Excel Error Contributes To Problems With Austerity Study 476
quarterbuck writes "Many politicians, especially in Europe, have used the idea that economic growth is impeded by debt levels above 90% of GDP to justify austerity measures. The academic justification came from a paper and a book by Kenneth Rogoff and Carmen Reinhart. Now researchers at U Mass at Amherst have refuted the study — they find that not only was the data tainted by bad statistics, it also had an Excel error. Apparently when averaging a few GDP numbers in an excel sheet, they did not drag down the cell ranges down properly, excluding Belgium. The supporting website for the book, 'This time it is different,' has lots of financial information if a reader might want to replicate some of the results."
The Excel error is making the rounds as the cause of the problems with the study, but it's actually a minor component. The study also ignores some post-WWII data for countries that had a high debt load and high growth, and there's some fishy weighting going on: "The U.K. has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for the U.K."
Re:Does High Public Debt Consistently Stifle growt (Score:5, Interesting)
But then again, most economies (other than that of North Korea) are dynamic, and the amount of resource fluctuates
That depends on what you mean by "resources." An MBA Romney-style corporate raider considers "resources" to mean "cash and credit" while someone who isn't a rent-seeking parasite considers things like timber, ore, fuel, and available labor to be resources. The only real resources that fluctuate are labor and renewables.
Re:Excel error? (Score:5, Interesting)
I'm not quite sure how one could make it even more obvious without punching the user in the face.
How about by not conflating data, formulae, and layout in the UI? This is an error made by all VisiCalc clones, but not by Improv clones. If you use something like Improv, FlexiSheet or Quantrix then this kind of error is almost impossible to make. If you use something like VisiCalc, 1-2-3, Excel or OpenOffice.org Calc, it is trivial.
Confirmation Bias (Score:5, Interesting)
http://en.wikipedia.org/wiki/Confirmation_bias [wikipedia.org]
The researchers got the result they wanted, so they didn't bother to check if they were actually correct.
And actually, that's being kind.
Re: More Statist Bullsiht (Score:5, Interesting)
As a historical note, christianity used to have nearly identical rules concerning usury; and the deep suspicion of interest-bearing loans is a least as old as Aristotle(who was Not A Fan).
As time went on, though, a number of... increasingly creative... legalisms were hacked together to allow contractual arrangements that were loans at interest in everything but name. In the case of christianity, the charade was so transparent, and the amount of obviously-loan-backed economic activity so significant, by the early modern period, if not earlier, that almost everyone bowed to the inevitable and "usury" stopped meaning 'charging interest' and started meaning 'charging lots and lots of interest'(and even 'lots and lots' has proven to be pretty flexible).
Islam has not (yet) reached the 'eh, fuck it, sure we charge interest' stage; but let's just say that they are doing some downright jesuitical work at the 'So, what sophistry can we spin to make interest not look like interest?' [bbc.co.uk] stage. The range of products dubbed 'islamic finance' won't say 'interest'; but it will look like a duck and quack like one.
Re:Excel error? (Score:5, Interesting)
There's an arguement that this wasn't ignorance on the part of the person asking the question, rather it was a polite way of asking whether the machine was rigged to give only the answer to the single question it was given.
Re:Does High Public Debt Consistently Stifle growt (Score:4, Interesting)
The loans from the USA to the UK after WWII where anything but favourable. They where under incredibly harsh terms that impeded economic growth and lead almost directly to the loss of empire.
Fun with statisitics (Score:4, Interesting)
post-WWII data for countries that had a high debt load and high growth
It would be hard to not have had high growth after WWII for most of Europe. Given most of those economies had been pounded into next to nothing by the war. If you have a GDP of $1 in 1945 and $2 in 1946, why that is 100% year over year growth!
Next debt load and austerity are not the same thing. The UK had a high debt load post WWII and was also rationing food. So it had high debt AND austerity. Using debt to invest in critical infrastructure like roads and basic sanitation for example you don't have or is no longer workable, and perhaps providing minimal nutrition to the needy is an entirely different proposition than making sure every dope who masters long division gets to hang out for four years at University.
Public debt is not always bad when there is clear ROI on where the revenues for its issuance are being directed. Debt should not be used to fund blue sky efforts, nor should it be used to provide comfort. If 'austerity' today had any relationship what what it meant in the 1940s-1950s than I might be included to agree it would be going to far for the present situation to justify, but as its used today it might as well just be a synonym for 'waste'.
No European Country Practices Real Austerity (Score:3, Interesting)
The thing to remember when hearing about all this "austerity" in Europe is that no country in Europe has tried real austerity [battleswarmblog.com].*
Real austerity is cutting spending until outlays match receipts. As the linked chart shows, the overwhelming majority have raised taxes or continued deficit spending. Some have slightly reduced the ratio of deficit spending to GDP and called it "austerity." They're still digging a hole, they're just doing it more slowly.
Politicians are addicted to spending to prop up an unsustainable welfare state. They've seen what the future looks like in Greece and they still refuse to stop spending. And the current government of the United States is right there digging with them.
Austerity hasn't been tried and failed. It's been declared difficult and left untried.
(*with the possible exception of Estonia and one or two other small countries)
Re:Does High Public Debt Consistently Stifle growt (Score:5, Interesting)
The creation of the USA also had it's problems, because the states were so different. e.g. A civil war due to differences in economies in the south and the north, one symptom of which was the positive and negative views of slavery.
But would you be better off now if you'd remained independent states?
And what of the people who thought the collapse of the US was inevitable?