An Excel flub may blow holes in calls for austerity
Rep. Paul Ryan and others have argued for draconian spending cuts based on a 2010 Harvard study that's now coming under fire as gravely flawed.
What happens when an academic study becomes so widely accepted that it forms the basis for legislative policy prescriptions that can affect an entire country -- and then is later shown to be flawed? We're about to find out.
The recent debate over what to do about the federal deficit was fueled in part by a much-cited 2010 study from respected Harvard economists Ken Rogoff and Carmen Reinhart, who argued that when a country's ratio of debt to gross domestic product reaches 90%, things go very wrong.
According to their research, such countries can expect depressing years of stagflation (slow growth and rising prices). That prompted austerity arguments from Rep. Paul Ryan, a Republican from Wisconsin and former vice-presidential candidate, who urged drastic federal spending cuts.
However, according to new findings from economists at the University of Massachusetts at Amherst, Rogoff and Reinhart's report is not as solid as previously thought.
In their paper, economists Thomas Herndon, Michael Ash and Robert Pollin say coding errors in Excel -- as well as excluded data and unconventional weighting of statistics -- created "serious errors that inaccurately represent the relationship between public debt and GDP growth." With the coding error in Excel, a software program from Microsoft (which owns and publishes moneyNOW, an MSN Money site), five of the countries were excluded in Rogoff and Reinhart's spreadsheet calculations, as explained by Quartz.com.
Reinhart and Rogoff defended their conclusions, writing to Bloomberg in an email that "on a cursory look" the new study also shows growth slowing for nations with high debt levels. "We literally just received this draft comment, and will review it in due course," they wrote.
The new findings may prove to undermine Ryan and other conservatives who have steered the debate on the budget deficit. Ryan's 2013 budget, "The Path to Prosperity: A Blueprint for American Renewal," said the Reinhart and Rogoff study "confirmed that the massive debts of the kind the nation is on track to accumulate are associated with stagflation -- a toxic mix of economic stagnation and rising inflation."
So what did the new paper find when it reworked Reinhart and Rogoff's research?
Countries with debt of more than 90% of GDP grew at an average of 2.2% per year. Reinhart and Rogoff had argued that such countries witnessed a -0.1% decline in GDP on average.
The bottom line? As the Los Angeles Times' Michael Hiltzik writes, if the newest findings hold up, it's a blow to the argument that the country's economic growth depends on cutting the deficit and reducing the national debt.
Just more MSDNC drivel, shilling for the anointed one. At least Greece had someone to stop giving them shovels to bury themselves with. We can print our own shovels, there is no end to the depth we can bury ourselves.
Greece will not be our future, Argentina will, complete economic collapse. Those who do not learn from history are doomed to repeat it.
The problem with stealing prosperity from future generations is things look good all the way up to the end, then it all collapses almost overnight. Note what happened in 2007-2008, a few saw it coming, everyone else ignored the signs.
Do we want to start digging out of this mess at $16 trillion or wait until it's $40 trillion? I guarantee doing it now will be far less painful.
Facts always seem to be lacking in the austerity plans. Show me an example where austerity has worked, and Estonia doesn't count. A real example with a real economy. There aren't any. There are however, many examples of how it doesn't work.
Austerity means lost jobs, lost jobs means more 'entitlement' spending and less payroll/Social Security taxes. Lost jobs means no income to purchase widgets and pay for things. Look all around. Ask Canada how austerity is working out.
Furthermore, borrowing money that will be paid back with cheaper dollars is pure business economics. Frightening how no one is getting any smarter. Just because you say it over and over doesn't make it true.
The problem with figures is they can be manipulated with illogical conclusions! To say that a balanced budget is a worthy goal is fine. Bill Clinton gave us one! He should get some applause!
To blame President Obama for our total debt refuses to acknowledge the unfunded wars and part 5 Medicaid freebies, never financed by the Bush Administration, and endorsed by Paul Ryan himself!
To try to settle a debt by killing jobs, reducing the tax money which our government uses to pay down the debt is illogical, because our population is increasing and more people, if put out of work, will cost more in unemployment benefits than giving them jobs to fix our infrastructure, resulting in their ability to pay more in taxes, and buy more products, spurring manufacturing to build more things!
The rate of return of money given for jobs is more than compensated for, when new products and industries are created, rather than the stagnation of killing government jobs and programs and strangling our economy. Providing seed money for research isn't always 100% successful, but it is always positive overall. One Solyndra loss can be compensated for by one new drug discovery, much to the chagrin of Paul Ryan, who should know this!
Misdirected austerity, aimed at teachers, firemen, police, librarians, and useful government agencies, like the EPOA, FDA, Osha, Consumer Protection, National Parks that create returns based on visitation, are stupid places to cut corners.
The big gorilla standing in the room are tax breaks that give national prosperity away, like the Cayman Island Tax Dodges, that have trillions of dollars hidden from our U.S. Treasury that could cover all losses if Republicans were worthy enough to allow them to be re-regulated. The greed of Wal-Marts and Bain Capital and GE and Monsanto, and on and on and on grant them great wealth, while our nation is held hostage for cuts to our safety nets for those who have been thrown from the bus, with fewer jobs than there are workers to fill the positions.
Our Social Security could be increased for every American, allowing them to spend more and help the economy rebound, if we just increased the cap that only the rich get benefit from. After the lucky folks make one hundred and ten thousand each year, all profits after that don't cost them any more Social Security taxes, while Republicans are screaming about the shortfall decades from now that a simple scratch of that rich entitlement would create!
Republicans lie to cover their lies! Now Paul Ryan has given us a Budget model based upon lies! Will he be willing to adjust his prognosis? Or will he continue to refuse he made a mistake that benefits only the rich and those who support his party?
WIll he be an American and submit that Austerity does not work, as proven in every country that has tried it, or continue to tell the big lie?
What a biased pile of manure of a story. The writer fails to mention key differences between the new Study from Herdon/Ash/Polin and the original study by Reinhart/Rogoff. Each team weighted the statistics they included in their study in different manner (IE ... assigned different levels of importance to statistics on how they will impact an economy). And in the HAP study, they looked at only 20 countries in their model as opposed to the hundreds in the RR study (arguing only those 20 are the most relevant to the current debates). Now, even with HAP playing with the weighting, and reducing the sample set, their results still show what they agreed was a "Modest diminishment of Growth". Instead of -0.1% they got 2.2%.
So keep this straight in your mind. The new study which Liberals love to use as it supports their spend and tax policies, uses far fewer statistics and countries for the model, and, had the weighting of the model adjusted. And even with these tweeks to push it in that more positive direction they STILL got a modest decrease in growth due to high debt levels. And honestly, with China growing at 10-12% in some years, 2.2% growth is pathetic.
So believe either one that you want. The both show decreases in growth due to debt levels, both show estimated growth rates that the politicians use in their arguements for the US are overly optimistic as our debt is certainly slowing growth, and they both show long term, we get screwed, It's just the new study, despite a positive spin, shows we screwed at a slower pace. Oh Joy!
How long do you suppose it's going to take before there's a taxpayer revolt?
Xi Tan Yu
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