How a student took on eminent economists on debt issue - and won

[ShcShc11 0]

http://www.reuters.com/article/2013/04/18/us-global-economy-debt-herndon-idUSBRE93H0CV20130418


Two big economists who argued that debt surpassing 90% of GDP would make a country impossible to grow economically has been proven wrong (with glaring mathematical errors).

The same research paper has been used by Western countries to justify austerity policies (including the infamous "reducing debt will make the economy grow in a zero-bound economy by raising market confidence").

So not only was it wrong contextually (The 2008 crisis is in no way similar to 1970), but had basic mathematical assumptions wrong.

The intellectual edifice of austerity economics rested on these academic papers


Cheers! Shc



p-s:
for anyone who wants to read R-R's (now debunked) research paper:
http://www.nber.org/papers/w15639.pdf

[yoink 321]

One of the things that sticks with me from secondary school is the phrase 'show you working' on every exam I ever took.

It's interesting that it takes so long to pick up errors like this on such an important document!

[kelpdiver 2]

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Reinhart and Rogoff have admitted to a "coding error" in the spreadsheet that meant some countries were omitted from their calculations. But the economists denied they selectively omitted data or that they used a questionable methodology.

In hard sciences, no one would buy that story for long. But economics is one of the softest of social sciences with regards to academics fucking up the math, so maybe the error was genuine. Or maybe it was no different than Arming America.

Given the policy implications, and their refusal to yield on the conclusion, maybe it's time for the review by the University. It's at the very best an embarrassment for Harvard, like the first time the NYT got caught with lying reporters.

[kallend 2,151]

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One of the things that sticks with me from secondary school is the phrase 'show you working' on every exam I ever took.

It's interesting that it takes so long to pick up errors like this on such an important document!

They don't call it "dismal science" for nothing.

...

The only sure way to survive a canopy collision is not to have one.

[ShcShc11 0]

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Until other countries decide to stop lending them money.

This is a dangerous line of thought because there isin't any signs where people would "stop lending" to the U.S.

In fact, people are willing to pay the U.S extra cash for the Gov to keep their money. (See Bloomberg 10 years U.S bond).

I don't know any banks who are willing to give me money if I borrowed money from them.

...
Its as if you're telling me we should ban people from using water because drinking water might "theoretically" dry out if we use it too much.

Its possible, but there are no signs of that as of yet. And if there are no signs then why induce unnecessary and self-inflicting suffering to millions of people in the name of paranoia.


Cheers!
Shc

[ShcShc11 0]

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The Euro isn't suitable with all the financial problems going on with the PIIGS.

A little off-topic but the problem with the Euro is the fundamentals. Europe is essentially working as a country of the 1930s with gold-standard.

Countries are unable to control their currency hence a country like Spain is 30% at a disadvantage in export industry while Germany is 15% at an advantage in export industry.

To solve it, there needs to be federal transfers (like how New York would give money to Texas if Texas was in debt), Excpet Germany wants none of it.

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). I view that like a credit card transfer from a high rate card to a lower rate card. But, just because you did that and your payments dropped you don't run out and buy a new big screen TV because you've got extra room in your budget.

1) Your credit card will never pay you to lend their money while we actually profit through interest by taking other people's money (which is a rare phenomenon) and we are currently refusing to take free money

2) This isin't a TV. More like you're refusing to send your kids to College because of some unfounded fears of debt.

In fact, the people who suffer the most because of our paranoia are people age 20-35. The longer they do not work or work for a "lesser" job, the less money they will produce over their lifetime and affecting long-term growths.


3) With the 2008-2013 experience, trying to tackle debt brought in more debt. So even in the most basic fiscal sense, it doesn't work. There was a multiplier of 1.7$ according to IMF. See Britain's experience 2009-2013 as well.




Cheers!
Shc

[kallend 2,151]

from the NYT:

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.

The conservatives latched on to this just like they latched on to Iraq's phony WMDs as an excuse for doing what they wanted.

...

The only sure way to survive a canopy collision is not to have one.