Austerity. Lies, Damned Lies and Statitstics.

In 2010, Professor Carmen Reinhart and the former chief economist of the International Monetary Fund, Ken Rogoff published a research paper entitled Growth in a Time of Debt.

This was immediately jumped on as proof that Governments should cut back on spending of any kind and led to a new Buzz word Austerity.

Although the study was highly praised their were more than a few dissenters.

..the truth is that Reinhart-Rogoff faced substantial criticism from the start, and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around, with poor economic performance leading to high debt. Indeed, that’s obviously the case for Japan, which went deep into debt only after its growth collapsed in the early 1990s.

The Excel Depression

Other Economists tried to replicate the studies findings, but could not get the numbers to work.

Fast forward to 2013.

This week, economists have been astonished to find that a famous academic paper often used to make the case for austerity cuts contains major errors. Another surprise is that the mistakes, by two eminent Harvard professors, were spotted by a student doing his homework.

Reinhart, Rogoff... and Herndon: The student who caught out the profs

What Hendon found was an Exel calculating error, and worse, the omission of some data completely.

he'd spotted a basic error in the spreadsheet. The Harvard professors had accidentally only included 15 of the 20 countries under analysis in their key calculation (of average GDP growth in countries with high public debt). Australia, Austria, Belgium, Canada and Denmark were missing.
Herndon and his professors found other issues with Growth in a Time of Debt, which had an even bigger impact on the famous result. The first was the fact that for some countries, some data was missing altogether.

Reinhart, Rogoff... and Herndon: The student who caught out the profs

Reinhart and Rogoff have strong ties to Pete Peterson.

The Campaign to Fix the Debt is the latest incarnation of a decades-long effort by former Nixon man turned Wall Street billionaire Pete Peterson to slash earned benefit programs such as Social Security and Medicare under the guise of fixing the nation's "debt problem." Through this special report -- and in partnership with The Nation magazine -- the Center for Media and Democracy exposes the funding, the leaders, the partner groups, and phony state "chapters" of this astroturf supergroup," whose goal is to achieve a grand bargain on austerity by July 4, 2013.

Fix the Debt Astroturf Supergroup

Were the errors in the study an accident? Or were they being economic with the data?

Here is what the pair have to say.

"We are grateful to Herndon et al. for the careful attention to our original Growth in a Time of Debt AER paper and for pointing out an important correction to Figure 2 of that paper. It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful. We will redouble our efforts to avoid such errors in the future. We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."

Reinhart, Rogoff... and Herndon: The student who caught out the profs

So do the found problems with the study invalidate it? Or does it really make no difference?

What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 percent of G.D.P. But “economic research” showed no such thing; a couple of economists made that assertion, while many others disagreed. Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

The Excel Depression

The thing that always bothers me about Republicans claiming to be "fiscal conservatives" is that their only solution to all economic problems is to cut spending. They never even consider the fact that some expenses are absolutely necessary and have to be paid. They never even think of increasing revenues to make ends meet. the whole idea is totally anathema to them.

If I were living by just getting by and suddenly the electric bill went up exponentially, I could cut back on some things to make up the difference but, at some point, I can't cut out the roof over my head, the food I need to sustain myself or the water I need to drink and bathe myself. If cutting everything means cutting out necessities, I would have to bite the bullet and go out and look for a second job or try to get a handout from friends of the government if necessary to make ends meet. I could try borrowing on credit but, in the end, that would just add one more bill I couldn't afford to pay at the end of the month.

Republicans would rather just run up the debt to new record highs than ever think of increasing revenues through new or increased taxes. Last I checked, running up credit card debt isn't anybody's idea of fiscal responsibility. If Republicans want to win back the title of "fiscal responsibility", they need to dump the "no new taxes" branch of their party and face reality.

Regan raised taxes several times after he got his initial tax cut through. He recognized that increased spending requires increases in revenue to support it and was willing to compromise with the opposition party to try to keep the country's books strait. If only his reputation was based more on reality, maybe this country wouldn't be in the mess its in today.

reply to post by FortAnthem


Well austerity works very well if done right. In the US if we were to end welfare benefits and slash the military we could probably afford to cut taxes even more while still paying off the debt.

reply to post by Hopechest


If you end welfare benefits, you would probably need to deploy the military INSIDE the country. I wouldn't go that far. Some people really don't have the ability to support themselves and some people need a hand up in hard times. If you have to cut, cut smart, not heartless.

Although, I'm all for slashing military spending. There's no damn reason we need to have all those wars going on or have bases in almost every other country on the planet. All we need is enough to protect our own borders and a Navy to look after our interests on the high seas.

reply to post by FortAnthem


And that is the problem. The Reagan/Thatcher idea of Fiscal Conservatism.

Roughly translated, it means "I've got mine, you get your own. But before you do, give me some of yours."

Cut everything and don't spend. Historically this is the opposite of what worked. Yet the study in to OP has been touted as proof that Austerity works.

Now. Not only has the Math been shown to be wrong, but, there are questions as to the validity of the whole study.

Invest in the infrastructure and put the country back to work. It will expand the Tax paying base as more will be working, cut down on Welfare as more will be working and raise the average wage because more will be working.

Of course Fiscal Conservatives don't like this because with a smaller labour pool to leach off, their profits go down, as the employee can look for better wages elsewhere.

(p.s Thanks for joining the thread. It was kinda lonley. )

reply to post by Hopechest


Austerity has never worked.

Can you give a historical example?

(Thanks as well for joining the thread. As I told FortAnthem, I was getting lonely )

Originally posted by Hopechest
reply to post by FortAnthem

 

Well austerity works very well if done right. In the US if we were to end welfare benefits and slash the military we could probably afford to cut taxes even more while still paying off the debt.

you obviously have no understanding of math or evidence do you?
grease as an example, or spain?

show me one single example where GDP has grown after an austterity policy was enacted!!!!

you have been feed propaganda and now spurt it freely without proof of your view point.

show me how reducing the amount of the medium of exchange (money) in circulation can increase GDP

as some one who studies complex systems for fun, i would love for you to explain to me your premise

xploder

reply to post by BritofTexas


Yea they see how often their ideas are really self centered. Give them tax cuts, tax abatements, forms of subsidizes, government contracts, regulation lite ect ect and they will still find some reason not to see pay raises as a means to stimulate the economy.

reply to post by BritofTexas


The truth is though the US spending looks more like a fat cow. It would not hurt to cut 2 or 3 hundred pounds.

Originally posted by BritofTexas
reply to post by FortAnthem

 

And that is the problem. The Reagan/Thatcher idea of Fiscal Conservatism.

Roughly translated, it means "I've got mine, you get your own. But before you do, give me some of yours."

What? This isn't fiscal conservatism, it's the 99% socialism the current president is pushing.

Originally posted by Logarock
reply to post by BritofTexas

 

The truth is though the US spending looks more like a fat cow. It would not hurt to cut 2 or 3 hundred pounds.

Absolutely.

However, oversight in the price paid for Hammers, Muffins, Lawn cutting etc is different to cutting Medicaid, Teachers, Refuge collectors etc.

reply to post by burdman30ott6


What entities formally owned by the state has the current Admin sold off?

Gas, Electric, Water, Steel, all owned by the country and sold by Thatcherism.

reply to post by BritofTexas


The problem isn't about spending too much or spending to little. It is about not determining what spending is necessary and unnecessary. It is a problem of using money effectively and efficiently.

you can't just run in and spend more expecting things to improve. for all you know the problem is not spending it is that the method being used is not getting results. Throwing money at it will not fix it.

cutting does not help either as there is necessary spending. all you need to do is figure out how much spending you need to get the job done and then cut the rest.



We need to implement lean thinking into america and lean does not mean we cut mind you.

Originally posted by burdman30ott6

Originally posted by BritofTexas
reply to post by FortAnthem

 

And that is the problem. The Reagan/Thatcher idea of Fiscal Conservatism.

Roughly translated, it means "I've got mine, you get your own. But before you do, give me some of yours."

What? This isn't fiscal conservatism, it's the 99% socialism the current president is pushing.

current socialism doesnt take the traditional form you are expecting from your education,
socialism today is in the form of tax cuts exclusively for the rich,
subsidies for people who "export jobs to china"

for the average person its make it or fail on your merits,
for corporations it, gamble with other peoples money and if you fail we will give you more,

in short the only socialism going on is for the 1%.



the "too big to fail" should be called too socialistic to continue,
without government subsidies (see taxes for you and me) they would not show a profit in most cases.

and if these 1%ers were patriotic they wouldnt be paying less taxes than they used too,


its acually pretty simple math,
they pay less taxes and get more had outs,

so if you take a look at the actual evidence,
the truth is

capitalism for the 99% and socialism for the 1%

you want more?

xploder

reply to post by burdman30ott6


so lets look for "where" the economic imbalence comes from shall we,

structural deficits were DESIGNED into the economy as tax cuts for the rich,
while the burden of paying for the tax cuts was pushed onto the 99%

socialistic isnt it?


and the fix in your mind isnt to address the structural issue,
it is to cut the money in circulation for the people who are actually operating in a capitalistic market
the 99%

so giving money to gambling banks at 0.0025% interest is traditionally called socialism,
but in your view this is capatialism?

and allowing people to have enough money (medium for the exchange of goods and services) to allow the economy to buy and sell of the "demand" of those goods and serives (free market economics) is socialistic

you have inverted the truth and tryed to sell socialism as capitalism and capitalism as socialism

the rich used to pay 70-80% of their earnings now they pay


and you wioth a straight face can say this is not economic "welfare" for the richest while calling for cuts on the poorest among you?

i guess this cartoon sums it up nicely\


xploder

reply to post by XPLodER


I see... so when we completely redefine concepts like socialism and communism, then we can accuse more convenient groups of practicing them? I'm not completely in difference with your words, believe it or not. Hell, I've been saying for quite a while now that GW Bush was a Kennedy liberal and the argument that the GOP has shifted further to the right over the past 2 decades can only exist in a world where the definition of right & left have been completely flip-flopped.

Oh, and not to pee in your Wheaties, but you picked a bad graphic to hang your anti-conservative rhetoric on. GE and Verison have paid no taxes under Obama because of Obama's green tax incentive programs. Also, both GE and Verizon have been massive Obama supporters, with Jeff Immelt (head of GE) even being a trusted Obama advisor (all while paying net zero dollars in corp. taxes.) If you're going to rip the GOP, you might want to use the oil industry... oops, scratch that, they were handsome donors to Obama too. Maybe the auto ind... errr. Ooh, I know, mom & pop stores. Those greedy bastards have been on the top of Obama and the Democrats' hit list for awhile now, after decades of not paying their fair shares!

Originally posted by burdman30ott6
reply to post by XPLodER

 

I see... so when we completely redefine concepts like socialism and communism, then we can accuse more convenient groups of practicing them?

look i can show that the 1% is getting all the traditional benefits of what most people call the benefits of socialism,
unaccountability, uneven playing feild, a non market economy of scale, protection from the state.

and i can show that the 99% still operates under a capitalistic "if you fail model"

I'm not completely in difference with your words, believe it or not. Hell, I've been saying for quite a while now that GW Bush was a Kennedy liberal and the argument that the GOP has shifted further to the right over the past 2 decades can only exist in a world where the definition of right & left have been completely flip-flopped.

left and right decided to get together to funk every one else over,
there is no difference under a left or right government,

the banks still operate on a socialise losses,
privatise gains model,

and the public under a free market "your free to fail" model ie foreclosure model
(capitalism and free market)

xploder

reply to post by XPLodER


Again, I can't disagree. When Bush, McCain, and Obama supported TARP the nation went into a viscious hybrid economic model. Risk and losses were socialized, profits were capitalized and privatized. I honestly don't know in what ass end of dimentia those idiots believed things would work out for the best. I'm simply saying that the finger pointing at the GOP is disingenuous. This admin has been every bit as much in-bed with corporate interests as previous admins were, moreso when you consider the greivous damage he has done to the middle class along the way.

For the record, I'm a cut to the bone supporter. That includes everything from welfare to the military. Heartless? Dunno... personally I find it heartless to expect those of us working to feed, house, and clothe our families to further tighten belts to contribute more to the feeding of the have-nots. I'm kinda sick and tired of watching people making half what I make do twice as much with their funds thanks to all the government subsidies, hand outs, safety nets, etc. The time has come for that gravy train to derail and never be resuscitated.

reply to post by burdman30ott6

Oh, and not to pee in your Wheaties, but you picked a bad graphic to hang your anti-conservative rhetoric on. GE and Verison have paid no taxes under Obama because of Obama's green tax incentive programs. Also, both GE and Verizon have been massive Obama supporters, with Jeff Immelt (head of GE) even being a trusted Obama advisor (all while paying net zero dollars in corp. taxes.) If you're going to rip the GOP, you might want to use the oil industry... oops, scratch that, they were handsome donors to Obama too. Maybe the auto ind... errr. Ooh, I know, mom & pop stores. Those greedy bastards have been on the top of Obama and the Democrats' hit list for awhile now, after decades of not paying their fair shares!

your kinda making my point here, (and i dont support obama or the fake R or fake D)

these companies get advantages that distort the true nature of a free market.
and it dos not matter if R or D is in the white house.

the profits are privatised and the losses socialised for the 1%,

taxes are "avoided" for the 1%

dont get lost in the R or the D will fix it,
they both benifit from it, why would they fix it?

should one class of people be allowed to use offshore tax havens?
should one class of people be allowed to never fail?

what would happen if every one played by these same rules?

no roads?

no america?

xploder

reply to post by burdman30ott6

For the record, I'm a cut to the bone supporter. That includes everything from welfare to the military. Heartless? Dunno...

when money and greed are at play in an industry you HAVE to regulate it or you will end up with a global financial crisis,

see the gutting of glass stegal as an example, and the 2008 financial crash and subsequent bailouts as a cause and effect.

xploder