Austerity Guru Voodoo
So it turns out that the economists who warned against a Keynesian turn may have made some simple errors.
Don't know if you know the names Carmen Reinhart and Ken Rogoff. A few years ago they wrote a book arguing that countries with a debt to GDP ratio above 90 percent experienced slow growth in recovering from a crisis. Lots of impressive data.
Since Keynesianism means counter-cyclical debt, R & R were really saying that stimulus spending and so forth retarded growth. As such they were constantly cited by both Republicans and centrist deficit hawks. Their influence in the last three years has been pretty enormous.
Well. Now come three economists from UMass who have somehow or another been availed of the opportunity to see R & R's very spreadsheets that they used for their calculations and double-check them. And lo and behold, R & R made some basic computational errors. The economist Dean Baker writes:
The most important of these errors was excluding four years of growth data from New Zealand in which it was above the 90 percent debt-to-GDP threshold. When these four years are added in, the average growth rate in New Zealand for its high debt years was 2.6 percent, compared to the -7.6 percent that R&R had entered in their calculation.
Since R&R country weight their data (each country's growth rate has the same weight), and there are only seven countries that cross into the high debt region, correcting this one mistake alone adds 1.5 percentage points to the average growth rate for the high debt countries. This eliminates most of the falloff in growth that R&R find from high debt levels. (HAP find several other important errors in the R&R paper, however the missing New Zealand years are the biggest part of the story.)
That's a pretty big difference, 2.6 percent to -7.6 percent. No word yet on what R & R have to say in response to this. But it pretty much goes without saying that "experts" will still cite their original work, and they will suffer no loss of status. I mean, we've got dozens of people walking around this town with Iraqi (and American) blood on their hands who are paying no price for their deeds, so these two sure won't for a little extra unemployment.