In an op-ed in the NY Times today the “spreadsheet error” economists tell us all we need to know about their research and their conclusions. In the op-ed, Reinhart and Rogoff: Responding to Our Critics, skip to the last paragraph:
“Now we are being attacked by the left — primarily by those who have a view that the risks of higher public debt should not be part of the policy conversation. “
I think these two words tell the whole story. All the economists and other scholars who are criticizing the errors and selective use of favorable data in work represent “the left.” Actual science that looks at the real world to see what actually happens is “the left.”
Here is the situation:
1) There was a downward spiral, businesses were laying off so customers were not spending. This caused businesses to cut back more, which caused customers to cut back more, which caused businesses to cut back more.
2) Expectation were also in a downward spiral because everyone saw what was happening so they cut back too.
3) Deflation joined the party as businesses cut prices to try to get customers, so customers decided prices were going down and decided to wait before buying.
4) Unemoployment caused people to ask for lower wages when they took a job, which put downward pressure on wages, so cutomers were cutting back even more, (go to 1)
5) Etc., spiraling ever downward.
In the past, society learned that the way to fix this is for government to step in and “stimulate” the economy by investing in things like infrastructure project, hiring people to fix roads etc., which stopped the spiral. In fact the Obama stimulus reversed the downward spiral. We were losing 800,000 jobs a month until the stimulus kicked in, then after a while we were gaining jobs again.
But then came the Wall Street-backed “austerians” demanding that government cut back instead of stimulate. Wall Street benefits from unemployment because the very wage drop means they pay less for the labor commodity. And they benefit from deflation because people with lots of money gain while people who owe money lose. And the “study” by Reinhart and Rogoff provided an intellectual justification for Wall Street’s demand.
In Europe they tried “austerity” instead of stimulus. While Obama’s stimulus did reverse the terrible layoff situation, Europe’s austerity caused massive layoffs, resulting in unemployment rates of 25%-plus, and deepening recession.
So along with the lessons of history we have more proof of what works.
1) History: stimulus stops the downward spiral.
2) Obama’s stimulus stopped that downward spiral.
3) Europe’s cutbacks in government spending made things worse.
And when scholars were finally able to see how Reinhart and Rogoff came up with their results, we had even more evidence that their cut-government prescription was bogus.
These two are not about looking at the facts and coming to honest conclusions. That’s why they chose to cherrypick data that would end up showing the conclusion Wall Street types wanted. And now that they are exposed they blame “the left” instead of “science.”