Does High Public Debt Consistently Stifle Economic Growth? The R&R Paper Critique

Harpuia said:

http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf

This paper has been going around the economic blocks the last few days. The study that was used to determine that having >90% GDP debt caused grave issues in economic growth, one of the fundamental cases for austerity, turned out to be false.

The link above is a PDF critique of the paper. Highlighted amongst the errors of the Reinhart/Rogoff paper was a spreadsheet coding error and unconventional weighing of summary statistics. The two professors that created the paper have as far as I know, at least admitted to the spreadsheet coding error today.

The growth for countries with a >90% GDP ratio according to the R&R paper would slow from 2.8 to -0.1%, whereas the critique counters by saying the growth only slows from 3.2 to 2.2% and what one can conclude from the paper is that debt is a problem, but hardly as much a problem as unemployment. Anyone that had used these foundations to predict some gigantic crash in the very near future turned out to be mistaken.

In short, I guess it doesn't mean that we should ignore the budget entirely, but the DEFCON 1 flag that conservative media has put up on us the last couple of years was a false flag.

A lot of people have got to be feeling quite duped today. Myself included.

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It also brings up the theory that nobody really understand the economy. The austerity approach sounds seductive, but it has some significant side effects, like unemployment, rioting in the streets and civil war. Excessive unemployment tends to negate some of the positive aspects of austerity.

cow451 said:

It also brings up the theory that nobody really understand the economy. The austerity approach sounds seductive, but it has some significant side effects, like unemployment, rioting in the streets and civil war. Excessive unemployment tends to negate some of the positive aspects of austerity.

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You do realize that we have to pay interest on the debt...

Seriously, cutting spending and trying to bring down the debt would ultimately free up money for things like education, because we no longer have to use said money on paying interest on the country's credit card.

GarfieldJL said:

You do realize that we have to pay interest on the debt...

Seriously, cutting spending and trying to bring down the debt would ultimately free up money for things like education, because we no longer have to use said money on paying interest on the country's credit card.

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Austerity from an economic perspective makes far more sense during strong economic times not during recessions or recovery.

To put it personal finance terms. If you loose your job it's not uncommon to run on some debt in order eat and such. But when you get a job you pay that debt down. The current Republican mindset is reversed. They want to pay down debt when the loose their job at the expense of eating and such and the run up their debt when they have a job.

The problem with the debt we have now is not the current deficits. The problem is that they are being added to debt that should have been paid down during good times.

GarfieldJL said:

You do realize that we have to pay interest on the debt...

Seriously, cutting spending and trying to bring down the debt would ultimately free up money for things like education, because we no longer have to use said money on paying interest on the country's credit card.

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That assumes no side effects of cutting spending. Serious cuts get into putting people out of jobs. Most big government jobs are done by civilians, not people directly on the government payroll. To focus only on one aspect misses the context. That's why a realistic budget deals with revenue as well as spending.

cow451 said:

That assumes no side effects of cutting spending. Serious cuts get into putting people out of jobs. Most big government jobs are done by civilians, not people directly on the government payroll. To focus only on one aspect misses the context. That's why a realistic budget deals with revenue as well as spending.

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Your Tax Dollars at Work - Henry Phillips - YouTube

I think this song could sum up the situation...

GarfieldJL said:

Your Tax Dollars at Work - Henry Phillips - YouTube

I think this song could sum up the situation...

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Too hard to come up with a response, huh?

cow451 said:

Too hard to come up with a response, huh?

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Politicians have a habit of deliberately cutting whatever is necessary like policemen and firemen in order to make cuts look as horrible as possible, instead of cutting the stupid stuff.

I felt the song was appropriate.

Unfortunately, I'm not able to view the report. Don't know why
But this quote from you caught my interest, and was something I wanted to comment on.

Harpuia said:

So balancing the budget is still an issue. It's the belief to hide in commodities like gold and silver and other precious metals as conservative media had thrown around for years is what got broken down.

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I think a lot of the conservative hype about metals goes to the Goldline sponsorship of different talk show hosts, probably most famously, Glenn Beck. These same talk show hosts also heavily promoted stuff like buying huge stocks of preserved foods (very expensive way to stock food), in case the world blew up or something.

Serious conservative investors who promote gold, like Peter Schiff, make it clear that gold isn't an alternative to stocks, it's an alternative to cash, and the percentage of one's assets held in gold should be done accordingly.

Gold is money, it's a liquid insurance like other forms of money. Keep a little of it, in case other currencies perform poorly, but don't bet against the world economy by putting all your savings into metals.

I'm amazed that they were allowed to publish w/o releasing the data. Is that how things normally work?

-Dan.

Harpuia said:

Either way, right now I'm so furious I can't think straight.

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Did somebody invest their entire fund in gold a week ago?

iluvatar5150 said:

I'm amazed that they were allowed to publish w/o releasing the data. Is that how things normally work?

-Dan.

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Okay, now I've read the report. Yes, it seems pretty bizarre. If this new report is correct, does that mean the old one was accepted with absolutely 0 scrutiny?
Or maybe there's some middle ground. Perhaps there's a rebuttal to this new review forthcoming.

iluvatar5150 said:

I'm amazed that they were allowed to publish w/o releasing the data. Is that how things normally work?

-Dan.

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Pretty normal. Your data are an asset to you. It's kind of an intellectual property thing. Studies generally publish their method, their conclusion, and how they came to it; but they generally don't provide the actual data. In a way that's a good thing. Independent verification is challenged. Researchers trying to duplicate your results have to start from about the same place you did: scratch. And we can see whether by testing the same hypothesis they come to the same conclusion.

The scientific method benefits from many studies of the same thing. A single study, even a well-done one, may come to a result that subsequent research indicates is wrong. There are a number of technical flaws in R&R and critics have strong complaints about whether the results are comparable to what R&R is being compared to (to put that another way: the US economy is a lot different than various small and poor economies; it may behave differently).

The peer review process gives us a 'something in between'. Several good researchers didn't see obvious flaws or failures. They may not agree with the conclusion. They may have a critique. But the paper was worth a read and wasn't obviously flawed. Responses often catch technical errors missed in peer review or design flaws.