

Grad Student Who Shook Global Austerity Movement - sreeix
http://nymag.com/daily/intelligencer/2013/04/grad-student-who-shook-global-austerity-movement.html

======
dade_
This story is a lesson on confirmation bias:

Professors that immediately decide that the student is wrong, and must be
convinced otherwise.

The spreadsheet financial analysis that provided the expected results and
therefore never checked for errors.

A single study that gave economists, and clearly an awful lot of politicians,
the confirmation they needed to strengthen their resolve in the face of
opposition.

~~~
fnordfnordfnord
_A single study that gave economists, and clearly an awful lot of politicians,
the confirmation they needed to strengthen their resolve in the face of
opposition._

Confirmation bias, at least in the politicians' cases, it just provided them
with extra confidence to proceed with their agenda. Well, it may have also
lent them some legitimacy.

~~~
fyi80
Lent, indeed. And now they default on those loans.

------
iwwr
So what is the alternative to lowering "consistently high public debt"?
Monetize it? Default on it?

Debt in itself is not a problem if the growth rate is the same or decreasing
as a proportion of the economy. At the current rate, some obligations would
have to be forfeited, either to the direct creditors, or to those promised
social services. Strangling the economy further with high taxes only makes the
problem worse.

I think most of the damage from so-called "austerity" has been decisions taken
with little warning and at the very last possible moment.

~~~
knowtheory
Depends what your borrowing situation is.

During the financial crisis, irrespective of our level of public debt, the
bond rates were actually such, that people were basically PAYING the federal
government to borrow money.

Instead, we had politicians on an austerity tear, and ranting about how we
needed to reduce the national debt. We could have borrowed a big chunk of
money, earned the interest off of it, and then just turned around and paid
back the principle.

If Republicans actually believed in running the Government like a business
(they don't, but they say it), it's almost criminal that we didn't take
advantage of the opportunity.

~~~
talmand
Yes they say it, but the opposing party opposes it. The Democrats most
certainly do not wish to run the government as business but as more of a piggy
bank that someone else fills each night. Therefore, even if the Republicans
wanted to do such a thing they likely cannot.

But, as you say, they haven't been very serious about such an idea for quite a
while.

~~~
knowtheory
That's a pretty unsophisticated understanding of liberal and/or Democratic
politics and policies.

The broader point is that _nobody_ actually wants to run the Government like a
business (nor is that necessarily a good idea in aggregate). But even at the
points where it makes sense for the government to behave in a business-like
manner (and there are some), we do not and cannot get our shit together to do
so.

~~~
talmand
Not only is it unsophisticated, it's also a huge over-generalization. Maybe I
should have pointed out I was responding in kind.

Although I would say my opinion on the Democrat party is that it is not run by
liberals just as the Republican party is not run by conservatives.

As for the rest, I agree.

------
Nursie
Austerity is something the government should be practicing in the good times,
instead of blowing everything on profligate rubbish. That way when the
downturn comes, you're not already saddled with masses of debt and a vast
public system that depends upon it.

IMHO, of course, I am am not an economist. Not that they seem to agree on much
either.

~~~
AutoCorrect
yep, sustainability is not just for the biosphere, it's for the econosphere
too. It's great to provide big benefits to everyone, but then when things turn
down, we get the mess we are in today.

------
louischatriot
Impressive that his two professors took 1 whole month to finally believe him,
even though the article gives the impression that the error was obvious (a bad
formula).

Summary of the article: [http://tldr.io/tldrs/5171189e1a18dac804000170/meet-
the-28-ye...](http://tldr.io/tldrs/5171189e1a18dac804000170/meet-the-28-year-
old-grad-student-who-just-shook-the-global-austerity-movement)

~~~
thomasz
It sounds like they grilled him until they got co-authorship for a paper with
a with an uber high impact factor.

~~~
fyi80
Is it good for your career to get high impact factor for a paper that admits
that your most famous work was a fraud that destroyed the economy of several
nations?

~~~
thomasz
His co-authors are not those who fucked up the original study.

------
laughfactory
The grad student didn't "shake" the global austerity movement. He merely
pointed out a minor error in a formula that didn't significantly affect the
outcomes of the model. This isn't big news.

Besides, to attack austerity as a "bad idea" is like attacking having a budget
for your own home income and expenses. Individuals and families are well-
acquainted with the reality that you cannot indefinitely spend more than you
bring in. It's idiotic to assume that a government can simply suspend this
assumption and not have any consequences. Perhaps a government has a bigger
"credit card," but in the end all debts must be paid or defaulted on--just
like in the real world you and I live in. It is absolutely essential for a
countries long-term economic well-being to keep expenses within the
neighborhood of revenue. Yet the far-left seems to persist with the belief
that money literally grows on trees, and that surely there's enough to be able
to afford every desirable program. They're totally out-of-touch with reality.
So they poo-poo the "austerity" movement as just raining on their parade. Just
like the Greeks who had the nerve as their country was going down the drain to
strike, wave signs around, and complain when the Piper comes to claim his due.

Last point. What we're calling "austerity" really isn't. It's a political
fabrication which, in the case of the US (and I suspect many countries), means
that the politicians have agreed amongst themselves to merely not increase the
rate of spending as much as they had initially planned on. This is what they
call "savings" and "cutting the deficit." I think people living in the real
world would agree that such a definition is ridiculous. How can you be cutting
the deficit when you're merely reducing the rate of the GROWTH in spending,
not actually reducing the amount of spending. Does that make sense? So if they
had planned to increase spending by 7% across the board, they call it "cutting
the deficit" if they decide to only increase spending by 3%. Let's be real.
Under Obama's recently released budget the US will hit 24 TRILLION in debt in
the next decade. That's nearly DOUBLE what we're at today. Where are these
horrible, painful cuts that are supposed to be reducing the deficit? Exactly.
They're all wrapped up in some political hyperbole that allows the politicians
on the right and left to spar without actually doing anything to make our
nation more solvent.

------
paulsutter
The solution is for authors to routinely publish the datasets behind their
research.

Unlikely though, for the same reason that Herndon didn't contact Reinhart and
Rogoff about the error. Academics are even more interested in getting
attention than they are in getting to the truth.

Which is why this episode is more likely to discourage publication of data
than encourage it.

~~~
michaelwww
> Academics are even more interested in getting attention than they are in
> getting to the truth.

untrue and insulting

> Which is why this episode is more likely to discourage publication of data
> than encourage it.

Why would you expect this? It seems more likely that data and the software
used to produce results will have to be open sourced and verifiable in the
future.

------
fnordfnordfnord
_"I checked my e-mail, and saw that I had received a reply from Carmen
Reinhart," he says. "She said she didn't have time to look into my query, but
that here was the data, and I should feel free to publish whatever results I
found."_

Last time that'll happen for a while.

------
xijuan
Here is Andrew Gelman's comment on this issue:

[http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-
rogo...](http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogoff-i-
think-its-best-to-admit-your-errors-and-go-on-from-there/)

------
Riesling
I think it is about time to create an open and standardized publishing model
for academic papers, which also includes the datasets and the code used for
all calculations.

------
confluence
You would be surprised how many things that exist around you are based around
faulty models based on incorrect data - that's the problem with higher
dimensional fields like economics and finance - it's hard to separate cause
and effect and extract principal signals for an arbitrary phenomena, without
getting bogged down in correlation hell.

You have been warned - the further fields get from pure mathematics and
isolated systems - the faultier they must become, and the harder they are to
verify (although in this case - it was trivially easy - but then again IIRC
the paper wasn't published in a peer-reviewed journal).

Hence, before accepting X new fact in higher dimensional fields - do your own
verification first.

Also - who on earth thought austerity was ever a good idea?

If you can afford to borrow - and consumer spending is dead - bring it back.
The US should load up on as much debt as possible - I'd love to get cash at a
1-2% interest rate - it's a freaking awesome deal.

~~~
ctdonath
_who on earth thought austerity was ever a good idea?_

Lots of sensible people.

The point of austerity is to stop spending money you don't have on stuff which
does not clearly contribute to economic improvement. Every increase in debt
must be balanced with a reasonable objective expectation that it will
facilitate specific & significant increase in revenue greater than the debt
and servicing thereof. If you've spent your paycheck, you buy rice & beans
cooked at home instead of swiping the credit card on an expensive dinner out;
if your car is out of gas, you borrow just enough to buy just enough get to
work (or try walking/biking if at all sensible) instead of filling it up and
heading out for an impromptu road trip.

National economics is of course complex and subtle, but the point is basic
principles apply: if you don't have the money, don't borrow any unless not
doing so will cost you much more, and unless you have a clear plan to pay it
off. The Ryan plan (and plans of other austerity backers) is "stop spending
money where it won't pay off", as in stop paying people to not work when they
could, stop funding obscure/pointless/offensive projects/research/art which
wastes money, stop hoping that prolific spending will change for the good.

Wealth is not durable. Spending $1,000,000 to create a $50,000/year job is
stupid (and yes, there's a lot of that going on).

~~~
rtfeldman
It's actually not sensible to assume that basic principles apply to things
that are complex and subtle.

For example, a basic principle for centuries was that metal is too heavy to
float, therefore it was clearly too heavy to fly. Simple, basic, and
completely wrong - see for example today's airplanes.

This is not to say that the opponents of austerity must have it all figured
out, but rather that history has not been kind to ideas of the form "this
complex system must surely follow certain common sense principles".

~~~
adolph
_a basic principle for centuries was that metal is too heavy to float,
therefore it was clearly too heavy to fly_

Do you have any source for this, or are you making it up? For many centuries,
the state of the art in metallurgy was not sufficient for making watercraft,
much less aircraft. However this did not stop people using the available
technology to make such flying things as arrows.

------
fleaflicker
Curious analogy

 _As a graduate student, he'd just found serious problems in a famous economic
study — the academic equivalent of a D-league basketball player dunking on
LeBron James._

~~~
niggler
These are "Harvard economists", and AFAICT Harvard has one of the strongest
econ departments in the academic establishment.

------
darrickwiebe
If you look at the winners of the Underhanded C Contest [1], the subtle and
deniable "errors" that are hidden in innocuous looking pieces of code remind
me a lot of the type of error that this spreadsheet sounds like it contains.

It's telling that now that their data is exposed as being incorrect, the
original authors still are standing behind their conclusions.

[1] <http://underhanded.xcott.com/>

------
danso
What do people think about the researchers' rebuttal in the WSJ?

[http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-
ad...](http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-admit-excel-
mistake-rebut-other-critiques/)

I'm too much of a layperson in statistics and economics to tell, at this early
in the morning without coffee, how much of this is eloquent backtracking BS:

> _So do where does this leave matters on debt and growth? Do Herndon et al.
> get dramatically different results on the relatively short post war sample
> they focus on? Not really. They, too, find lower growth associated with
> periods when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60,
> 3.1 %; 60-90, 3.2%,; over 90, 2.2%. Put differently, growth at high debt
> levels is a little more than half of the growth rate at the lowest levels of
> debt. They ignore the fact that these results are close to what we get in
> our Table 1 of our AER paper they critique, and not far from the median
> results in Figure 2 despite its coding error. And they are not very
> different from what we report in our 2012 Journal of Economic Perspectives
> paper with Vincent Reinhart—where the average is 2.4% for high debt versus
> 3.5% for below 90%_

~~~
dangerlibrary
The -0.1% mean growth rate was the silver bullet. It was everything - the only
number anyone remembered or cared about after reading the paper.

Without that, it's another data point correlating economic growth and
sovereign debt - and not a very interesting one, either.

~~~
tejaswiy
Related question: From what I understand, all the study is doing is that it's
saying on an average countries with high debt / GDP have a slightly negative
growth rate. But isn't that just one data point and not a justification for
austerity itself?

~~~
carbocation
The original study said that. The new study said that their growth, while
positive, is a bit less than those with less debt.

It's an association. It does not prove that there is causation, nor the
direction of the causal arrow.

------
vondur
Hasn't Paul Krugman been saying this for quite a while? Judging by the
performance of the Irish and British economies since the implementation of
austerity programs, it looks to be verifiable.

------
niggler
Best comment from the WSJ article (in which Reinhart and Rogoff admit their
mistake): "The two profs are incompetent enough to now be hired by Fox
“Business” network."

------
guelo
Harvard should fire those two professors.

~~~
fyi80
Harvard should keep them, and endure the reputation decrease as a result. This
incident should stand as a long-term reminder that the Ivy League is does not
have an infallible monopoly on genius.

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squozzer
What seems at issue -- besides whether an economist's work should be accepted
at face value -- is under what conditions a country should borrow or impose
austerity.

Here's an analogy --

When times are good, governments frequently raise taxes, because hey, we can
afford it.

When times turn bad, governments frequently raise taxes, because hey, our tax
base has eroded and we need it.

It's a "heads I win, tails you lose" game.

~~~
fyi80
That's not what happens. The problem is:

When times are good, governments frequently LOWER taxes, because hey, we can
raise the same revenue

When times turn bad, governments frequently LOWER taxes, because hey, people
can't afford it.

borrow in bad times, pay back in good times, is well established. Governments
are good at borrowing in bad times, but bad at paying back in good times. Look
at late-90s US, when we briefly had a balanced budget, and instead of
preparing for the bust, we rushed headlong into it.

