17 April 2013

Austerity - Getting the Economics Right

Well, the latest "scandal" among economists is that the research on which austerity policies is predicated has been pretty much completely deflated. That research (claiming to establish that deficits slow economic growth in the longish term) was produced by economists in Cambridge [Carmen Reinhart (Maryland) and Kenneth Rogoff (Harvard)]  and corrected - more like demolished - on reexamination by pinkos from down the Turnpike in Amherst [Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts].* You can find a summary of the debate here.
"They [Herndon/Ash/Pollin] find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result."
And, beyond the pedestrian errors, there is the issue of taking correlation to imply causation. This point is central to the additional commentary here and here and here at Paul Krugman's blog. He concludes his first post by extending the point beyond the economists to the policy-makers who accepted the research without question:
"If true, this is embarrassing and worse for R-R [Reinhart and Rogoff]. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear."
Krugman, though, is being too generous by half, at least, since Rogoff himself peddled the disputed findings in public.  That said, you can find further reflections on the matter of how policy makers and their mouthpieces in the press embraced the Reinhart-Rogoff position by Peter Frase here at Jacobin. The point? This is a technical debate but one with crucially important political implications.
* Please note: This debate speaks highly of social science research insofar as it includes (or ought to) a built in impetus for critical re-assessment of findings and criticism of both results and policies premised upon them.

P.S.: More discussion here regarding the policy implications. One matter I would like to note is that many mainstream economists seem to have simply accepted the Reinhart.Rogoff results. It is plausible to suggest that Herndon/Ash/Pollin stand outside the mainstream - and hence represent an example of the importance of intellectual pluralism.

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