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AN ACADEMIC STUDY regularly cited by proponents of austerity as a way of restoring economic growth has been thrown into doubt – because of a computational error in Microsoft Excel.
The 2010 paper by Carmen Reinhart and Kenneth Rogoff, ‘Growth in a Time of Debt‘, gathered historical evidence to conclude that countries with public debt over 90 per cent of GDP had significantly lower rates of economic growth.
The study had been cited by many advocates of cutting government spending – including US congressman Paul Ryan, who has led Republican calls to rein in the budget – as an example that allowing countries to continually borrow eventually hurts their own economic prospects.
Some had argued that the paper had made the wrong conclusion – and that it was actually slow economic growth which caused debt to pile up in the first place.
However, the authors had never released their workings – keeping them under wraps until three other economists requested to see their workings when they found themselves unable to replicate the Reinhart-Rogoff findings.
It has now emerged that the figures used to reach their conclusions may have been erroneous – because of a single coding error in Microsoft Excel.
As the Next New Deal blog summarises, the Excel formula used to calculate the average economic growth in 20 countries, had an error – leading it to exclude the example of Belgium which had a relatively high GDP when its debt had been above 90 per cent.
Their paper has also been criticised for some selective exclusions – the calculations include data for 96 years where countries had debt over 90 per cent of GDP, even though they had 110 years of data to use – and for not weighting the examples of individual countries to account for longer periods of high debt.
Reinhart and Rogoff responded to the criticisms, arguing that their paper had only ever discussed the ‘association’ between debt and slow growth, and not the ‘causality’ of one over the other – but that the results of the new study are not all that different from theirs anyway.
However, Nobel laureate Paul Krugman – a noted critic of austerity policies – said the defence was poor, and fell into the trap of ‘reverse causation’ associating low growth with high debt, and not the other way around.
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The dogs in the street know austerity kills economies.
How can an economy grow then when it borrows to pay for things..the government is far too big.
Because what it spends on is economic activity – income for companies & individuals. Spending -> Growth.
Thats a nice touch. . 26 million unemployed in Europe, about the same in the USA and countless others working to barely meet ends meat (not to mention the 3rd world), and all these “economists” can say to justify being wrong is that they mis-coded one line.. Sadly its what i’ve come to expect from such “expert” groups
It all depends on who is funding that “expert” group
Give me your stats, excel and a story and I will make those figures concur.
Everybody knows 68% of stats are made up :)
has that 68% been verified by Microsoft ?
68% of the time, all the time
Punch…. I thought the figure was 72.31%
What complete and utter bulls**t, as if they didn’t know. The more they wreck your economy, the cheaper the assets become.
Is there any truth in the rumour that Homer Simpson corrected this paper ?
D’oh !
Certainly makes you wonder what sort of “peers” reviewed it considering how anal they can be….as far as scientific papers go anyway!
I stopped reading after Paul Ryan .
When Ireland went through the so called boom no one said stop to the banks, Now in this bust, again there is no one to say stop to the banks. Are we bereft of any common sense as a people.
Yes.
I think the word austerity gives Higgins a hard on. He only ever appears when he sees it
Higgins massacred his underpants
He has the “Credit Tiger” stuffed and mounted in his ivory tower!!
and yet I also see Leonard on the exact same articles :)
Leonard : Ying !
David : Yang !
My money (punts) is on Ying !
Im following you Dave. And yes that is me in your wheelie bin at nighttime.
Len loves you. Your all he talks about all the time.
U can’t stop the banks. They got u by the balls, including our government and pretty much every country in the world bar the usual suspects, Iran etc. And its not the likes of AIB, its Wall Street, City of London borough and Frankfurt with the Central banks at the top. Break them up and u’ll have some sort of semblence of a fairer world. To do nothing and the inevitable will happen.
Asking an economist about work, is like asking a eunuch about lovemaking.
Or David Higgins about real life in ireland.
Economist = witch doctor.
Austerity is never going to bring growth to any country. If anything it compounds the country into a state of social decay, with mass emigration and increasing taxation with unrealistic goals of bringing down the debt.
Maybe that is waht it is meant to do . there is more than a faint possibility that the whole idea is just to make the Rich richer – and it is working .
To call the politicins fools is ridiculous – waht does that make the people who voted for them . I think this is a deliberate plot that will be ongoing for many years .
read and view Naomi Klieins book and videao on Disaster Capitaliism . Those super rich are not fools – we are to put up with them .
Ireland grew last year and is projected to up its growth rate over the next few years. Even Greece is predicted to grow in 2014, if not 2015.
The lies out of politicians mouths are also predicted to grow this year in direct proportion to those of their economist colleagues !
How much did it “grow” last year David? 0.00000000000001%.
This is a good example of the facts being watered down so the plebs can understand, and consequently complain about something which they have no knowledge of.
There appears to be questions on the data used etc but there will always be such questions from some quarters about the results of any study.
Either do an in-dept detailed review of what happened here or don’t cover the story.
A headline such as the one used is clearly designed to inflame people – queue “those gbshte bankers got their sums wrong and now I have to pay a property tax!!”. A waste of all of our time.
Fizz
It’s the method, not the figures.
Surely any old pleb would know this
That’s a much more in depth review of the many mistakes in the report. As well as the errors with the spreadsheet they appear to have cherry picked which figures they used to give the results they wanted.
Do they think we’re that stupid that we’re going to believe that??? They knew exactly what they were doing when they forced this austerity on us. Pull the other one…
I don`t like to say I told uou so but……..
It appears they’re studying 8 countries with Debt/GDP of over 90% and the exclusion of Belgium brings this down to 7. I’d firstly question why so few countries are being compared, but more to the point why the exclusion of ONE country leads to such a shift in the results?
It should be remembered that the association found in this paper was that low-debt economies grow faster but it’s down to interpretation whether you believe lowering your debt *causes* your economy to grow faster.
There’s universal acceptance that having a Debt/GDP ratio of over 90% is NOT a good thing, especially for a small country like Ireland. The US can get away with high debts because they’re the world’s biggest economy. This is unfortunate for a small country like ours, but it’s probably for the best we’re not allowed to run up such large debts without consequences. It has led to disastrous spending policies in the US that don’t see any signs of stopping.
But does measuring debt as percentage of GDP not invalidate what you say about the US? Surely the US can get away with borrow because their debt is not as high a percentage of GDP? GDP being the measure of economic output.
I agree with what you say by the way, just disagree that the US is somehow as special case because it is bigger.
What? Higgins what?
Hmmm.?
Excuse me Higgins .. What?
The key question though is whether austerity to reduce the debt to enable economic growth does more damage to economic growth than maintaining high debt levels, or even increasing them to enable the classic Keynesian approach of spending your way out of a recession.
The main lesson from this is that right wing governments and international institutions will seize on whatever appears to justify economic policies they want to pursue anyway, for other reasons, regardless of its intellectual merit.
Austerity reduces social welfare spending to a new lower level that can be maintained after the crisis, enabling lower taxes on wealth and high income earners in the long run, and, more importantly, dramatically reduces the power of labour against capital by creating mass unemployment, lowering wages and reducing workers’ expectations about working conditions.
All of this adds up to bigger profits for business and an all-out class war against workers, including the rolling back of gains fought for and won over decades.
@Tiarán
The US has not only a very high nominal debt of $16.8 TRILLION but this as a % of their GDP is 107%.
The value of the national debt exceeds the value of all goods and services produced in the US every year!
Yes, the US can get away with lots of debt, $5tr or $10tr would be no issue for them to maintain and even now with $16.8tr they are in a somewhat stable position.
However the projection for the US is for their debts to rise to $22.5tr by 2017. This would lead to a debt/GDP ratio of 137.9%.
The argument in the US is not whether they can maintain a high nominal value of debt but a high debt/GDP ratio.
The reason the US is a special case is clear from its interest rate on the international lending markets.
The current interest rate on a 10-year US bond at the time of writing is 1.68%, for Ireland it’s over 4% and for Portugal it’s 6.12%.
Ireland and Portugal are only slightly more indebted than the US yet the US enjoys very low interest rates.
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
To put it bluntly the US couldn’t possibly default or it’d be the end of the world economy as we know it, however investors see the possibility of Ireland and Portugal defaulting because their knock-on effect on the world economy wouldn’t be as catastrophic.
This is why the US has the option to continually pile up debt without suffering severe consequences from the ratings agencies or the markets. They know congress will move earth, moon and stars to avoid an American default so there’s no need to charge the US a high interest rate.
That makes a lot of sense. So basically they are over-leveraged but are also the ultimate example of too big too fail.
The point is that the US dollar is the worlds major reserve currency. In particular Japan, China, Germany and the UK are happy to hold large percentages of their reserves in Dollars in the form of treasury bonds. So long as they do then the Fed can issue as much paper as it likes.
There is not universal acceptance that over 90% is bad. Most of the support it had was based on this now severely discredited study.
Have they tried turning Ireland off and back on again ?
Brilliant !
=if(progress = years of Austerity) “5 point plan success” “previous governments fault”
The dismal science.
The fact is that too much of any thing in an economy is harmful.
Too much debt will drive up inflation and therefor interest rates which stifles growth.
Excessive growth overheats supply, drives up inflation, puts pressure on interest rates, reduces competitiveness and stifles growth.
In the history of economics since Roman times or maybe even earlier, no one has got it right for very long and all economic models have flourished and fallen in equal measure. Austerity has it’s risks as does expansionism. You pays your money and takes your choice. Europe is trying the debt reduction through austerity route and it hurts. Japan has tried the debt fuelled expansionist route for the last 20 years and failed. Now they are going the money printing route. We shall see.
There is no right or wrong answer. But at least by going the austerity route you keep the opportunity of making adjustments along the way.
You mean that these so called economic experts can’t spot a simple computational error in a spreadsheet !
It’s very simple ; economists exist solely to confuse the public and their dim-witted politicians so that the elite can shore away 32 trillion in Tax havens !
Of course what the simple elite don’t understand is that the more they take the less they have because in feeding their greed they will never have enough so they become too mean to actually be able to enjoy the true meaning of life, and at the same time insure that their family lines eventually become the victims of either inbreeding or revolution !
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