[Marxism] The Excel Depression

Louis Proyect lnp3 at panix.com
Fri Apr 19 08:50:19 MDT 2013

NY Times Op-Ed April 18, 2013
The Excel Depression

In this age of information, math errors can lead to disaster. NASA’s 
Mars Orbiter crashed because engineers forgot to convert to metric 
measurements; JPMorgan Chase’s “London Whale” venture went bad in part 
because modelers divided by a sum instead of an average. So, did an 
Excel coding error destroy the economies of the Western world?

The story so far: At the beginning of 2010, two Harvard economists, 
Carmen Reinhart and Kenneth Rogoff, circulated a paper, “Growth in a 
Time of Debt,” that purported to identify a critical “threshold,” a 
tipping point, for government indebtedness. Once debt exceeds 90 percent 
of gross domestic product, they claimed, economic growth drops off sharply.

Ms. Reinhart and Mr. Rogoff had credibility thanks to a widely admired 
earlier book on the history of financial crises, and their timing was 
impeccable. The paper came out just after Greece went into crisis and 
played right into the desire of many officials to “pivot” from stimulus 
to austerity. As a result, the paper instantly became famous; it was, 
and is, surely the most influential economic analysis of recent years.

In fact, Reinhart-Rogoff quickly achieved almost sacred status among 
self-proclaimed guardians of fiscal responsibility; their tipping-point 
claim was treated not as a disputed hypothesis but as unquestioned fact. 
For example, a Washington Post editorial earlier this year warned 
against any relaxation on the deficit front, because we are “dangerously 
near the 90 percent mark that economists regard as a threat to 
sustainable economic growth.” Notice the phrasing: “economists,” not 
“some economists,” let alone “some economists, vigorously disputed by 
other economists with equally good credentials,” which was the reality.

For the truth is that Reinhart-Rogoff faced substantial criticism from 
the start, and the controversy grew over time. As soon as the paper was 
released, many economists pointed out that a negative correlation 
between debt and economic performance need not mean that high debt 
causes low growth. It could just as easily be the other way around, with 
poor economic performance leading to high debt. Indeed, that’s obviously 
the case for Japan, which went deep into debt only after its growth 
collapsed in the early 1990s.

Over time, another problem emerged: Other researchers, using seemingly 
comparable data on debt and growth, couldn’t replicate the 
Reinhart-Rogoff results. They typically found some correlation between 
high debt and slow growth — but nothing that looked like a tipping point 
at 90 percent or, indeed, any particular level of debt.

Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the 
University of Massachusetts to look at their original spreadsheet — and 
the mystery of the irreproducible results was solved. First, they 
omitted some data; second, they used unusual and highly questionable 
statistical procedures; and finally, yes, they made an Excel coding 
error. Correct these oddities and errors, and you get what other 
researchers have found: some correlation between high debt and slow 
growth, with no indication of which is causing which, but no sign at all 
of that 90 percent “threshold.”

In response, Ms. Reinhart and Mr. Rogoff have acknowledged the coding 
error, defended their other decisions and claimed that they never 
asserted that debt necessarily causes slow growth. That’s a bit 
disingenuous because they repeatedly insinuated that proposition even if 
they avoided saying it outright. But, in any case, what really matters 
isn’t what they meant to say, it’s how their work was read: Austerity 
enthusiasts trumpeted that supposed 90 percent tipping point as a proven 
fact and a reason to slash government spending even in the face of mass 

So the Reinhart-Rogoff fiasco needs to be seen in the broader context of 
austerity mania: the obviously intense desire of policy makers, 
politicians and pundits across the Western world to turn their backs on 
the unemployed and instead use the economic crisis as an excuse to slash 
social programs.

What the Reinhart-Rogoff affair shows is the extent to which austerity 
has been sold on false pretenses. For three years, the turn to austerity 
has been presented not as a choice but as a necessity. Economic 
research, austerity advocates insisted, showed that terrible things 
happen once debt exceeds 90 percent of G.D.P. But “economic research” 
showed no such thing; a couple of economists made that assertion, while 
many others disagreed. Policy makers abandoned the unemployed and turned 
to austerity because they wanted to, not because they had to.

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d 
like to think so. But I predict that the usual suspects will just find 
another dubious piece of economic analysis to canonize, and the 
depression will go on and on.

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