Grad Student Who Shook Global Austerity Movement • Hacker News Board

Re: Grad Student Who Shook Global Austerity Movement

#41

Post by danso » Fri, Apr 19, 2013, 2:11 PM UTC

What do people think about the researchers' rebuttal in the WSJ?

http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-ad...

I'm too much of a layperson in statistics and economics to tell, at this early in the morning without coffee, how much of this is eloquent backtracking BS:

> So do where does this leave matters on debt and growth? Do Herndon et al. get dramatically different results on the relatively short post war sample they focus on? Not really. They, too, find lower growth associated with periods when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; over 90, 2.2%. Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt. They ignore the fact that these results are close to what we get in our Table 1 of our AER paper they critique, and not far from the median results in Figure 2 despite its coding error. And they are not very different from what we report in our 2012 Journal of Economic Perspectives paper with Vincent Reinhart—where the average is 2.4% for high debt versus 3.5% for below 90%

Re: Grad Student Who Shook Global Austerity Movement

#42

Post by rjtavares » Fri, Apr 19, 2013, 2:11 PM UTC

sergiosgc wrote: post #13

rjtavares wrote: post #7

Earlier quoted context omitted.

I'm Portuguese, and the amount of people here that think that "if the financial crisis in the US didn't happen we wouldn't have a problem" is mind-boggling. Because apparently having your debt rise from 50% to 70% of GDP in 7 years without recessions or crisis (2000-2007) [1] and running a budget deficit that never went below 3% [2] isn't a sign of a problem... [1] http://www.google.com/publicdata/explore?ds=ds22a34k…

Portugal entered the euro, and a couple of decades of economic stagnation while companies switch from producing cheap labor shoes to high value added goods was to be expected. Portugal did surprisingly well up until 2007, with small but consistent GDP growth and was clearly on the road to being a more evolved economy. 2007 saw a growth of 2.4%, by all measures good for an economy in transition. During the transition,…

> During the transition, some debt accumulation would be tolerable. Levels up to 120% were, prior to Reinhardt Rogoff considered acceptable.

I may be rusty on my Keynesian Economics professor's lessons, but shouldn't you reduce government deficits in expansion times, so that you can safely let the stabilizers kick in if you enter a recession?

> As such, the view that the timing of the financial crisis was particularly unfortunate for Portugal is, in my view, entirely correct.

Of course it was unfortunate, because the country (both public and private sector) were incredibly leveraged. Which is completely different than saying that it was the cause.

Pleases note that the banking system is Portugal didn't suffer as much as the Spanish or Irish, e.g. In fact, the banks that were nationalized in Portugal were the result of deliberate fraud (Ponzi-like schemes), not just irresponsible behavior.

EDIT: btw, here's Portuguese per capita GDP in constant terms between 2000 and 2007 to dispel the success argument - http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&#...

Re: Grad Student Who Shook Global Austerity Movement

#43

Post by talmand » Fri, Apr 19, 2013, 2:14 PM UTC

knowtheory wrote: post #27

iwwr wrote: post #6

So what is the alternative to lowering "consistently high public debt"? Monetize it? Default on it? Debt in itself is not a problem if the growth rate is the same or decreasing as a proportion of the economy. At the current rate, some obligations would have to be forfeited, either to the direct creditors, or to those promised social services. Strangling the economy further with high taxes only makes the problem worse…

Depends what your borrowing situation is. During the financial crisis, irrespective of our level of public debt, the bond rates were actually such, that people were basically PAYING the federal government to borrow money. Instead, we had politicians on an austerity tear, and ranting about how we needed to reduce the national debt. We could have borrowed a big chunk of money, earned the interest off of it, and then ju…

Yes they say it, but the opposing party opposes it. The Democrats most certainly do not wish to run the government as business but as more of a piggy bank that someone else fills each night. Therefore, even if the Republicans wanted to do such a thing they likely cannot.

But, as you say, they haven't been very serious about such an idea for quite a while.

Re: Grad Student Who Shook Global Austerity Movement

#44

Post by afterburner » Fri, Apr 19, 2013, 2:16 PM UTC

iwwr wrote: post #6

So what is the alternative to lowering "consistently high public debt"? Monetize it? Default on it? Debt in itself is not a problem if the growth rate is the same or decreasing as a proportion of the economy. At the current rate, some obligations would have to be forfeited, either to the direct creditors, or to those promised social services. Strangling the economy further with high taxes only makes the problem worse…

Don't fight debt in a massive recession when borrowing costs are at record lows and unemployment is high.

Re: Grad Student Who Shook Global Austerity Movement

#45

Post by pmorici » Fri, Apr 19, 2013, 2:17 PM UTC

confluence wrote: post #18

You would be surprised how many things that exist around you are based around faulty models based on incorrect data - that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. You have been warned - the further fields get from pure mathematics and isola…

In the case of economics it seems there might also be large conflicts of interest at play. The 2010 documentary, "Inside Job" http://en.wikipedia.org/wiki/Inside_Job_(film) about the economic crises talks about how several prominent academic economists are essentially paid to author studies that amount to not much more than puff pieces supporting a political view point of a political party or corporation.

On another note, given that the Fed has been "quantitatively easing" (seems to be a polite term for printing money) since the financial crisis and currently holds over 3 Trillion in government and mortgage debt those actions have to be keeping interest rates lower than they otherwise might be. It's kind of burying the lead to say interest rates are super low we should borrow a bunch of money when they are being intentionally kept that way through government action.

Re: Grad Student Who Shook Global Austerity Movement

#46

Post by pasbesoin » Fri, Apr 19, 2013, 2:18 PM UTC

confluence wrote: post #18

You would be surprised how many things that exist around you are based around faulty models based on incorrect data - that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. You have been warned - the further fields get from pure mathematics and isola…

> higher dimensional fields like economics and finance

As I've gotten older, I've become -- through experience -- more cognizant of how this is the case also in medicine and other fields. And in many aspects of "hard science", as well.

There are a lot of people out there who want to believe certain things. Being a "scientist" doesn't seem -- in general, across the population of scientists -- to confer any great immunity to this.

On the one side, there are the "faith-ers". ("We just need the evidence. Or... I'll "extrapolate" to a conclusion.)

On the other side, the "deniers". (If it hasn't been explained/proven (in some cases, down to the level of quantum fluxuation), it can't possibly exist and I'm going to ignore any anecdote, supposition, or empirical evidence to the contrary.)

Both of these can drown out the actual, intelligence conversation around a topic. And they can grossly mis-inform a public that would be much better served by same.

If the public weren't so busy listening to the "extremists". Perhaps there is the rub.

Re: Grad Student Who Shook Global Austerity Movement

#47

Post by carbocation » Fri, Apr 19, 2013, 2:28 PM UTC

danso wrote: post #41

What do people think about the researchers' rebuttal in the WSJ? http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-ad... I'm too much of a layperson in statistics and economics to tell, at this early in the morning without coffee, how much of this is eloquent backtracking BS: > So do where does this leave matters on debt and growth? Do Herndon et al. get dramatically different results on the relatively short…

If I recall correctly, their original result had negative growth (like -0.1%) when debt is above 90%, and the revised result has growth at 2.2%.

The revised 2.2% is much closer than the original -0.1% to the rate at the next level down (3.2%).

So now they are clinging to the fact that 2.2% growth is still less than 3.2%. It is, but it's much closer than the old, original -0.1% growth.

Re: Grad Student Who Shook Global Austerity Movement

#48

Post by jbooth » Fri, Apr 19, 2013, 2:36 PM UTC

pmorici wrote: post #45

confluence wrote: post #18

You would be surprised how many things that exist around you are based around faulty models based on incorrect data - that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. You have been warned - the further fields get from pure mathematics and isola…

In the case of economics it seems there might also be large conflicts of interest at play. The 2010 documentary, "Inside Job" http://en.wikipedia.org/wiki/Inside_Job_(film) about the economic crises talks about how several prominent academic economists are essentially paid to author studies that amount to not much more than puff pieces supporting a political view point of a political party or corporation. On another…

As far as the rates that the feds have to pay to borrow money -- that's set by the market. They can issue bonds at 0.25% and people will buy them, therefore the interest rate is that low. It's not like they're forcing people to buy. The feds aren't setting the price for that interest rate -- well, they are, but what people are willing to pay is actually what sets the price.

Quantitative easing actually should, in theory, lead to inflation and higher interest rates. It's basically printing money. I think you have it confused with counter-cyclical fed reserve short-term lending rates which, by virtue of being very low, induce banks to lend money at only a little higher.

Re: Grad Student Who Shook Global Austerity Movement

#49

Post by fyi80 » Fri, Apr 19, 2013, 2:36 PM UTC

pmorici wrote: post #45

confluence wrote: post #18

You would be surprised how many things that exist around you are based around faulty models based on incorrect data - that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. You have been warned - the further fields get from pure mathematics and isola…

In the case of economics it seems there might also be large conflicts of interest at play. The 2010 documentary, "Inside Job" http://en.wikipedia.org/wiki/Inside_Job_(film) about the economic crises talks about how several prominent academic economists are essentially paid to author studies that amount to not much more than puff pieces supporting a political view point of a political party or corporation. On another…

Is there a way to quantify QE in personal finance terms? Like, can I saw "QE is an X% inflation" for some X, so I can apply that to my personal understanding of the purchasing power of my savings once people try spending their inflated dollars and send ripple through the economy?

Re: Grad Student Who Shook Global Austerity Movement

#50

Post by fyi80 » Fri, Apr 19, 2013, 2:41 PM UTC

skylan_q wrote: post #17

Retric wrote: post #8

Earlier quoted context omitted.

The real problem is by the time a county has big debts there so used to deficit spending defaulting = austerity. The US borrowed enough money to avoid a significant economic melt down. Long term avoiding pain from borrowing is not sustainable be cause you always want lower taxes and faster growth. For austerity to work before your forced into it you need a multi decade commitment to gradual spending reductions or sig…

http://www.policyalternatives.ca/publications/monitor/beware... It only really takes a few years. We went through "painful" austerity in Canada. Both at the federal level and provincial level. This left everyone hating the federal finance minister and the premier of the province. In the end, the environment was cleaner, the debt problem was tackled, and everyone had a job. (when you compare the late 90's to the early…

Was Canadian austerity like European austerity? Or was it a cut from (making up numbers here) 2x European social services to 1.5, vs Europe's 1x cut to 0.5x?