Grad Student Shook the Global Austerity Movement

[el_chavista]

http://pixel.nymag.com/imgs/daily/intelligencer/2013/04/18/18-herndon-thomas.o.jpg/a_190x190.jpg Thomas Herndon, a 28-year-old economics grad student at UMass Amherst, just used part of his spring semester to shake the intellectual foundation of the global austerity movement.

Herndon became instantly famous in nerdy economics circles this week as the lead author of a recent paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," that took aim at a massively influential study by two Harvard professors named Carmen Reinhart and Kenneth Rogoff. Herndon found some hidden errors in Reinhart and Rogoff's data set, then calmly took the entire study out back and slaughtered it. Herndon's takedown — which first appeared in a Mike Konczal post that crashed its host site with traffic — was an immediate sensation. It was cited by prominent anti-austerians like Paul Krugman, spoken about by incoming Bank of England governor Mark Carney, and mentioned on CNBC and several other news outlets as proof that the pro-austerity movement is based, at least in part, on bogus math.

Read more (http://nymag.com/daily/intelligencer/2013/04/grad-student-who-shook-global-austerity-movement.html)

[cyu]

Then the interviewer calls in the economist and poses the same question "What do two plus two equal?" The economist gets up, locks the door, closes the shade, sits down next to the interviewer and says "What do you want it to equal?"

http://www.slate.com/blogs/moneybox/2013/04/16/reinhart_rogoff_coding_error_austerity_policies_fo unded_on_bad_coding.html

they find that the Reinhart/Rogoff result is based on opportunistic exclusion of Commonwealth data in the late-1940s, a debatable premise about how to weight the data, and most of all a sloppy Excel coding error.

This is literally the most influential article cited in public and policy debates about the importance of debt stabilization, so naturally this is going to change everything.

Or, rather, it will change nothing.

you might genuinely wonder if short kids are more likely to end up malnourished because they're not good at fighting for food or something. A study where you conclude that short stature and malnourishment are correlated would give us zero information about this hypothesis, since everyone already knows that malnourishment leads to stunted growth. There might be causation in the other direction as well, but a correlation study wouldn't tell you.

The fact that Reinhart/Rogoff was widely cited despite its huge obvious theoretical problems leads me to confidently predict that the existence of equally huge, albeit more subtle, empirical problems won't change anything either.