Slashdot Mirror

← Back to Stories (view on slashdot.org)

Excel Error Contributes To Problems With Austerity Study

Posted by Unknown on from the canada-isn't-real-anyway dept.

quarterbuck writes "Many politicians, especially in Europe, have used the idea that economic growth is impeded by debt levels above 90% of GDP to justify austerity measures. The academic justification came from a paper and a book by Kenneth Rogoff and Carmen Reinhart. Now researchers at U Mass at Amherst have refuted the study — they find that not only was the data tainted by bad statistics, it also had an Excel error. Apparently when averaging a few GDP numbers in an excel sheet, they did not drag down the cell ranges down properly, excluding Belgium. The supporting website for the book, 'This time it is different,' has lots of financial information if a reader might want to replicate some of the results." The Excel error is making the rounds as the cause of the problems with the study, but it's actually a minor component. The study also ignores some post-WWII data for countries that had a high debt load and high growth, and there's some fishy weighting going on: "The U.K. 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 the U.K."

2 of 476 comments (clear)

  1. About the authors: by oduesp · · Score: 5, Informative

    Carmen Reinhart: (Chief Economist) Bear Stearns -> IMF -> Harvard
                                                \-> married with Vincent Reinhart: FED -> (Chief US Economist) Morgan Stanley.
                                                          famous quote: "Secretary Paulson Makes the Right Call" The Wall Street Journal, Sept. 16, 2008:
    "In other words, some government aid might ultimately have to be directed toward financial firms whose failure would otherwise threaten the financial system.
    The politicians now running for office should also appreciate that their grand ambitions for new spending programs or tax cuts may have to be tempered by the need to rescue financial firms."

    Kenneth Rogoff: IMF -> Harvard

  2. Re:High debt is bad. by Anonymous Coward · · Score: 5, Informative

    "The US government for example is spending about 50k per US household. The median income of US households is about 49k."

    These statements do a great job of conflating median and mean. If you're comparing per household spending to per household income, you don't want median because a small proportion of American households take home a huge amount of income.

    The mean per capita income in 2012 was $42,693 [1]. Per capita spending by the federal government was $11,260 [2]. Total spending including state and local government spending was $19,015.7 [2]. This means that the federal government would be fully fundable with only revenue increases, even with lower taxes than much of western europe.

    The US has a long-term health care problem. In the short term, the US has a small revenue problem and a very large austerity problem (which is actually causing long term harm to the economy). The US, currently, does not have a spending problem from an economic point of view.

    If you want to argue that the US has a moral spending problem like many austerity/deficit hawks, feel free, but don't conflate that with an actual economic argument.

    [1] http://bber.unm.edu/econ/us-pci.htm
    [2] http://www.usgovernmentspending.com/year_spending_2012USdn_14ds1n_F0#usgs302