"There is a crack in everything, that's how the light gets in"
(Leonard Cohen)
"Ignore all proffered rules and create your own, suitable for what you want to say"
(Michael Moorcock)
"Look for your own. Do not do what someone else could do as well as you. Do not say, do not write what someone else could say, could write as well as you. Care for nothing in yourself but what you feel exists nowhere else. And, out of yourself create, impatiently or patiently, the most irreplaceable of beings."
(Andre Gide)
"I want my place, my own place, my true place in the world, my proper sphere, my thing which Nature intended me to perform when she fashioned me thus awry, and which I have vainly sought all my life-time."
(Nathaniel Hawthorne)
“A book must be the axe for the frozen sea within us.”
(Franz Kafka)
"All mankind is of one author, and is one volume; when one man dies, one chapter is not torn out of the book, but translated into a better language; and every chapter must be so translated"
(John Donne)
“Never attribute to malice that which is adequately explained by stupidity.”
(Robert J. Hanlon)
"Life is beautiful, but the world is hell"
(Harold Pinter)

Thursday, May 02, 2013

Austerity Myth Debunked

Down, down, down
EXTRACT: Last week, quite wonderfully, also saw the debunking of a central myth promulgated by fiscal conservatives and hawks everywhere - not just the hapless Osborne. First published in American Economic Review - a supposedly peer-reviewed and prestigious academic journal dating back to 1911 - the seminal 2010 paper, ‘Growth in a time of debt’ by Carmen Reinhart and Kenneth Rogoff, looked at 20 advanced economies since 1945. Both former IMF employees, they argued that, when “gross external debt” reaches 90% or more of GDP, then a country’s average growth rate collapses to -0.1%. Conversely, when debt was below 90% of GDP, you had growth rates between 3% and 4%. Inevitably, this conclusion has been cited by everyone from the IMF, World Bank, European Central Bank and the Euro group to Angela Merkel and, of course, George Osborne to justify programmes of ‘fiscal consolidation’ and vicious austerity, creating human misery on an enormous scale.

There was only one problem with Reinhart’s and Rogoff’s paper - it was total bunk. Researchers from the University of Massachusetts at Amherst found a simple coding error that omitted several countries from a Microsoft Excel spreadsheet of historical data - a few rows left out of an equation to average the values in a column. Almost a schoolboy error. As a result of this statistical mistake in the original calculations, it is now abundantly clear that the 90% ‘debt cliff’ does not exist. Simply put, Reinhart and Rogoff confused cause and effect: countries have high debt levels because they have slow growth rather than having slow growth because they are heavily indebted. You surely do not have to be a genius to realise that.

No comments: