Homeless man in Greece, one of the millions worldwide told to "get used to it" by Drs. Reinhart and Rogoff, the austerity lovers chief economists, who recently were shown to be inept (or dishonest) researchers, in addition to their being monsters.
“Misperceptions can be costly when made by fiscal authorities who overestimate revenue prospects and central bankers who attempt to restore employment to an unattainably high level.”—Carmen Reinhart, explaining in 2010 why high unemployment is just something people should get used to.
“If one reads their paper carefully, it is clear that Reinhart and Rogoff picked the 90% figure almost arbitrarily. They chose, without explanation, to divide debt-to-GDP ratios into the following categories: under 30%, 30-60%, 60-90%, and over 90%. And it turns out that growth rates decline in all of these categories as the debt-to-GDP ratio increases, only somewhat more in the last category.”—Robert J. Shiller, Professor of Economics, Yale University, July 21, 2011Most likely you have heard the story by now of how key pushers of austerity economics, Harvard professors Carmen Reinhart and Kenneth Rogoff, had their pro-austerity research absolutely debunked by two professors and a grad student at UMass's economics department.
Reinhart and Rogoff, whose ideas had been the fundamental intellectual basis for austerity measures introduced widely in Europe, and for debt-cutting obsessions by lawmakers and pundits in the United States, quickly became the brunt of jokes, while many critics pointed out that they had been in part responsible for the greatly increased suffering—through budget cutting during a time of sustained high unemployment—of millions of human beings.
Reinhart and Rogoff’s response?
They gave that today in the New York Times.
And it is a bizarre and brazenly dishonest rejection of any responsibility they have for the fact their faulty research was used to justify hurtful austerity programs.
According to Reinhart and Rogoff, instead of their being enablers of bad policy decisions, they are the real victims, as the professors complain:
“Our research, and even our credentials and integrity, have been furiously attacked in newspapers and on television. Each of us has received hate-filled, even threatening, e-mail messages, some of them blaming us for layoffs of public employees, cutbacks in government services and tax increases. As career academic economists (our only senior public service has been in the research department at the International Monetary Fund) we find these attacks a sad commentary on the politicization of social science research."After claiming victimhood—kind of like an entitlement—and seeing "sadness" that somebody might hold social science researchers accountable for something, R&R bravely conclude:
"But our feelings are not what’s important here.”
So, why mention them then?
Typical of Reinhart and Rogoff's brazen disconnect from honest debate, or maybe even from reality itself, is their claim that they never indicated that there was anything important about a certain debt versus GDP relationship, at 90 percent:
“Nowhere did we assert that 90 percent [of debt versus GDP] was a magic threshold that transforms outcomes, as conservative politicians have suggested.”
The problem is that actually Reinhart and Rogoff were professionally committed to arguing about the magic threshold in lots of somewheres. For example, here they are writing as a team on Bloomberg View back on July 14, 2011—during the debt-ceiling-crisis debate:
“Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that 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. Nevertheless, many prominent public intellectuals continue to argue that debt phobia is wildly overblown.”It is true that later in the article, Reinhart and Rogoff offer the following caveat:
“We aren’t suggesting there is a bright red line at 90 percent; our results don’t imply that 89 percent is a safe debt level, or that 91 percent is necessarily catastrophic.”However, that comes after Reinhart and Rogoff have repeatedly argued that 90 percent is, as they say, “an important marker” for suffering lower growth. If the idea was to give a balanced view of the importance of this number, the caveat should have come immediately after the assertion of “the important marker”.
And then, after this seeming qualification, Reinhart and Rogoff, contradict it, plainly stating that 90 percent is not just a marker, but in fact is a kind of threatening “threshold”:
“Our 90 percent threshold is largely based on earlier periods when old-age pensions and health-care costs hadn’t grown to anything near the size they are today. Surely this makes the burden of debt greater.”If you don't want people to confuse the 90 percent point as a "bright red line" or a "threshold", it would probably be good not to call it “our 90 percent threshold”, like they own the idea and its clear call to get obsessed with cutting debt, no matter how austere things might get for the people not paying R&R to write pro-1%-propaganda.
Even if Reinhart and Rogoff did not intend their threshold to be seen and treated as “magic”, the concern that economists such as Robert J. Shiller (a critic of R&R) had (in 2011) was that the wealthy investor community was in fact treating the 90 percent debt to GDP point as “some magic threshold”, and these wealthy elites were having an undue (i.e., the usual) influence over economic policy makers:
“The fundamental problem that much of the world faces today is that investors are overreacting to debt-to-GDP ratios, fearful of some magic threshold, and demanding fiscal-austerity programs too soon. They are asking governments to cut expenditure while their economies are still vulnerable. Households are running scared, so they cut expenditures as well, and businesses are being dissuaded from borrowing to finance capital expenditures. The lesson is simple: We should worry less about debt ratios and thresholds, and more about our inability to see these indicators for the artificial—and often irrelevant—constructs that they are.”
If only the lesson were as simple as Dr. Shiller said. But it isn't. As Paul Krugman asks today, partly in response to what he calls the "disingenuous" defense of their research offered by Reinhart and Rogoff:
"[It] makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?"
Unless the sheeple make some surprise sallying forth from their fleece, yes that is what we shall see.