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| Making a comedy of errors: a serious story you may have missed | Making a comedy of errors: a serious story you may have missed |
| (5 months later) | |
| Have you been following this week's controversy over Rogoff and Reinhart's number-crunching error? No, I thought not, though it may well be affecting your life at least as much as anything Margaret Thatcher did. And she's not been lacking wall-to-wall, OTT media attention this past 10 days despite the more measured response evident among voters on hearing of her death at 87. | Have you been following this week's controversy over Rogoff and Reinhart's number-crunching error? No, I thought not, though it may well be affecting your life at least as much as anything Margaret Thatcher did. And she's not been lacking wall-to-wall, OTT media attention this past 10 days despite the more measured response evident among voters on hearing of her death at 87. |
| I first spotted the promising little row on the front page of yesterday's FT (subscription) though the Guardian was quick to realise its implications for the austerity debate and post this authoritative critique by Dean Baker, himself a protagonist in the debate about national debt: at what point does its burden weigh down a country's prospects for economic growth? | I first spotted the promising little row on the front page of yesterday's FT (subscription) though the Guardian was quick to realise its implications for the austerity debate and post this authoritative critique by Dean Baker, himself a protagonist in the debate about national debt: at what point does its burden weigh down a country's prospects for economic growth? |
| Basically the allegation is that the Harvard economists, Kenneth Rogoff and his collaborator, Carmen Reinhart, allowed error (or worse?) to creep into their influential 2010 analysis of the GDP relationship between growth and debt in 20 advanced postwar economies – spreadsheet mistakes that produced a mean average growth rate of –0.1% when public debt is greater than 90% of GDP. | Basically the allegation is that the Harvard economists, Kenneth Rogoff and his collaborator, Carmen Reinhart, allowed error (or worse?) to creep into their influential 2010 analysis of the GDP relationship between growth and debt in 20 advanced postwar economies – spreadsheet mistakes that produced a mean average growth rate of –0.1% when public debt is greater than 90% of GDP. |
| When corrected, mostly by including countries that had been excluded (notably small but significant New Zealand), the resulting growth rate was +2.2%, say researchers at the nearby University of Massachusetts in Amherst – the vast state campus with its own police force (I visited years ago) that is the antithesis of Harvard, the world No 1 university, but private and avowedly elitist. No love lost there, I'd guess. | When corrected, mostly by including countries that had been excluded (notably small but significant New Zealand), the resulting growth rate was +2.2%, say researchers at the nearby University of Massachusetts in Amherst – the vast state campus with its own police force (I visited years ago) that is the antithesis of Harvard, the world No 1 university, but private and avowedly elitist. No love lost there, I'd guess. |
| Wow! This is pretty important because all sorts of austerity-minded politicians, including (this bit will shock you) George Osborne, have cited R&R's work to justify the higher taxes/lower public spending formula that is sucking demand out of major economies worldwide and, it is now becoming very obvious, thereby prolonging recession. | Wow! This is pretty important because all sorts of austerity-minded politicians, including (this bit will shock you) George Osborne, have cited R&R's work to justify the higher taxes/lower public spending formula that is sucking demand out of major economies worldwide and, it is now becoming very obvious, thereby prolonging recession. |
| It's not straightforward and in any case involves technical arguments way above my head and possibly yours too. | It's not straightforward and in any case involves technical arguments way above my head and possibly yours too. |
| The Guardian's Phil Inman provides the R&R defence here, which involves a bit of "whoops, sorry" but is more about saying that other subsequent work, including their own, has reinforced the main thrust of their conclusion. | The Guardian's Phil Inman provides the R&R defence here, which involves a bit of "whoops, sorry" but is more about saying that other subsequent work, including their own, has reinforced the main thrust of their conclusion. |
| Well, we can all see that a state which relies too much on debt to stimulate economic activity is going to come unstuck sooner or later. If it taxes too much people stop paying their taxes, stop working or – most likely – a bit of both. If it borrows too much to finance unproductive investment (all that Spanish infrastructure spending on unused trains and sports stadiums, eh!) more and more of its revenues are eaten up by the higher interest rates that lenders demand. | Well, we can all see that a state which relies too much on debt to stimulate economic activity is going to come unstuck sooner or later. If it taxes too much people stop paying their taxes, stop working or – most likely – a bit of both. If it borrows too much to finance unproductive investment (all that Spanish infrastructure spending on unused trains and sports stadiums, eh!) more and more of its revenues are eaten up by the higher interest rates that lenders demand. |
| But that much is obvious from research done by us all in our part-time studies at the University of Life (formerly the Polytechnic of Life). What is at issue here is high-grade data-crunching that is written by very clever people and read by policymakers and market-movers. They are always on the lookout for gurus and keen to have their prejudices confirmed by higher intellectual authority. | But that much is obvious from research done by us all in our part-time studies at the University of Life (formerly the Polytechnic of Life). What is at issue here is high-grade data-crunching that is written by very clever people and read by policymakers and market-movers. They are always on the lookout for gurus and keen to have their prejudices confirmed by higher intellectual authority. |
| The left cherry-picks just the same. Thus Paul Krugman has leaped on R&R's error with glee because he's a Keynesian who believes it is vital at a time when private individuals and firms are paying down debt that the state bears the strain and injects demand into the economy via spending and borrowing – short-term debt to avoid the debt spiral into which Osborne is leading us via the deflationary route. | The left cherry-picks just the same. Thus Paul Krugman has leaped on R&R's error with glee because he's a Keynesian who believes it is vital at a time when private individuals and firms are paying down debt that the state bears the strain and injects demand into the economy via spending and borrowing – short-term debt to avoid the debt spiral into which Osborne is leading us via the deflationary route. |
| It's never cut and dried. In today's FT the University of Massachusetts authors, Robert Pollin and Michael Ash, argue that the relationship between debt and growth varies hugely according to particular local circumstances. They don't dismiss the debt burden argument, but repudiate the scientific-sounding 90% cut-off point and insist that "judicious deficit spending remains the single most effective tool we have against mass unemployment". | It's never cut and dried. In today's FT the University of Massachusetts authors, Robert Pollin and Michael Ash, argue that the relationship between debt and growth varies hugely according to particular local circumstances. They don't dismiss the debt burden argument, but repudiate the scientific-sounding 90% cut-off point and insist that "judicious deficit spending remains the single most effective tool we have against mass unemployment". |
| Even I can pick a few holes in what they say here, though I agree with the broad thrust. In fairness to the other side, Rogoff is described in this sensible Daily Beast analysis as a moderate deficit hawk – not a radical one like Osborne or the US Republican poster boy of the moment, Paul Ryan, Mitt Romney's running mate. | Even I can pick a few holes in what they say here, though I agree with the broad thrust. In fairness to the other side, Rogoff is described in this sensible Daily Beast analysis as a moderate deficit hawk – not a radical one like Osborne or the US Republican poster boy of the moment, Paul Ryan, Mitt Romney's running mate. |
| The point I want to make here is that we can all learn from such discussions if we want to. But I cannot find any reference to this controversy in the sort of papers you might hope to find it in – the Times, Mail or the Telegraph (which I no longer buy). Correction: there's a Telegraph blog, humourous in tone, which says: "Hey, we all screw up", thereby making light of something serious. Bloomberg News takes much the same tack here. | The point I want to make here is that we can all learn from such discussions if we want to. But I cannot find any reference to this controversy in the sort of papers you might hope to find it in – the Times, Mail or the Telegraph (which I no longer buy). Correction: there's a Telegraph blog, humourous in tone, which says: "Hey, we all screw up", thereby making light of something serious. Bloomberg News takes much the same tack here. |
| Again, the left adopts the same tactics of omission and mockery, as Margaret Thatcher found to her cost and annoyance. I know I should not be surprised at this stage and not even Lord Justice Leveson could force the rascals to bore their readers with something they didn't think important or that didn't impress their editors (or do I mean proprietors?) All the same … | Again, the left adopts the same tactics of omission and mockery, as Margaret Thatcher found to her cost and annoyance. I know I should not be surprised at this stage and not even Lord Justice Leveson could force the rascals to bore their readers with something they didn't think important or that didn't impress their editors (or do I mean proprietors?) All the same … |
| One last thought. Not much new or interesting has been said about Margaret Thatcher in the orgy of obituary these past 10 days – by me among many others. But one aspect of the OTT hagiography which did strike a chord with me was that the Iron Lady wasn't stupid. | One last thought. Not much new or interesting has been said about Margaret Thatcher in the orgy of obituary these past 10 days – by me among many others. But one aspect of the OTT hagiography which did strike a chord with me was that the Iron Lady wasn't stupid. |
| Enjoying a reputation for inflexible will allowed her to be quite adaptable until the latter stages of her reign. It's like inflation targeting: get a reputation for credibility and you gain room for manoeuvre. | Enjoying a reputation for inflexible will allowed her to be quite adaptable until the latter stages of her reign. It's like inflation targeting: get a reputation for credibility and you gain room for manoeuvre. |
| So my recurring thought this week has been: if Thatcher had faced mounting evidence that the coalition's austerity programme has been severe to the point of self-defeating, would she have changed her mind? | So my recurring thought this week has been: if Thatcher had faced mounting evidence that the coalition's austerity programme has been severe to the point of self-defeating, would she have changed her mind? |
| Vince Cable would argue that the chancellor is already showing more plan B flexibility than he feels able to admit, even to the IMF, which wants plan B. | Vince Cable would argue that the chancellor is already showing more plan B flexibility than he feels able to admit, even to the IMF, which wants plan B. |
| Caught between a rock and a hard place. Is that thought what made Osborne weep at St Paul's? | Caught between a rock and a hard place. Is that thought what made Osborne weep at St Paul's? |
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