Economists and austerity errors
Sir, – The famously infamous spreadsheet error by economists Carmen Reinhart and Kenneth Rogoff (Martin Wolf, Business, April 24th) and the subsequent debate on austerity has rightly or wrongly brought forth one important issue: the sensitivity of techniques, tools and methods that economists use to analyse economic data have immense consequences for economic policy.
The Massachusetts economists’ study that replicated the original Reinhart and Rogoff’s paper argues that in addition to the coding error they have also uncovered a non-standard weighting scheme and selective exclusion of available data, and they show that taking all these into account leads to the conclusion that the average GDP growth for countries with public-debt-to-GDP ratio of over 90 per cent is actually 2.2 per cent and not -0.1 per cent as estimated by Reinhart and Rogoff.
Notwithstanding Reinhart and Rogoff’s defence that correcting the coding error does not change their original result, the issue raises larger questions given their impact on economic policy and hence the human condition.
If economic policy conclusions are drawn from models and analyses so sensitive that a small change in the technique can result in a diametrically opposite conclusion, is it not high time to ask economists what else are they doing with the data and what other unstated assumptions underlie their bold policy recommendations to governments?
Is it not high time to expect some accountability from economists who advise governments and other media economists who generate wider political support for the established economic doctrine of the day? – Yours, etc,
Discipline of Economics,
JE Cairnes School
of Business & Economics,