I wrote before about the faulty analysis by two Harvard economists Carmen Reinhart and Kenneth Rogoff that asserted that when the debt-to-GDP ratio reached a critical point of 90% in a country, the rate of economic growth took a nose-dive and went into negative territory. This analysis was used to spook policymakers, especially in the US and Europe, that bringing deficits under control was the most urgent priority, and that taking measures to stimulate growth and create jobs was the wrong approach. Governments went on an austerity spree, resulting in many people being thrown out of work and social services cut, casuing immense hardship.
Needless to say, members of the oligarchy who want the government to cut spending and use the savings to give tax cuts to the wealthy were thrilled. Pete Petersen is a billionaire who has spent vast sums of his money to push for cuts in earned benefits programs like Social Security, Medicare, and Medicaid and he has become a major figure in advancing this agenda. He seized upon this study as evidence of the rightness of his position.
I thought he was just opportunistically seizing upon it because it suited his purposes. But it turns out that there are close links between Petersen and the two economists. This article looks at Petersen’s large role in the debate and his ties with them.
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.
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.)
The excellent documentary Inside Job that I reviewed here highlighted the problem of academic economists who give a cover of respectability to the operations of the big financial institutions by treating their shady operations as if they were legitimate, thus helping to set the stage for the financial meltdown in 2008. Reinhart and Rogoff look like another example of the unhealthy closeness between academics and big financial interests.
Stephen Colbert devoted quite a bit of time to examine the Reinhart-Rogoff debacle. He clearly shows how their faulty analysis was used by politicians in Europe and the US to push the oligarchy’s agenda. He is accurate in his analysis while being bitingly funny. It is one of his best bits.
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Colbert also interviewed graduate student Thomas Herndon of the University of Massachusetts, Amherst who was the one who found all the flaws in the analysis. Herndon explained how it came about.
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(These clips appeared on April 23, 2013. To get suggestions on how to view clips of The Daily Show and The Colbert Report outside the US, please see this earlier post.)
It was interesting that when other economists who were not able to replicate the results of Reinhart and Rogoff asked to see the spreadsheets that contained their analysis, their requests were turned down. But when Herndon, who was enrolled in a course that required students to do a term paper that replicated other people’s papers, also failed in this task and asked for access, they granted it to him. Perhaps they felt that a mere graduate student was no threat to them. This whole episode illustrates the importance of transparency in academic work. You have to give other people enough information to enable them to check your work.
What I learned that was new from the Colbert segment was that the Reinhart-Rogoff paper was never subjected to peer-review. It was what is called a ‘working paper’, circulated among peers and not published in a journal. Why would such an unchecked document have such clout? Because it said what powerful people wanted to hear.
Will this revelation change anything? I don’t think so. When you have the oligarchy and its media lackeys and servants in the political and academic classes strongly pushing an agenda, they do not let facts get in the way. Reinhart and Rogoff were useful to the oligarchy in getting this train going. Now that it is barreling along, their shoddy work will be ignored and new reasons will be concocted to justify the same policies.
And you can be sure that Reinhart and Rogoff, like all the academic economists who enabled the big financial institutions to swindle so many people, will continue to be treated like credible experts and continue to prosper. They may be scorned in private by their peers but they will continue to be interviewed by the media, appear at quasi-political events, and be trotted out as experts when needed. If you have a good academic pedigree and say things that are pleasing to the ears of the powers that be, you can do no wrong, just like the way that none of the major players in the financial debacle have faced even the remotest threat of going to jail for their role in the many frauds. That’s how this corrupt system works.
If Petersen and his peers are so concerned about the deficit I would think they’d be prepared to help pay it down with a slight increase in top marginal tax rates.
Oh. Right. Never mind…
Sorry. I’m a little stupid before my morning coffee…
That’s how this corrupt system works.
But for how long?
Reinhart and Rogoff have been discredited. They’ve done way more than needed to discredit their paper.
Which brings up the central question again. How high can the public national debt go before countries run into trouble?
You can’t get an answer from Reinhart and Rogoff.
The articles I read included other studies that had similar findings, including one from the IMF. A lot of people bring up Japan as an example of a country with 200% public debt. Japan hit the wall decades ago and never got up again.
The available data is that above 100% the national debt seems to become a drag on growth. But the effect isn’t usually all that large. We won’t know until someone actually does a competent study and publishes it.
Until the revolution. I give it twenty more years. Maybe thirty. I would say less, but the oligarchy has become very good at quelling and distracting the public. This will make things all the more violent when the system finally breaks down.
This was meant to be in reply to Pierce at #2.
The articles I read included other studies that had similar findings, including one from the IMF. A lot of people bring up Japan as an example of a country with 200% public debt. Japan hit the wall decades ago and never got up again.
So do any of these studies say that raising taxes to pay down debt would be good for a debt-ridden country’s economy?
I expect to see the two of them as possible candidates for the post of Secretary of the Treasury in a future Republican presidency. And no, I don’t expect a revolution. Institutions are sticky, they persist for a long time, a really long time.
Reinhart and Rogoff have been discredited. They’ve done way more than needed to discredit their paper.
R&R might have saved their academic reputations by having their own grad students check the details, then publishing their own corrections/retractions. This happens from time to time in my line of work (math), in which you can be pretty sure that somebody will find the errors when they try to use the putative result. Of course R&R’s failure to use a standard statistical package to work with their data is a lapse of competence--assuming that they used their Excel kludge in good faith. Their ethical position, given the Petersen connection, is probably unsalvageable.
The articles I read included other studies that had similar findings, including one from the IMF. A lot of people bring up Japan as an example of a country with 200% public debt. Japan hit the wall decades ago and never got up again.
Paul Krugman’s blog at the NYTimes gives a nuanced discussion--accessible to non-economists--of the macroeconomics in the IMF papers, as well as Japan then and Japan now. Too long to summarize and the discussion continues, but in the debt vs. growth correlation it’s unclear in which direction the causality goes.
@raven:
Actually, the data doesn’t say that. It only says there is a correlation between higher debt and slower growth, but it doesn’t say whether the debt causes the slower growth, or whether the slower growth causes the higher debt (or whether a third factor causes both). In fact, there is some research that, while not conclusive, suggests that more of the causality runs from slow growth to more debt than the other way around.
Why wait for a Republican president? The one we have now is proceeding in the same direction.
I don’t know. Not having read anything but summaries.
From what I can tell, no one knows. Including all the economists.
I wouldn’t trust the IMF too much either.
We are really at the stage where everyone is guessing and pretending to know. This is an important area and really needs people to do a lot more research.
I agree; consider it deleted.
seriously. I probably think about when the revolution’s coming once or twice a day, as I try to figure out how I’m goig to raise the money for the rent on Wednesday. I can’t be the only one thinking it.
Fortunately for them, I’m also more or less a pacifist, so as much as I might have the occasional dream about deciding who’s first against the wall, it’s deeply unlikely I’d even stand by and let it happen, let alone do it.
Sigh. Sometimes it sucks have a moral sense in a world where the oligarchs have none.
Who am I kidding? It sucks all the time.
It would be interesting to investigate and write the story of the articles/books that have been most used, misused, and abused by the Right over the past several decades. Some are probably decent science that’s been misinterpreted and misrepresented, some deeply flawed science, and many junk or pseudoscience.
I was just reading this review of Pinker’s book. It probably doesn’t qualify as one of the most significant ideological works, but it did remind me of the influence of I>The Bell Curve. The vervet toy study is also just one of many, but stands out for its sheer ludicrousness -- anyone citing it positively is instantly revealed as an ideologically driven hack.
I recall an article cited by many HMO cheerleaders about doctors prescribing procedures that would earn them money, but can’t remember the authors or other details. There seem to be similar works about AGW, sustainable energy or agriculture, unions, personal debt, abortion, homosexuality, religion, Islam, “insurgencies,” and other subjects.