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Pete Peterson Linked Economists Caught in Austerity Error


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JL
- 601 days ago - prwatch.org
A team of economists at the Political Economy Research Institute (PERI) at UMass Amherst broke a huge story this week that was promptly picked up by the New York Times, the Washington Post, the Financial Times, &newspapers around the globe. The economi



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JL A. (276)
Thursday April 25, 2013, 6:17 pm
Pete Peterson Linked Economists Caught in Austerity Error
by Mary Bottari April 18, 2013 - 11:59am
Topics: Economy
Projects: Real Economy Project
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A team of economists at the Political Economy Research Institute (PERI) at UMass Amherst broke a huge story this week that was promptly picked up by the New York Times, the Washington Post, the Financial Times, and newspapers around the globe. The economists proved that the essential underpinning "of the intellectual edifice of austerity economics," as Paul Krugman put it, is based on sloppy methodology and spreadsheet coding errors.
Reinhart-Rogoff Study Debunked

Kenneth Rogoff and Carmen ReinhartKenneth Rogoff and Carmen ReinhartThree years ago, Harvard economists Carmen Reinhart and Kenneth Rogoff released a study that presented empirical evidence from 44 nations over a 200 year time span to demonstrate that countries with a public debt over 90 percent of GDP (the United States is at about 100 percent, Japan at 200 percent) have average growth rates one percent lower than other nations.

Forty-four countries, 200 years, Harvard -- pretty convincing, huh?

Except it was wrong.

When the PERI team finally got a hold of the data used by Reinhart and Rogoff, they uncovered gaping problems. They found that "coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth." Adjusting for these errors, the Amherst team contends that "the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent."

It would all be a Massachusetts "Ivory Tower" kerfluffle if the Reinhart-Rogoff study were not cited by practically everyone in Washington, including Paul Ryan, Simpson-Bowles, and the entire "Fix the Debt" crowd, to justify harmful cuts and a stalemate on stimulus currently condemning millions to mass unemployment.

And it should come as no surprise that the economists have ties to Wall Street billionaire Pete Peterson.
Study Used to Justify Harmful Cuts and High Unemployment

It is hard to understate the importance of the study. It has been cited around the globe by academics, politicians, and the mainstream media. In the U.S., it is one of Paul Ryan's favorite justifications for his draconian Path to Prosperity budget, for GOP rejection of further stimulus, and the Fix the Debt crowd's frenzied calls for urgent action. President Obama is now on the austerity bandwagon, enacting numerous cuts and proposing new cuts to programs like Social Security in order to achieve a "Grand Bargain" on deficits. As a consequence, mass unemployment is a new normal.

In Europe, "R&R's work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10 percent for the euro zone as a whole and above 20 percent in Greece and Spain. In other words, this is a mistake that has had enormous consequences" for real people, says economist Dean Baker in a piece called "How Much Unemployment Did Reinhart and Rogoff's Arithmetic Mistake Cause?"

Time and time again, economists tried to replicate the Reinhart-Rogoff results, but to no avail. Now, Thomas Herndon, Michael Ash, and Robert Pollin show us why. One mistake, admitted by the authors and gaining the most attention, is an Excel spreadsheet error. Check out the screen shot of the year.

As the authors put it: "A coding error in the RR working spreadsheet entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis. [Reinhart-Rogoff] averaged cells in lines 30 to 44 instead of lines 30 to 49... This spreadsheet error... is responsible for a -0.3 percentage-point error in RR's published average real GDP growth in the highest public debt/GDP category." Belgium, in particular, has 26 years with debt-to-GDP above 90 percent, with an average growth rate of 2.6 percent (though this is only counted as one total point due to the weighting above).

Mother Jones dubbed it "the Excel Error Heard Round the World."
Pete Peterson's Fingerprints

It will come as no surprise that Reinhart and Rogoff have ties to Wall Street billionaire Pete Peterson, a big fan of their work. Peterson has been advocating cuts to Social Security and Medicare for decades in order to prevent a debt crisis he warns will spike interest rates and collapse the economy. (Peterson failed to warn of the actual crisis building on Wall Street during his time at the Blackstone Group.)

When Washington Post writer Suzy Khimm pointed out to Peterson that the U.S. built significant deficits during the financial crisis but maintained very low interest rates, Peterson responded that America still needed to be on high alert: "you know [Kenneth] Rogoff and [Carmen] Reinhart -- I've talked to them, and they say [debt crises] are sudden, they're sharp, they're very substantial. The risk is simply too big. At some point, if we lurch from crisis to crisis, then confidence will decline on our economy in general."

As the Center for Media and Democracy detailed in the online report, "The Peterson Pyramid," the Blackstone billionaire turned philanthropist has spent half a billion dollars to promote this chorus of calamity. Through the Peter G. Peterson Foundation, Peterson has funded practically every think tank and non-profit that works on deficit- and debt-related issues, including his latest astroturf supergroup, "Fix the Debt," which has set a July 4, 2013 deadline for securing an austerity budget.

Reinhart, described glowingly by the New York Times as "the most influential female economist in the world," was a Senior Fellow at the Peterson Institute for International Economics founded, chaired, and funded by Peterson. Reinhart is listed as participating in many Peterson Institute events, such as their 2012 fiscal summit along with Paul Ryan, Alan Simpson, and Tim Geithner, and numerous other Peterson lectures and events available on YouTube. She is married to economist and author Vincent Reinhart, who does similar work for the American Enterprise Institute, also funded by the Peterson Foundation.

Kenneth Rogoff is listed on the Advisory Board of the Peterson Institute. The Peterson Institute bankrolled and published a 2011 Rogoff-Reinhart book-length collaboration, "A Decade of Debt," where the authors apparently used the same flawed data to reach many of the same conclusions and warn ominously of a "debt burden" stretching into 2017 that "will weigh heavily on the public policy agenda of numerous advanced economies and global financial markets for some time to come." (Note that not everyone associated with the Institute touts the Peterson party line.)
Bankrupt Analysis

The authors have issued two rebuttals to the Amherst study. In their latest, they object that anyone would think they were "misconstruing analysis to support austerity" or a political agenda. Perhaps it had to do with pieces like this one entitled "Too Much Debt and the Economy Can't Grow" that warns against further stimulus at a time when mass unemployment is wreaking devastation on the lives and livelihoods of workers young and old.

Economists like Herndon, Ash, Pollin, Baker, and Krugman have never bought the argument that economies can cut their way out of a crisis, and now data from the Reinhart-Rogoff study, from numerous European countries, from the IMF, and even from CMD's home state of Wisconsin (now ranked an astonishing 44th in job creation), support their contentions.

If only they had half a billion to spread the word.
 

Jeanne Young (19)
Thursday April 25, 2013, 8:58 pm
Considering that Social Security cuts have NO effect on the promote thbudget, and that this report has been widely used to promote those cuts, it doesn't seem too surprising that errors were made - - -
 

Helen Porter (40)
Thursday April 25, 2013, 10:40 pm
We paid for our Social Security.

The government took our funds leaving IOUs. Well, they owe us.
I
 

Kit B. (276)
Friday April 26, 2013, 5:20 am

What a difference some sun light makes. One or two goofs in your Excel Spread Sheet and suddenly that whole Austerity thing, is worthless. Not that I expect conservatives to suddenly stop harping on "smaller government" how could they? That is their illogical 'cause celeb', get a job in government to take down government. Umm, Could be that Keynesian Economics is not so dead after all.
 

Gene Jacobson (255)
Friday April 26, 2013, 7:18 am
"It would all be a Massachusetts "Ivory Tower" kerfluffle if the Reinhart-Rogoff study were not cited by practically everyone in Washington, including Paul Ryan, Simpson-Bowles, and the entire "Fix the Debt" crowd, to justify harmful cuts and a stalemate on stimulus currently condemning millions to mass unemployment.

And it should come as no surprise that the economists have ties to Wall Street billionaire Pete Peterson."

When you can't find facts to back up your ideology, you make them up. This is a surprise? Not to anyone following American history over the last 200 years, this IS how this country has always done it, justified everything we have done around the world and here, with cooked books. Keynes was right, everyone but the republican party of today knows this, including the republican party from Nixon through Shrub as they all knew austerity in recession or depression only makes a bad time worse. And these are the people, we the people, elect to lead us. Today when a winning smile, a pleasant (if pretend) personality and a nice head of hair are the primary qualifications for office. It reminds me of an old saying, probably Mark Twain or Will Rogers, you get what you pay for. And often what you deserve - that parts mine. When you vote based on anything but concrete facts and voting records and previous actions of your candidate. When you ignore the truth because he or she "sounds" nice, you get what you deserve when they take their seat at the big people's table. And we never seem to learn, we grow to be a more superficial society every single day and it makes me sick, we could be so much better than this, but I just don't see that coming in my tea leaves.
 

Kit B. (276)
Friday April 26, 2013, 8:15 am

Psst, did any one tell Paul Ryan?
 

JL A. (276)
Friday April 26, 2013, 9:29 am
LOL Kit! You and Gene explain the perils well!
You cannot currently send a star to Kit because you have done so within the last day
You cannot currently send a star to Gene because you have done so within the last day
 

Past Member (0)
Friday April 26, 2013, 1:48 pm
noted thanks
 

JL A. (276)
Friday April 26, 2013, 3:35 pm
You are welcome Carol
 

Michael Kirkby (86)
Saturday April 27, 2013, 3:27 pm
Noted LOL
 

JL A. (276)
Saturday April 27, 2013, 4:13 pm
You cannot currently send a star to Michael because you have done so within the last day.
 

Theodore Shayne (56)
Sunday April 28, 2013, 10:36 am
Please forgive them folks; they're politicians after all.
 

JL A. (276)
Sunday April 28, 2013, 11:03 am
You cannot currently send a star to Theodore because you have done so within the last day.
 
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