Daniel Davies: One-Minute MBA: Weekend Reading
Risks of Debt: The Real Flaw in Reinhart-Rogoff: Hoisted from the Archives

Smackdown: Failing to Do Robustness Checks Is Not a Virtue


This, from this past April of all times, greatly puzzles me: WHAT IN THE HOLY NAME OF THE ONE WHO IS IS GOING ON HERE?!

Let us remember what really happened back in 2011 when the unemployment rate was 9%:

"Reinhart... explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous.... Reinhart and Rogoff... 'current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP'..."

Yet there never was any "90 percent debt-to-GDP tipping point".

Reinhart and Rogoff thought there was because they did not do any robustness checks of their data-analysis binning procedures.

Perhaps an apology to the misled world should be a high priority? Perhaps it should be a higher priority than rants claiming that their critics like me—who were right—engaged in "years of mounting polemics against austerity policies, Keynesian dogma has become something close to a secular religion"?

Marking your beliefs to market makes your thoughts stronger and raises your credibility. Not doing so does the reverse:

Ken Rogoff: The Austerity Chronicles: "After years of mounting polemics against austerity policies, Keynesian dogma has become something close to a secular religion in popular economic-policy debates. But a new study of 16 advanced economies shows that, as with all dogmas, righteousness is no substitute for empirical facts...

...Angry polemics that carelessly toss around the word “austerity” to encompass a dizzying range of economic issues, ranging from fiscal retrenchment under market duress to any policy that slows the march to socialism.... The term “austerity” is often used polemically as a catch-all for almost any fiscal policy that accounts for the risks and realities around government budget constraints. And, unfortunately, in the current illiberal intellectual climate, merely suggesting alternatives to the mainstream progressive dogma can summon the anti-austerity thought police.... Alesina, Favero, and Giavazzi will be tarred and feathered for daring to suggest that... a well-timed and well-designed fiscal retrenchment can sometimes be expansionary... Austria, Denmark, and Ireland in the 1980s.... Spain, Canada, and Sweden in the 1990s.... Alesina has been lambasted by the likes of Paul Krugman... and political scientist Mark Blyth.... I stand by scholars’ right to explore and express their ideas freely without being subjected to personal attacks by other academics when they dare to disagree with narrow-minded Keynesian dogma....

Anyone not hewing exactly to the dogmatists’ policy mix is immediately dismissed as a proponent of “austerity.” For example, though it is difficult to fathom his logic, Robert Skidelsky has described the notion that governments might extend the maturity of their rising debts (to reduce long-term refinancing risks) as an argument for “austerity.”... Alesina, Favero, and Giavazzi point out [that] some of the best candidates for expansionary austerity after 2008, notably Italy, did not even give it a try. Meanwhile, they find that “the two countries that did better with austerity were Ireland and the United Kingdom”...

Austerity challenges the conventional dogma in a host of other ways that are too numerous to include here.... Two examples deserve to be highlighted. First, it has been widely argued that government spending multipliers are larger at the zero-interest-rate bound.... Second, the authors devote an entire chapter to challenging the popular notion that any politician who tries to adopt an austerity program will be kicked out of office.... Alesina, Favero, and Giavazzi have written a fundamentally non-ideological book that raises the bar... however much left-leaning polemicists try to dismiss it as blasphemy...

#mondaysmackdown #economicsgonewrong #publicsphere #highlighted

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