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View Diary: Reply to Reinhart and Rogoff’s NYT Response to Critics (38 comments)

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  •  It's necessary now too (2+ / 0-)
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    ek hornbeck, gjohnsit

    It is necessary now too. But it's  very true that it has to be the right kind of deficit spending in the economic context of a particular nation.

    That's why MMT doesn't say that deficits are always and everywhere good, or always and everywhere lead to growth Details are important and econometric studies have to be very carefully and comprehensively designed to assess alternative causal models. RR didn't do that.

    At the NEP site, a commenter raised the issue of why MMT economists hadn't replicated the study since it seemed so easy to do. I replied there in this way.

    John, I suspect that the type of study you’re proposing is in the works now that the data’s been released. Remember, that UMKC people did try to acquire the RR data to replicate their work back in 2010, but RR refused to distribute their spreadsheet and have continued to refuse to disclose it until a few weeks ago. Of course, an attempt could have been made to gather the data again, but then the situation would have been a he said, she said deal with the name of Harvard and the money of the austerians in back of R and R, so that kind of refutation would have received little attention.

    MMT economists were very active in criticizing the RR study in 2010 and since on design and theoretical grounds. Those criticisms were decisive. The simple point that RR didn’t distinguish between fiat sovereign nations and, more generally among nations based on their type of currency system was enough to convince me that the study was BS. When people continued to take it seriously after critiques from Randy and Yeva Nersisyan and also Bill Mitchell appeared told me in 2010, that the mainstream didn’t care about the validity and would not listen to obvious critiques.

    It was also plain to me that the study was junk economic science because it included so few variables. That is, if you’re basically producing two variable correlations over all nations you can’t be interested in really explaining economic growth while highlighting the role of debt levels in that process. The reason why is that you’re not including the variety of variables and measures you need to partial out spurious correlations. For example, if you’re looking at economic growth as the dependent variable, then many other factors can impact that such as levels of unemployment, educational quality, levels of private investment, the proportion of an economy occupied by the FIRE sector, attributes of the health care system, price stability, crime rates, cultural factors, etc. You also need to investigate reverse causation and mutual causation, and of course do that across differing currency regimes.

    I can go on and on, but my point here is that, based on its design, and failure to include data that would test alternative theories and explanations of gowth, it was evident to me, and should have been evident to the econometricians working for the world’s major institutions that the R-R reported results, even without calculation errors, or leaving out relevant data points, could not say possibly say anything about causal relations that would be useful in arriving at policy recommendations. It was empty of policy relevance unless people wanted to believe in austerity. It was, in other words, a pure “junk science” fig leaf for the oligarchs to prosecute their war against everyone else.

    The press and MSM media played along with the fig leaf because they are owned and dominated by the oligarchs, not because there was ever anything worthwhile about the RR work, the level of which is so amateurish as an example of econometrics work that it would boggle the mind of an observer if that observer didn’t know that the academic system at the big schools had been corrupted by the grants/think tank system funded by the oligarchs.

    I think, finally, that the RR study is an example of the corruption of social science in modern times. I believe that one can show that the study was not just guilty of calculation errors and errors of omission, but that these must be seen as part of a pattern of systematic bias that permeated their whole process of inquiry beginning with their selection of the problem, moving through every decision point in implementing the study, and ending with their evaluation of their evidence and their writing of the result. They made no attempt to do a scientific study maximizing fair comparison of alternative theories having policy relevance, but instead prepared what was essentially a legal brief supporting austerity policies and the Pete Peterson line. The social costs of what they did are strewn all over the globe. See this recent post at DailyKos.

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