Excel Error Contributes To Problems With Austerity Study

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."

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Re:Note the legal disclaimer

[AlphaWolf_HK]

They think the best way to beat a recession is to spend.

This is mainly because they subscribe to Keynesian thought. The new deal was probably the greatest example of Keynesian theory being applied, and it didn't benefit anything. The war did because it displaced millions of otherwise non-working Americans overseas, which offset the supply of labor in a way that inadvertently triggered a recovery. Keynesian thought was later shattered when stagflation happened in the 80's, which under Keynesian theory is impossible, and demonstrated rather conclusively that government spending isn't the cure all.

Tax cuts don't buy votes, by the way. Most of the wealthy are wealthy to such an extent that taxes don't bother them that much. The ones who hide money in overseas accounts from legitimate income are the minority. The majority of those who hide money in overseas accounts are hiding money that they gained illegally, such as through the drug trade, securities fraud, etc. Rather, paying their taxes would land them in jail quickly when the IRS can't determine where their money came from. Notice the effort required to keep money in overseas banks - the act of doing so isn't cheap at all, and can easily land you in hot water. Why risk going to jail for a very long time over not paying the government what ultimately doesn't amount to anything you'd really miss anyways?

Personally I have a hard time thinking of many wealthy people who don't vote Democrat, mainly because they tend to benefit the most by doing so. They vote democrat because democrats like to pay them for "make work" projects as well as invest in businesses that don't actually have a viable business model. Take Fisker for example. Fisker couldn't land much at all in private investments for a good reason. Tesla on the other hand had their shit together, which is why they actually had plenty of venture capitalist funding. Mr. Fisker just got some free income while he effectively pretended to innovate. Yes, those 1% that many self identified progressives rail against are themselves primarily progressive:

http://legalinsurrection.com/2011/10/the-top-1-probably-voted-disproportionally-for-obama/

It's a strange set of circumstances that self identified conservatives claim to want to cut spending, but don't vote for anybody who will actually do so, whereas self identified liberals are against corporate welfare, but actively vote for those who hand out the most corporate welfare. Obama is probably one of the worst offenders of handing out corporate welfare.