This Time Is No Different

Half-Baked Theories Still Direct Global History

The blood runs cold when one fully appreciates how vulnerable Western policymakers are to slogans and magical thinking. The Reinhart-Rogoff case is the latest, and certainly will not be the last, in which the credulity and carelessness of experts wreak havoc among millions of ordinary people.

In 2010, Carmen Reinhart and Ken Rogoff, the former chief economist of the International Monetary Fund, presented a research paper (.pdf) that purported to demonstrate that when a country’s debt goes above 90 percent of its gross domestic product economic growth falls off or may even regress. “Aha!” cried the politicians and policy experts in the United States and Europe. Here was just what they needed. If public debt inhibited growth, there was a sure-fire way to end the greatest slump in decades. All governments had to do was slash their budgets and soon investor confidence would be restored. The crisis would thus end in a way that vindicated the dominant economic theory of the Chicago School—the theory behind Reaganism and Thatcherism—and show the world that economic science always has the answer.

The policy wonks and journalists who publicized the Reinhart-Rogoff paper never bothered to check it, since it so nicely confirmed their untutored intuition. Olli Rehn, European commissioner for economic and monetary affairs, soon cited the paper to justify the EU’s austerity policies, which involved slashing infrastructure and social spending throughout Western Europe. In the United States, Paul Ryan used it to defend his plan to shrink or replace entitlement programs.

Then Michael Ash, an economist at the University of Massachusetts Amherst, gave his students the exercise of reproducing the results of some current economics paper. Graduate student Thomas Herndon chose the Reinhart-Rogoff paper. But he couldn’t make it work out. Others students tried. Ash himself also tried and failed. So he wrote to Ken Rogoff for an explanation. The latter pluckily sent the original spreadsheet and documentation for the paper. These revealed that Reinhart and Rogoff had used some very questionable methodology and that, because of a spreadsheet error, they had simply left out of their calculations five of the twenty countries supposedly being considered. According to BBC News, Reinhart and Rogoff sent a message to Herndon, thanking him for giving so much attention to their work and for “pointing out an important correction.” They said they would “redouble” their efforts to avoid such errors in the future. Meanwhile, because of austerity policies their paper was supposed to support, Greece sees hardship and political chaos, the Irish and Portuguese economies have collapsed, Spain and Italy suffer serious crises, the French government totters, and everyone hates the Germans for forcing austerity on everyone else.

I am not writing this simply to pile onto the economists whose work was used to justify disastrous policies. What concerns me more is the demonstration of credulity on the part of elected leaders and policy professionals, who eagerly accepted research findings that seemed too convenient to be true.

This has happened many times before, with disastrous consequences. Marxism, which was proposed as a “science” of history, once entranced much of Europe and later Asia. Of course, it wasn’t science at all, not even as science was understood at the time of The Communist Manifesto (1848) or Marx’s major theoretical work, Capital (1867–1894). It was the Bolshevik Revolution that made Marxism famous, but that revolution did not follow the course Marxist “science” had predicted. Marx foresaw a worldwide revolution conducted by the industrial working class, which hardly existed in rural Russia at the time of the Bolshevik Revolution, and not at all in China at the time of its Communist revolution. Peasant armies defeated the White and European interventionist armies in Russia after 1918, and peasant revolutionaries, led by Mao, defeated Chiang Kai-shek in China (and later stalemated the U.S. military in Korea). In both places Marxism supplied what might be called a moral message of inevitable victory—foreordained by scientific history—and this was a vital motivational factor.

In our own time, two spurious theories have led the United States to spend billions of dollars and sacrifice thousands of American lives in unnecessary wars in Southeast Asia, South Asia, and the Middle East. The first was the domino theory of Asian communism’s potential for launching worldwide revolution, which had to be thwarted at any cost. The second was the theory, associated with Samuel Huntington, of a “clash of civilizations” between the Islamic world and the West. This was seized on by the George W. Bush administration and neoconservatives to justify war in Afghanistan and Iraq after America had been attacked by a small band of religious extremists. Washington’s reckless response helped convince a significant part of the Islamic world that the United States really was hostile to Islam. It is now reported that one of the young men accused of the Boston Marathon bombings said the United States was “at war” with Islam and had to be stopped. Yet another example of how much damage a half-baked theory can lead to when politicians are insufficiently skeptical.

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See the problem of preconceived positions in this same Commonweal issue. Those who hate entitlements will find and support any possible way to enhance their argument that they bring down our economy. Those who simply oppose paying taxes will do the same. The problem is that the media give them credibility on flimsy evidence, quoting people who are not experts in any field, and flogging dead horses from any quarter. Without the media froth, these hamstrung theories would never gain readership or credibility and we would all be much better off. Some talking heads are talking only to themselves.

This article tries to focus on erasing the fundamental truths of the Reihnart/Rogart analysis due a calculation errot which does not fundamentally change the truths in the analysis.  It is just an attempt for Comonweal's liberally biased editors to profer that commons sense budget management is not a worthy and important goal for any family, city, state or govenrment entity.  This of course is absurd, as well as dangerous.  Deficits DO MATTER and indeed the depth of deficits MATTERS greatly.

Maybe you shoudl review the attached article. Remember liberals have re-defined "cuts" to mean "cuts to increases" an absurd use of language.  http://www.economonitor.com/blog/2013/04/its-a-bit-early-to-declare-a-winner-in-the-economic-debate/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+economonitor%2FOUen+%28EconoMonitor%29

Here is a good analysis using Reinhart/Rogart data supplied by Herndon et al.

http://www.nextnewdeal.net/rortybomb/guest-post-reinhartrogoff-and-growt...

The post concludes that the data do not have a discontinuity at 90% debt/GDP and in fact "Controlling for the previous year's GDP growth largely erases the negative relationship between debt-to-GDP ratio and GDP growth, especially for the range where debt is 30 percent or more of GDP.  This is because a fall in GDP precedes the rise in Debt-to-GDP ratio."

Talking about bad arithmetic? FOX news and its political allies are now on a campaign to have the US declare war on 2 billion Muslims based on the actions of about a dozen disgruntled newbie semi-Muslims.

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About the Author

William Pfaff, a former editor of Commonweal, is political columnist for the International Herald Tribune in Paris. His most recent book is The Irony of Manifest Destiny: The Tragedy of America's Foreign Policy (Walker & Company).