Jump to content
House Price Crash Forum
zugzwang

Reinhart And Rogoff Caught Faking It

Recommended Posts

For the record, I've read This Time It's Different and found it enormously informative. On no occasion do I recall RR asserting that 90% public debt/GDP equals certain death, instead they tend to use the number as a prodromic rule-of-thumb. Japan, of course, has enjoyed a fairly prosperous existence for many years with levels of public debt >200%, which they freely acknowledge.

Politically, however, their work has been used by the Right to justify all-manner of attacks on public spending. Osborne famously citing them: Mais Lecture - A New Economic Model. In particular, the paper Growth In a Time of Debt (2010) was advertised by Republicans as seminal and used as the basis for Paul Ryan's Path to Prosperity budget.

On closer examination It appears that RR may have been economical with the truth. Either that or they don't know how to use a spreadsheet.

http://www.businessi...d-rogoff-2013-4

Shocking Paper Claims That Microsoft Excel Coding Error Is Behind The Reinhart-Rogoff Study On Debt

Mike Konczal, NewDeal2.0 | Apr. 16, 2013, 12:40 PM

In 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, "Growth in a Time of Debt." Their "main result is that...median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan's Path to Prosperity budget states their study "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth." The Washington Post editorial board takes it as an economic consensus view, stating that "debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth."

Is it conclusive? One response has been to argue that the causation is backwards, or that slower growth leads to higher debt-to-GDP ratios. Josh Bivens and John Irons made this case at the Economic Policy Institute. But this assumes that the dataicon1.png is correct. From the beginning there have been complaints that Reinhart and Rogoff weren't releasing the data for their results (e.g. Dean Baker). I knew of several people trying to replicate the results who were bumping into walls left and right - it couldn't be done.

In a new paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff's data was constructed.

They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result. Let's investigate further:

Selective Exclusions. Reinhart-Rogoff use 1946-2009 as their period, with the main difference among countries being their starting year. In their data set, there are 110 years of data available for countries that have a debt/GDP over 90 percent, but they only use 96 of those years. The paper didn't disclose which years they excluded or why.

Herndon-Ash-Pollin find that they exclude Australia (1946-1950), New Zealand (1946-1949), and Canada (1946-1950). This has consequences, as these countries have high-debt and solid growth. Canada had debt-to-GDP over 90 percent during this period and 3 percent growth. New Zealand had a debt/GDP over 90 percent from 1946-1951. If you use the average growth rate across all those years it is 2.58 percent. If you only use the last year, as Reinhart-Rogoff does, it has a growth rate of -7.6 percent. That's a big difference, especially considering how they weigh the countries.

Unconventional Weighting. Reinhart-Rogoff divides country years into debt-to-GDP buckets. They then take the average real growth for each country within the buckets. So the growth rate of the 19 years that England is above 90 percent debt-to-GDP are averaged into one number. These country numbers are then averaged, equally by country, to calculate the average real GDP growth weight.

In case that didn't make sense let's look at an example. England has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for England.

Now maybe you don't want to give equal weighting to years (technical aside: Herndon-Ash-Pollin bring up serial correlation as a possibility). Perhaps you want to take episodes. But this weighting significantly reduces the average; if you weight by the number of years you find a higher growth rate above 90 percent. Reinhart-Rogoff don't discuss this methodology, either the fact that they are weighing this way or the justification for it, in their paper.

Coding Error. As Herndon-Ash-Pollin puts it: "A coding error in the RR working spreadsheet entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis. [Reinhart-Rogoff] averaged cells in lines 30 to 44 instead of lines 30 to 49...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." Belgium, in particular, has 26 years with debt-to-GDP above 90 percent, with an average growth rate of 2.6 percent (though this is only counted as one total point due to the weighting above).

Being a bit of a doubting Thomas on this coding error, I wouldn't believe unless I touched the digital Excel wound myself. One of the authors was able to show me that, and here it is. You can see the Excel blue-box for formulas missing some data:

screen%20shot%202013-04-16%20at%2012.49.10%20pm.jpg

This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.

So what do Herndon-Ash-Pollin conclude? They find "the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim]." Going further into the data, they are unable to find a breakpoint where growth falls quickly and significantly.

This is also good evidence for why you should release your data online, so it can be probably vetted. But beyond that, looking through the data and how much it can collapse because of this or that assumption, it becomes quite clear that there's no magic number out there. The debt needs to be thought of as a response to the contigent 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 an emergency cliff. In fact, it tells us that a larger deficit right now would help us greatly.

Edited by zugzwang

Share this post


Link to post
Share on other sites

Real GDP growth, ha, meaningless when you rig the official inflation numbers.

Countries running large debt print themselves money to pay off or just pay the interst on those debts. In those countries the difference bewteen real and stated inflation is the greatest. The money morons count that extra inflation as growth.

Share this post


Link to post
Share on other sites

Presumaby they want moreKeynesian stimulus?We've been stimulated enough I believe; record personal debt, corporate debt, and public debt, along with colossal liabilities, rapidly aging populations and swathes of red tape, don't suggest that we will rushing to large growth any time soon.

Share this post


Link to post
Share on other sites

For the record, I've read This Time It's Different and found it enormously informative. On no occasion do I recall RR asserting that 90% public debt/GDP equals certain death, instead they tend to use the number as a prodromic rule-of-thumb. Japan, of course, has enjoyed a fairly prosperous existence for many years with levels of public debt >200%, which they freely acknowledge.

Politically, however, their work has been used by the Right to justify all-manner of attacks on public spending. Osborne famously citing them: Mais Lecture - A New Economic Model. In particular, the paper Growth In a Time of Debt (2010) was advertised by Republicans as seminal and used as the basis for Paul Ryan's Path to Prosperity budget.

On closer examination It appears that RR may have been economical with the truth. Either that or they don't know how to use a spreadsheet.

http://www.businessi...d-rogoff-2013-4

the spreadsheet itself is pretty basic. someone doing their GCSE's right now could knock that up in a couple of hours.

Share this post


Link to post
Share on other sites

And it never seems to mention private debt levels as a drag on an economy.

Ditto.

None of these guys, left or right, (at least the ones the politicians listen to) ever tackle the real issue. Its not the volume of debt that matters, its what you do (did) with it that counts.

Austerity and stimulus in the manner politicians talk of it are two sides of the same vacuous coin. You can have bad or good austerity, you can have bad or good stimulus. Used badly, austerity can do nothing but cause stagnation. Used badly stimulus can do nothing but cause inflation.

Share this post


Link to post
Share on other sites

Ill award a prize to anyone who can convince me why there is any real difference for a society whether there is public or private debt .

I fail to see what difference it makes , surely it's the size that really matters and also the assets upon which it is founded ( if any)

Share this post


Link to post
Share on other sites

Personally I wouldn't take any analysis from an excel spreadsheet seriously.

Academia has much better tools at its disposal.

Economists are generally very poor at predicting anything, always. Funny that.

Share this post


Link to post
Share on other sites

Real GDP growth, ha, meaningless when you rig the official inflation numbers.

Countries running large debt print themselves money to pay off or just pay the interst on those debts. In those countries the difference bewteen real and stated inflation is the greatest. The money morons count that extra inflation as growth.

+1

It would have been helpful if they'd also appraised how accurate and comparable the various gdp figures from different countries were and whether gdp figures even reflect prosperity seeing as there's a real motivation to manipulate gdp and claim as high a gdp figure as possible so that politicians can go to their meetings er jollies and brag about how successful their policies are.

The excel spreadsheet analysis missed out some lines in the calculations but politicians have been basing global economic policies on it - farce

Edited by billybong

Share this post


Link to post
Share on other sites

Excel becomes lethal quite easily, this clearly shows it. However my organisation primarily uses Excel as a base in most if not all functions.

Scary. Scary mary.

Share this post


Link to post
Share on other sites

For the record, I've read This Time It's Different and found it enormously informative. On no occasion do I recall RR asserting that 90% public debt/GDP equals certain death, instead they tend to use the number as a prodromic rule-of-thumb. Japan, of course, has enjoyed a fairly prosperous existence for many years with levels of public debt >200%, which they freely acknowledge.

Politically, however, their work has been used by the Right to justify all-manner of attacks on public spending. Osborne famously citing them: Mais Lecture - A New Economic Model. In particular, the paper Growth In a Time of Debt (2010) was advertised by Republicans as seminal and used as the basis for Paul Ryan's Path to Prosperity budget.

On closer examination It appears that RR may have been economical with the truth. Either that or they don't know how to use a spreadsheet.

Or they fell for the classic error of stats.. ''I've got the result I'm looking for, so I can stop now..'

And people who want their results to be true then re-quote them without bothering to read the detail of the paper.

It's a common theme in Economics, it seems (see the Laffer curve for another example), especially when it just happens to justify rich people paying lower taxes, or poor people being stuffed.

Share this post


Link to post
Share on other sites

+1

It would have been helpful if they'd also appraised how accurate and comparable the various gdp figures from different countries were and whether gdp figures even reflect prosperity seeing as there's a real motivation to manipulate gdp and claim as high a gdp figure as possible so that politicians can go to their meetings er jollies and brag about how successful their policies are.

The excel spreadsheet analysis missed out some lines in the calculations but politicians have been basing global economic policies on it - farce.

When the IMF was in it's 'structural adjustment' heyday, it famously gave an economic analysis for one country that was copied and pasted from that for another country, they forgot to change the country name in a few places. That analysis was then used to dismantle and privatize essential public services..

Share this post


Link to post
Share on other sites
We have to move away from an economic model that was based on unsustainable private and public debt.

And we have to move to a new model of economic growth that is rooted in more investment, more savings and higher exports.

Right words.....but clearly polices seeing to it that we walk in the complete opposite direction, why?..... ;)

Share this post


Link to post
Share on other sites

This is also good evidence for why you should release your data online, so it can be probably vetted. But beyond that, looking through the data and how much it can collapse because of this or that assumption, it becomes quite clear that there's no magic number out there. The debt needs to be thought of as a response to the contigent 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 an emergency cliff. In fact, it tells us that a larger deficit right now would help us greatly.

There might not be "a magic number" but for sure there will be many many examples of nations taking on too much debt and then collapsing maybe through inflation e.g maybe the Weimar experience - was there a critical point. Likely there are many different ways that nations have collapsed economically as a result of too much debt.

People around the world already know there's a certain level of debt that can cause economic collapse because of their experience since about 2005 to 2007 - or was that just the level of fraud associated with the debt.

There might even be examples of nations loading right up with debt year after year after year ............. (that is "larger deficits right now helping us greatly") and discovering long term and enduring real prosperity and not just due to the short term debt fix. If there are any examples then include them as well.

While they're at it an assessment of money printing on national economies would be helpful as well.

They could even use an excel spreadsheet providing they don't miss out spreadsheet lines.

Edited by billybong

Share this post


Link to post
Share on other sites

Excel becomes lethal quite easily, this clearly shows it. However my organisation primarily uses Excel as a base in most if not all functions.

Scary. Scary mary.

I worked for a large financial institution, very large, probably managing a lot of UK pensions. They used Excel for calculating VaR and other stuff like that to decide what shares/stocks etc would go in each month's pension mix. Nothing wrong with that maybe. So we had stock market indices being pulled in, a connection to a risk engine and Excel with secret magic sauce one of the traders had knocked up over a number of years.

My job was to put a Web based front end on Excel so a number of different people could access the same "engine" at the same time. Of course Excel is mono-threaded...

Share this post


Link to post
Share on other sites

It would be interesting to know how much of the BoEs' output is based on excel spreadsheets.

Quite a lot by the sounds of it.

Hmm. They really only deal with the central bank reserve balances and hard currency, and that is probably based on some very simple algorithms.

Its the retail and commercial banks funny money you have to worry about.

Share this post


Link to post
Share on other sites

It's all moot anyway.

Growth is/will continue to fall 'cause:-

* productivity has been falling for 30 years

* Resources are running out

* Population growth has peaked (nearly everywhere)

So all these arguments about public, private debt or savings are a complete red herring and distraction from the far bigger issue which is that the current business model won't continue to work.

Would be better if such smart people spent their time and energy figuring out what that means and what we're going to have to do about it, instead of this risible nonsense about 'debt'.

Share this post


Link to post
Share on other sites

From the R and R response.

Note that because the historical public debt overhang episodes last an average of over 20 years,

"Overhang" - glad they mentioned that eh.

Seeing as the UK's public debt seems to be going exponential then with the "overhang" it looks like being the best part a century before the UK even starts to start to get back on its feet.

Edited by billybong

Share this post


Link to post
Share on other sites

Hmm. They really only deal with the central bank reserve balances and hard currency, and that is probably based on some very simple algorithms.

Its the retail and commercial banks funny money you have to worry about.

I was thinking more about their predictions for gdp and inflation etc and the economy in general along with their fan chart predictions. That plus their predictions of the effect on the economy of QE etc.

They look like they have the now more widely understood "excel spreadsheet" influence in them.

On the retail and commercial banks yes indeed. No doubt that their "excel spreadsheet" influence is widespread.

Edited by billybong

Share this post


Link to post
Share on other sites

Causality demonstrated to be reversed here:

http://www.nextnewde...KJEfrUo.twitter

i.e. rising debt to GDP doesn't cause falling growth.

rather falling growth caused rising debt to GDP

Which p1sses all over Cameron/Osborne's chips, and for that matter Schauble's nonsense too.

Expansionary austerity, ain't (which is why it has only made matters worse wherever it's been applied)

Edited by R K

Share this post


Link to post
Share on other sites

When the IMF was in it's 'structural adjustment' heyday, it famously gave an economic analysis for one country that was copied and pasted from that for another country, they forgot to change the country name in a few places. That analysis was then used to dismantle and privatize essential public services..

If this apparent cut and paste economic analysis of the IMF was "famous", I'm sure you'll be able to provide the specific example?

I am unable to find it.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 355 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.