Error in Austerity Approach! Math in a Time of Excel: Economists' Error Undermines Influential Paper

[RKP5637]

This is a big deal! The math is off!

http://www.dailyfinance.com/on/reinhart-rogoff-debt-GDP-spreadsheet-error/?icid=maing-grid10%7Chtmlws-main-bb%7Cdl34%7Csec1_lnk3%26pLid%3D301875

Carmen Reinhart and Kenneth Rogoff are at the top of the economics profession, with influence inside and outside the academy. Both have worked in senior positions at the International Monetary Fund; both have chairs at Harvard. Rogoff was a chess grandmaster in his mid-twenties, before giving up the royal game to focus on economics. "I'm not a great mathematician," he told the Financial Times, explaining the relation between his interests, "but game theory really clicked for me." This method of analysis offers insight into government behavior during a debt crisis, Rogoff suggested: "One of the reasons that Carmen Reinhart and I hit it off, is that we are both incredibly cynical about governments."

Now the most influential product of their collaboration – an argument widely considered to have helped lay the basis for the West's recent shift toward austerity economics – has been shown to rest in large part on a simple error, a spreadsheet coding mistake discovered by a 28 year-old graduate student at the University of Massachusetts Amherst named Thomas Herndon.

But the fatal blow came when Herndon attempted to replicate the eminent professors' findings for a class assignment. He thought he would arrive at the same results but offer a different explanatory conclusion; instead he found that the numbers weren't right. When Reinhart and Rogoff provided their data spreadsheet, Herndon saw why: In the words of a paper he wrote with his teachers, "a coding error in the RR working spreadsheet entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis." This spreadsheet error "is responsible for a -0.3 percentage-point error in RR's published average real GDP growth in the highest public debt/GDP category." So that slightly negative average growth rate for countries with debt-to-GDP ratios was illusory, the product of an Excel error; 2.2 percent is the actual GDP growth rate for countries above the 90 percent mark.

Herndon's teacher and co-author Michael Ash told Bloomberg that the UMass-Amherst team's new calculations do show "a modest diminishment of growth" in high-debt countries, but not "the stagnation or decline" claimed by Reinhart-Rogoff. The point, in Konczal's summation, is that "there's no magic number out there":
The debt needs to be thought of as a response to the contingent circumstances we find ourselves in, with mass unemployment, a Federal Reserve desperately trying to gain traction at the zero lower bound, and a gap between what we could be producing and what we are. The past guides us, but so far it has failed to provide evidence of an emergency threshold. In fact, it tells us that a larger deficit right now would help us greatly.

[d_r]

1. who uses excel for statistical analyses?

seriously? For a class grade book maybe, but SPSS is bad enough, but excel?

[MannyGoldstein]

2. A peer-reviewed journal?

All involved should be ashamed

[malaise]

3. I know academics who write papers starting with the conclusion desired

Last edited Mon Apr 22, 2013, 10:32 AM - Edit history (1)

by higher ups. They assume fame and promotion and do not give a flying fugg.
Remember not one of the 'peers' demanded the data. I'm betting the vast majority were neo-liberal tools, probably from the business schools because most of the decent economics departments have been shoved into the basement.

[RKP5637]

5. And Koch Brother funding of business schools to promote Koch Brother thinking and

their desired twist for ALL of the country. Look at Kansas ... it's what they want for all of the US ... and this is no joke. They are the seventh and eighth wealthiest individuals on earth and pouring money into their goals.

[malaise]

6. Koch is just one of them

Many departments at universities and colleges are funded by goons with ideological agendas and staffed by more than a few greedy opportunists. Then there are those who go with the flow for an easy life. And let's not forget the RW think tanks

[RKP5637]

7. I forget who uses it as one of their sig. lines ... but I always like it ... "Some days

it's not even worth chewing through the restraints!"

[malaise]

8. Yes indeed

Good one

[Festivito]

4. Perhaps if we repeat the word error, no one will call it fraud.

It only takes between five and ten articles and the meme of error can be set in people's minds.