Conservative ‘austerity’ economics exposed as a fraud

Posted by AzBlueMeanie:

With an awful week of news, some stories fell through the cracks, but nevertheless are important. In economics news, the Reinhart and Rogoff study that is the heart and soul of conservative "austerity" economics was exposed as a fraud. It turns out these geniuses ignored certain data and made an Excel spreadhseet error that resulted in conservative "austerity" measures which imposed an economic depression. Oops! (They are not sorry or repentant).

Paul Krugman writes at the New York Times, The Excel Depression:

In this age of information, math errors can lead to disaster. . . So, did an Excel coding error destroy the economies of the Western world?

The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a Time of Debt,”
that purported to identify a critical “threshold,” a tipping point, for
government indebtedness. Once debt exceeds 90 percent of gross domestic
product, they claimed, economic growth drops off sharply.

Ms. Reinhart and Mr. Rogoff had credibility thanks to a widely admired
earlier book on the history of financial crises, and their timing was
impeccable. The paper came out just after Greece went into crisis and
played right into the desire of many officials to “pivot” from stimulus
to austerity. As a result, the paper instantly became famous; it was,
and is, surely the most influential economic analysis of recent years.

In fact, Reinhart-Rogoff quickly achieved almost sacred status among
self-proclaimed guardians of fiscal responsibility; their tipping-point
claim was treated not as a disputed hypothesis but as unquestioned fact.

For example, a Washington Post editorial earlier this year warned against any relaxation on the deficit front,
because we are “dangerously near the 90 percent mark that economists
regard as a threat to sustainable economic growth.” Notice the phrasing:
“economists,” not “some economists,” let alone “some economists,
vigorously disputed by other economists with equally good credentials,”
which was the reality.

For the truth is that Reinhart-Rogoff faced substantial criticism from
the start, and the controversy grew over time
. As soon as the paper was
released, many economists pointed out that a negative correlation
between debt and economic performance need not mean that high debt
causes low growth. It could just as easily be the other way around, with
poor economic performance leading to high debt. Indeed, that’s
obviously the case for Japan, which went deep into debt only after its
growth collapsed in the early 1990s.

Over time, another problem emerged: Other researchers, using seemingly
comparable data on debt and growth, couldn’t replicate the
Reinhart-Rogoff results
. They typically found some correlation between
high debt and slow growth — but nothing that looked like a tipping point
at 90 percent or, indeed, any particular level of debt.

Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet — and the mystery of the irreproducible results was solved.
First, they omitted some data; second, they used unusual and highly
questionable statistical procedures; and finally, yes, they made an
Excel coding error. Correct these oddities and errors, and you get what other researchers have found:
some correlation between high debt and slow growth, with no indication
of which is causing which, but no sign at all of that 90 percent
“threshold.”

In response, Ms. Reinhart and Mr. Rogoff have acknowledged
the coding error, defended their other decisions and claimed that they
never asserted that debt necessarily causes slow growth. That’s a bit
disingenuous because they repeatedly insinuated that proposition even if
they avoided saying it outright. But, in any case, what really matters
isn’t what they meant to say, it’s how their work was read: Austerity
enthusiasts trumpeted that supposed 90 percent tipping point as a proven
fact and a reason to slash government spending even in the face of mass
unemployment
.

So the Reinhart-Rogoff fiasco needs to be seen in the broader context of
austerity mania: the obviously intense desire of policy makers,
politicians and pundits across the Western world to turn their backs on
the unemployed and instead use the economic crisis as an excuse to slash
social programs.

What the Reinhart-Rogoff affair shows is the extent to which austerity
has been sold on false pretenses
. For three years, the turn to austerity
has been presented not as a choice but as a necessity. Economic
research, austerity advocates insisted, showed that terrible things
happen once debt exceeds 90 percent of G.D.P. But “economic research”
showed no such thing
; a couple of economists made that assertion, while
many others disagreed. Policy makers abandoned the unemployed and turned
to austerity because they wanted to, not because they had to.

As Krugman noted the Washington Post has played an important role in the media dissemination of this fraud. The Washington Post has an unholy partnership with the Pete Peterson Foundation. The Washington Post Lets Pete Peterson Write The News On The Deficit. But it is not limited to just the Post. The entire corporate "lamestream"media are in his thrall.

Karoli at crooksandliars.com writes, Pete Peterson's Fingerprints All Over That Bogus Economic Study:

You know who really, really loves Reinhart and Rogoff and the BS study they did where they "forgot" certain key pieces of data? You'll never guess!

That's right, our old friend Pete Peterson. PRWatch, with all the gory details:

As the Center for Media and Democracy detailed in the online report, "The Peterson Pyramid,"
the Blackstone billionaire turned philanthropist has spent half a
billion dollars to promote this chorus of calamity. Through the Peter G.
Peterson Foundation, Peterson has funded practically every think tank
and non-profit that works on deficit- and debt-related issues, including
his latest astroturf supergroup, "Fix the Debt,"
which has set a July 4, 2013 deadline for securing an austerity budget.

Reinhart, described glowingly by the New York Times as "the most influential female economist in the world," was a Senior Fellow at the Peterson Institute for International Economics founded, chaired, and funded by Peterson. Reinhart is listed as participating in many Peterson Institute events, such as their 2012 fiscal summit along with Paul Ryan, Alan Simpson, and Tim Geithner, and numerous other Peterson lectures and events available on YouTube. She is married to economist and author Vincent Reinhart, who does similar work for the American Enterprise Institute, also funded by the Peterson Foundation.

Who else funds AEI? Oh, I know! David and Charles Koch! They give
millions to AEI each year, as does the DeVos family, and the rest of the
billionaire cadre.

Kenneth Rogoff is listed on the Advisory Board of the Peterson Institute. The Peterson Institute bankrolled and published
a 2011 Rogoff-Reinhart book-length collaboration, "A Decade of Debt,"
where the authors apparently used the same flawed data to reach many of
the same conclusions
and warn ominously of a "debt burden"
stretching into 2017 that "will weigh heavily on the public policy
agenda of numerous advanced economies and global financial markets for
some time to come." (Note that not everyone associated with the
Institute touts the Peterson party line.)

While all eyes have been fixed on Boston and West, Texas this week, Simpson and Bowles have been skulking around Congress
trying to revive their austerity agenda with revised numbers for a
'deal'.
Flushed with the realization that their primary foundation has
washed away in a tidal wave of flawed scholarship, they're now resorting
to saying it's just 'common sense' dictating the need to reduce
spending. No deal, boys. Give it up.

* * *

The austerians are beginning to realize they've lost their footing in
this debate. Time to step up and keep reinforcing the truth — austerity
harms the economy.
It is no help at all to anyone other than
possibly billionaires who want to have it all as the serfs grovel for
their crumbs.

I previously posted about Pete Peterson's "Fix the Debt" fraud. The Nation exposes Pete Peterson's Fix The Debt fraud.

Now that this fraud has been exposed, will we correct our economic assumptions and policies? Paul Krugman is not optimistic:

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d
like to think so. But I predict that the usual suspects will just find
another dubious piece of economic analysis to canonize, and the
depression will go on and on.

The elite über-rich plutocrats who control the corporate "lamestream" media and own Washington are able to control the debate on their terms.

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