into equilibrium. That is why, prior to Keynes, the orthodox budgetary approach to recessions was to cut, not increase, government spending so as to create the proper business environment and hasten the arrival of a new equilibrium."

Our elected states are still parasitic, albeit less so than monarchies. It's our technology that makes full productive employment unnecessary and lets the economy contract. So we anarchists might ask :

Is Keynesianism simply a hack for a system where most work serves "non-productive purposes of control"? Does austerity become a viable approach if the legal work week is reduced enough?

We could enforce nearly full employment in the short term by reducing the work week. I'd expect that'd increase automation by increasing wages, probably forcing further reductions decades later. In the long run, both classical and Keynesian economics probably break down once society become too ludic, meaning once the work week drops low enough.
posted by jeffburdges at 7:26 AM on April 28, 2013 [1 favorite]

Clippy helps! It Looks Like You're Trying To Make A Politically Expedient But Very Dubious Causal Claim. Would You Like Some Help?
posted by the man of twists and turns at 1:09 PM on April 28, 2013 [2 favorites]

Stockmania

Clearly, though, mitigating pain is the last thing on Stockman’s mind. For him, pain is the way we learn discipline, and, the more closely you read “The Great Deformation,” the more you sense that the impulse behind it isn’t so much economic as moral. Stockman, who studied at Harvard Divinity School, favors language that is explicitly theological: Keynesian “sin,” the “demon” of debt, the “devil’s workshop” of the New Deal. “The Great Deformation” looks like monetary history, but it’s really a classic example of the American jeremiad—a twenty-first-century counterpart to Jonathan Edwards’s famous sermon “Sinners in the Hands of an Angry God.” Stockman laments our fall from the path of righteousness and foretells destruction if we do not repent. This is bad economics—the economy is not a morality play—but it is excellent preaching, which explains why this is Stockman’s moment. In times of crisis, as the Puritans knew, Americans never tire of hearing how we’ve lost our way.

via Economist's View
posted by the man of twists and turns at 2:41 PM on April 28, 2013 [1 favorite]

the wonks over at the Wonkblog think The Era Of Austerity Is Over (For Now)
posted by the man of twists and turns at 11:59 AM on April 29, 2013

Message From Latin America: Austerity, Then Growth

Like Europe today, the initial response in Latin America was austerity, and the results were underwhelming. The region muddled through years of poor growth while development stagnated. It was not until 1985 that the dialogue—let alone the policy—expanded to incorporate growth. However, this policy shift eventually facilitated Latin America’s resurgence. Current Brazilian-Chinese trade tops $60 billion and Mexican-U.S. trade eclipses $350 billion, while the Pacific Pumas (Mexico, Colombia, Peru, Chile) are signing free trade agreements the world over.

posted by the man of twists and turns at 1:31 PM on April 29, 2013

More from Wonkblog: The studies behind austerity are weak. The study behind ‘uncertainty’ is worse.
posted by zombieflanders at 11:49 AM on April 30, 2013

Not Everything is Political

What do these questions have in common? They’re factual questions, with factual answers — and they have absolutely no necessary relationship to the “proper scale and scope of government”. You could, in principle, believe that we need a drastically downsized government, and at the same time believe that cutting government spending right now will increase unemployment. You could believe that discretionary policy of any kind is a mistake, and at the same time admit that the expansion of the Fed’s balance sheet isn’t at all inflationary under current circumstances.

posted by tonycpsu at 7:32 PM on May 1, 2013 [3 favorites]

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