this is like something out of a douglas adams novel, but it seems like the economic model used by banksters to justify austerity measures is mathematically flawed. and the entire world will suffer greatly. thanks to an error in microsoft excel.
An economics paper claiming that high levels of national debt led to low or negative economic growth could turn out to be deeply flawed as a result of, among other things, an incorrect formula in an Excel spreadsheet. Microsoft’s PowerPoint has been considered evil thanks to the proliferation of poorly presented data and dull slides that are created with it. Might Excel also deserve such hyperbolic censure?
The paper, Growth in a Time of Debt, was written by economists Carmen Reinhart and Kenneth Rogoff and published in 2010. Since publication, it has been cited abundantly by the world’s press politicians, including one-time vice president nominee Paul Ryan (R-WI). The link it draws between high levels of debt and negative average economic growth has been used by right-leaning politicians to justify austerity budgets: slashing government expenditure and reducing budget deficits in a bid to curtail the growth of debt.
This link was always controversial, with many economists proposing that the correlation between high debt and low growth was just as likely to have a causal link in the other direction to that proposed by Reinhart and Rogoff: it’s not that high debt causes low growth, but rather that low growth leads to high debt.
However, the underlying numbers and the existence of the correlation was broadly accepted, due in part to Reinhart and Rogoff’s paper not including the source data they used to draw their inferences.
A new paper, however, suggests that the data itself is in error. Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst, tried to reproduce the Reinhart and Rogoff result with their own data, but they couldn’t. So they asked for the original spreadsheets that Reinhart and Rogoff used to better understand what they were doing. Their results, published as “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,” suggest that the pro-austerity paper was flawed. A comprehensive assessment of the new paper can be found at the Rortybomb economics blog. – from ars technica, Microsoft Excel: The ruiner of global economies?
also see this article, from new york magazine: Meet the 28-Year-Old Grad Student Who Just Shook the Global Austerity Movement
Thomas Herndon, a 28-year-old economics grad student at UMass Amherst, just used part of his spring semester to shake the intellectual foundation of the global austerity movement.
When Herndon and his professors published their study, the reaction was nearly immediate. After Konczal’s blog post went viral, Reinhart and Rogoff — who got a fawning New York Times profile when their book was released — were forced to admit their embarrassing error (although they still defended the basic findings of their survey). And today, another UMass Amherst professor, Arindrajit Dube, followed up on Herndon’s paper with additional proof that there were serious theoretical and causal problems (as opposed to just sloppy Excel work) in the Reinhart-Rogoff study. Observers have been raising serious questions about what Herndon’s work means for the future of austerity politics, and Reinhart and Rogoff’s respectability as scholars. – from new york magazine
see also How the ‘architects of austerity’ got their sums wrong
IMF: We got effect of austerity wrong
The revelation comes in three pages of academic analysis tucked away in the body’s annual report being released in Tokyo today where the IMF and the World Bank are holding their annual congress.
The report says the IMF believed that for every €100 of austerity through higher taxes and spending cuts, the effect on economic growth and unemployment would be the equivalent of €50.
But in reality the effect has been between double and three times that — stripping the economy of €90 to €150 for every €100 taken out in budgets agreed with the troika.
Tom McDonnell of the independent think-tank Tasc said the report called into question the Government’s budgetary strategy.
“It suggests recent budgets have actually been more damaging to the Irish economy than the Government was estimating. It would also help explain why growth has been lower over the last few years than the Government had expected — and why the vaunted ‘return to growth’ has failed to substantively materialise.”
The findings show Ireland had the second highest austerity measures in the developed world in 2010 — Greece had the highest.
see more, from the irish examiner
