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German austerity doctrine based on .. um .. coding error.


Volatire

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The German Finance Minister Dr Wolfgang Schauble is chief architect of the German Austerity Doctrine. According to this Doctrine peripheral European countries must be subject to brutal austerity for their own good. Schauble believes that levels of sovereign debt above 90% of GDP damage growth. Therefore there is no option but to impose crippling austerity on already broken economies for their own good.

A permanently stable European currency is an indispensable part of this European growth model. As we discussed in Tokyo, and on several other occasions again and again, our conviction is that an excessive level of sovereign debt poses a risk to sustainability. Therefore I strongly believe in the research of Rogoff and Reinhart, for example, that as soon as you have reached a certain limit of sovereign indebtedness, increasing the deficit and the debt will not create more growth but will actually harm growth. For this reason, we have to know that if we want to achieve sustainable growth, we have to reduce sovereign debt in nearly all advanced economies.
Dr. Wolfgang Schäuble MdB: Position

Unfortunately, it turns out that the Rogoff & Reinhart research is based on flawed methodology and ..um.. coding errors.

According to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.

Fix all that, say Herndon et al., and the result apparently melts away.
Holy Coding Error, Batman - NYTimes.com

It seems that the research that Dr Schauble "strongly believes in" and which justifies the German Austerity Doctrine is an innumerate pile of crap.
 


Sync

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If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.
Oh I dunno Kruggy, if it's true I find it hard to blame people who made decisions in good faith based on bad maths over the people who got the maths wrong.

A coding error in the RR working spreadsheet entirely excludes ve countries, Australia,
Austria, Belgium, Canada, and Denmark, from the analysis.
Seriously? You guys left out frigging Canada and Australia, 2 of the top 15 GDP countries and didn't notice???
 
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neiphin

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Oh I dunno Kruggy, if it's true I find it hard to blame people who made decisions in good faith based on bad maths over the people who got the maths wrong.
you have no problem blaming low paid public servants
 

Congalltee

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Less than 90% debt/GDP and a deficit less than 3% are very good things.

Until the McCarthy report is implemented in near full, effective corporation tax is closer to 12%, public sector pensions are capped or social welfare is reformed - then we don't have an austerity programme (what we have is 5 years of disjointed short term measures which have reduced the deficit to 7.5%!!!).
 

cyberianpan

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A ) Rogoff and Reinhart have yet ro answer

B) And more importantly : current crises in PIIGS have fiscal, rather than business cycle roots - so corrections are simply necessary accounting (rather than attempting to encourage growth)

The Rogoff and Reinhart work gave nice political cover though as it allowed the pretense of austerity as a good , rather than merely necessary thing
 
D

Deleted member 34656

Seriously? You guys left out frigging Canada and Australia, 2 of the top 15 GDP countries and didn't notice???
Day probly forgoh to send in dare self-worf.

Self-worf is all dah mahhers.
 
D

Dylan2010

im not sure what the problem is, only tards would run an economy above 90% debt to gdp if they need to borrow on foreign markets. below 60% better
 

He3

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This is why I only ever cross bridges designed by engineers, not economists.
Yet there has never been a failed bridge designed by an economist, a record that engineer-designed bridges cannot match. :)
 

duthealla

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one of the other problems with the R-R approach was that it arbitrarily picked the debt brackets so that the figure of 90% is considered meaningful as opposed to another.

Apparently it also doesn't distinguish very well other factors which might weight down on growth besides debt but hey coding the problem wrong is a fu** up on a different scale.

I'm still planning on reading their book this time its different - a history of financial crisis this summer.
 

duthealla

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im not sure what the problem is, only tards would run an economy above 90% debt to gdp if they need to borrow on foreign markets. below 60% better
I guess the whole point is why is that the case?

Why is 90% something only tards would do and below 60% somehow very different. What happens between 62-89% and if you are at 95% debt and its stable is that a **** situation.

I'm not arguing that 90% is great. I don't know either way but I need something more than 'tards' to get a fee for what the actual economic damage is.
 

EvotingMachine0197

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Yet there has never been a failed bridge designed by an economist, a record that engineer-designed bridges cannot match. :)
Yeah, but based on recent history, if an economist did design a failed bridge, he'd get promoted. The engineer just gets sacked.
 

ibis

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And yet still we have the problem that nobody will lend to us for a stimulus until we have the money to do it ourselves through austerity.
 

ibis

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Yeah, but based on recent history, if an economist did design a failed bridge, he'd get promoted. The engineer just gets sacked.
Can an engineer design a bridge that's too big to fail?
 

Didimus

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Oh I dunno Kruggy, if it's true I find it hard to blame people who made decisions in good faith based on bad maths over the people who got the maths wrong.



Seriously? You guys left out frigging Canada and Australia, 2 of the top 15 GDP countries and didn't notice???
There may be an argument for saying including Canada and Australia for the period from 1946 - 195 may have distorted things in that both had a sudden surge in available labour in the aftermath of the war.
And to be clear it was a choice to leave them out , not a coding error.
 

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