Reinhart-Rogoff Response to Critique • Hacker News Board

Re: Reinhart-Rogoff Response to Critique

#11

Post by gruseom » Wed, Apr 17, 2013, 2:14 AM UTC

anigbrowl wrote: post #8

(copied from my comment on the article) The original paper concluded that debt overhang above 90% of GDP would result on growth of -0.1%. This was based on three serious flaws – 2 of methodology, one of spreadsheet programming. The corrected figure is 2.2%. To pretend that this is not a big deal is disingenuous considering how widely the 2010 paper was cited. It’s true that the 2012 paper is more accurate and also th…

and also that higher debt leads to lower growth

Or that lower growth leads to higher debt. See Krugman's chart at http://krugman.blogs.nytimes.com/2013/04/16/reinhart-rogoff-....

Re: Reinhart-Rogoff Response to Critique

#12

Post by gruseom » Wed, Apr 17, 2013, 2:15 AM UTC

Dean Baker's critique of this response is typically incisive:

[Herndon, Ash, and Pollin] found growth was slower in periods with debt levels above 90 percent of GDP than below, but the gap was relatively small and nowhere close to statistically significant. Furthermore, they found a much bigger gap in growth rates around debt-to-GDP ratios of 30 percent. If we think that [Reinhart and Rogoff's] methodology is telling us something important about the world then the take-away should be that we want to keep debt-to-GDP ratios below 30 percent.

http://www.cepr.net/index.php/blogs/beat-the-press/quick-tho...

Re: Reinhart-Rogoff Response to Critique

#13

Post by jamesaguilar » Wed, Apr 17, 2013, 2:57 AM UTC

knowtheory wrote: post #10

jamesaguilar wrote: post #5

Earlier quoted context omitted.

Could one even be off by an order of magnitude with economic growth numbers? On a base of 2.2, that requires being off by 20%. You could never be off by an order of magnitude because economies don't grow or shrink by 20% pretty much ever.

But they're even wrong on that. Saying that -0.1 is like 2.2 is not correct. The difference between -0.1 and 2.2 is an order of magnitude (e.g. a difference by a multiple of ten).

I guess no matter how you look at it, they are taking a totally wrong-headed approach to their mistakes.

Re: Reinhart-Rogoff Response to Critique

#14

Post by tellarin » Wed, Apr 17, 2013, 4:48 AM UTC

GabrielF00 wrote: post #2

This is an unsatisfying response. It doesn't answer the question of why Reinhart and Rogoff chose to exclude certain high-debt years for certain countries or why they chose the particular weighting mechanism that the critics found problematic.

While I agree that it doesn't seem to be an adequate response (the whole -0.1 to 2.2 difference looks problematic enough), they claim that their 2012 paper addresses the weighting mechanism.

So we'd need to read that paper too to then argue if it somewhat clarifies their findings.

Re: Reinhart-Rogoff Response to Critique

#15

Post by tptacek » Wed, Apr 17, 2013, 3:50 PM UTC

gruseom wrote: post #12

Dean Baker's critique of this response is typically incisive: [Herndon, Ash, and Pollin] found growth was slower in periods with debt levels above 90 percent of GDP than below, but the gap was relatively small and nowhere close to statistically significant. Furthermore, they found a much bigger gap in growth rates around debt-to-GDP ratios of 30 percent. If we think that [Reinhart and Rogoff's] methodology is telling…

You buried the lede!

Note there is no entry in a debt-to-GDP ratio for assets, just liabilities. So if we believe the R&R story, then we can increase the growth rate through [auctioning off the California coastline].

People are fixated on the lurid detail of the story; do the Google search and see the "bad numbers! Excel spreadsheet! bad numbers!" roll by. The real issue, which Matt Yglesias pointed out last year, is that the purported result is hard to square with reality. Japan has the highest debt ratio in the world. If they disposed of it tomorrow, they would not suddenly be the fastest growing economy.