Posted on 04/24/2013 7:26:09 AM PDT by SeekAndFind
Though Kenneth Rogoff has written some fairly obtuse op-eds over the years, the book he co-authored with Carmen Reinhart, This Time Is Different, was very much a worthwhile read. If their Keynesian, Phillip's Curve ideology is ignored, they offered some really interesting statistics.
Most useful to this reader was their soberly introduced point that Greece has been in default half of its modern existence. About government defaults more broadly, they similarly clarified that defaults are rarely an all or nothing thing, rather they generally involve slight ‘haircuts' for creditors. And while they didn't tie this to modern times, they made the essential point that the U.S. Treasury has defaulted on its debt before; specifically in the 1930s when the dollar's gold value was reduced to 1/35th of an ounce from 1/20th.
As many are aware, Reinhart and Rogoff made the news for an unfortunate reason last week, all due to a ‘spreadsheet error' committed in the writing of their much quoted book. They'd found that when debt rose above 90% of GDP some sort of ‘tipping point' was reached whereby country growth slowed down after the 90% line was crossed. But now it seems their calculations weren't correct; that heavy country debts of the 90% variety don't correlate with ‘malaise' in any statistically significant way.
Quite predictably, reliably delusional Keynesians have taken the above news and concluded that Reinhart and Rogoff's calculations needlessly caused massive global unemployment. Despite government spending always occurring at the expense of private sector outlays, Keynesians persist in their juvenile view that it's more economically stimulative for governments to waste money over it being lent out or invested by profit-motivated individuals. Unsurprisingly, they took the news as vindication of their comically sad belief that politicians can spend us to prosperity with money not their own.
On the right, the responses were perhaps more subdued, and mostly about how deficit spending by governments can't go on forever. Of course, forever lost on budget-deficit hawks is that their hand wringing always plays into the hands of Keynesians searching for new ways to tax away our money. Sky-is-falling talk about the supposedly horrifying implications of deficits falsely turns the discussion into one about federal revenues not being enough, as opposed to the federal government spending way too much.
It seems neither side understands that the crisis is not deficits, or deficits that aren't big enough for Keynesians, rather it's the spending itself that subtracts from real economic growth. When governments spend with abandon (deficits just a form of finance) there's a smaller capital base for the productive to access, so when it comes to government spending the tragedy is not whether it occurs in deficit or surplus, but the Microsofts and Intels, the cancer cures, and the transportation innovations that never materialize thanks to politicians consuming so much capital.
Back to Reinhart and Rogoff, assuming bulletproof spreadsheet calculations, their presumptions were still bogus. They were because they assume that as opposed to a collection of individuals, country economies are big blobs that would suddenly stop growing once an arbitrary number had been reached. Luckily for all of us, economies don't work that way.
CLICK ABOVE LINK FOR THE REST...
He's right. The only correct way to to look at an economic question is to analyze its effects on the individual. Now, it's true that, eventually, the sum of all individual actions results in a total that we can call the "economy".
But to start analysis with the national sums and try to extrapolate backwards doesn't work. It can't. Economics is the study of individual action. It's more akin to psychology than math.
Actually, when the spreadsheet was corrected, their conclusion was even stronger than it had been before.
The author of this article is the one who should be embarrassed about his sloppiness.
We are on the cusp of a wild ride down, sort of like what the Weimar Republic experienced, but on a global scale.
The book detailed numerous previous instances of similar situations. Another good book on the subject is "When Money Dies".
My link will open/download the book for free, but it is back in print and for sale on Amazon...
Does the chart you showed distinquish between government employeed and private business employeed?
Do you have any data that backs that statement up? In any event, the spreadsheet error was the least of paper's problems. At http://usbudget.blogspot.com/2013/05/is-there-debtgdp-threshold-at-90_4.html, I've posted all 71 data points that Reinhart and Rogoff used plus 39 that were excluded (25 from Belgium due to the infamous Excel error and 14 others). The R&R weighting gave equal weighting to 7 countries. One of those countries, the U.S., had only 4 data points and one, New Zealand, had only one data point! As can be seen, the -7.6% growth in New Zealand in 1951 was preceded in 1950 by 14.7% growth and followed in 1952 by 4.3% growth. Did R&R do anything to correct for this obviously unrepresentative outlier or even mention it in their paper? No.
This is why we need to demand that all of the calculations (i.e. the spreadsheets) be released to the public. To my knowledge, R&R STILL have not posted or released their spreadsheet publicly (they only released it to HAP). I suspect that one reason for that is that they don't want any more number crunchers looking at their work. Peer review is good for catching some things but public release is invaluable for catching many other things, especially basic mathematical errors. If we consumers of economic studies start to ignore those studies for which the calculations are not made public, I suspect that economists will be more than happy to "show their work".
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.