The Excel Depression
19 Apr 2013
“Quantitive easing was right after all !” AW
The theoretical economic justification for austerity measures have been proved to be due mainly to an Excel spreadsheet error . This will have major political ramifications , especially if an Hysterical Focus forms .
1.Broad summary :
Two respected academic economists (Reinhart and Rogoff) purportedly showed that GDP fell over a cliff if debt exceeded 90% of GDP
This formed the basis of austerity policies , especially in the EU . When subjected to the scientific requirement for replication , it was found to be in error . See Appendices A , B ,C .
2. There will be major repercussions .
2.1 The EU will nearly certainly switch to the Quantitive Easing US model .
2.2 This will preserve the EU .
2.3 Stockmarkets will boom .
2.4 The present EU recessions will ease to minor growth at first .
2.5 Everybody will blame Reinhart and Rogoff . Convenient scapegoats for bad governance .
3.Hysterical Focus :
See Appendix D
An Hysterical Focus of major proportions will form , especially if attempts are made to continue with austerity programs .
This news just broke , so it is still percolating down the information strata . Democratic politicians will have to change tack sharply if they wish to remain in office (German elections due in September) .
This will be an ugly Hysterical Focus .
Millions of people have been hungry , had careers ruined , been fired , etc . All because of an Excel blunder and governance gullibility
Remember , one of the defining characteristics of a big Hysterical Focus is that it does not go away . Examples are the phone hacking in UK or pedophiliacs .
4. Misery Index .
Economists are becoming rivals to religious fundamentalists and conquerors in the sheer human misery their half-baked ideas have caused . Adam Smith (“Invisible hand”) or Karl Marx (“Communism”) or others . Remember conglomerates ?
5. The way out : Ostrum Systems .
6. Legal recourse :
The Granddaddy of all class-action suits.
Negligence by academe and governments caused the mess . So sue them .
Perry Mason , where are you when the ministers need you ?
Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet — and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these oddities and errors, and you get what other researchers have found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign at all of that 90 percent “threshold.”
Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo
Download 421 kB
Herndon, Ash and Pollin replicate Reinhart and Rogoff
find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. They find that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogo
ff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.
The authors also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff
's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.
Media requests: please contact Jared Sharpe.
>> Download the paper here1
>> Download the data and code files upon which the results are based
>> Download a text document that describes the files in the code and data archive
>> Download Robert Pollin and Michael Ash's op ed in the Financial Times
1 The current version of this paper was updated at 1:35 pm on April 17, with the following corrections:
(1) The notes to Table 3: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Canada, and Denmark from the analysis." is corrected to read: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Belgium, Canada, and Denmark from the analysis."
(2) Page 13: “Thus, in the highest, above-90-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950-2009 sample declines to only 2.5 percent per year in the 1980-2009 sample” is corrected to read "Thus, in the lowest, 0–30-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950–2009 sample declines to only 2.5 percent per year in the 1980–2009 sample."
SEARCH PERI >>>>>>>>>>>>>>>
Who did it ?
The Econ Student Who Challenged Reinhart-Rogoff on Debt
April 18, 2013
hen Thomas Herndon, a student at the University of Massachusetts Amherst's doctoral program in economics, spotted possible errors made by two eminent Harvard economists in an influential research paper, he called his girlfriend over for a second look.
As they pored over the spreadsheets Herndon had requested from Harvard's Carmen Reinhart and Kenneth Rogoff, which formed the basis for a widely quoted 2010 study, they spotted what they believed were glaring errors.
"I almost didn't believe my eyes when I saw just the basic spreadsheet error," said Herndon, 28. "I was like, am I just looking at this wrong? There has to be some other explanation. So I asked my girlfriend, 'Am I seeing this wrong?'"
His girlfriend, Kyla Walters, replied: "I don't think so, Thomas."
In the world of economic luminaries, it doesn't get much bigger than Reinhart and Rogoff, whose work has had enormous influence in one of the biggest economic policy debates of the age. Both have served at the International Monetary Fund. Reinhart was a chief economist at investment bank Bear Stearns in the 1980s, while Rogoff worked at the Federal Reserve, passing through Yale and MIT before landing at Harvard.
Their study, which found economic growth slows dramatically when a of a country's annual economic output, has been cited by policymakers around the world as justification for slashing spending.
Former U.S. vice presidential candidate , a Republican congressman from Wisconsin, is one influential politician who has cited the report to justify a budget slashing agenda.
Using the two professors' data, Herndon found that instead of a dramatic fall in growth, the decline was much milder, slowing to about 2.2 percent, instead of the slump to minus 0.1 percent that Reinhart and Rogoff predicted.
Things tend to move at a glacial pace in the world of academic research papers, but within 24 hours Herndon and his two teachers, who co-authored the report, Michael Ash and Robert Pollin, found themselves swept up in a global debate. Herndon's paper began life as a replication exercise for a term paper in a graduate econometrics class. He expected to replicate Reinhart and Rogoff's results, then challenge the idea that high public debt caused growth to slow.
But he never got that far. Repeated failures to replicate the results roused his interest. Pollin and Ash encouraged him to pursue it after he convinced them he was onto something. "At first, I didn't believe him. I thought, 'OK he's a student, he's got to be wrong. These are eminent economists and he's a graduate student,'" Pollin said. "So we pushed him and pushed him and pushed him, and after about a month of pushing him I said, 'Goddamn it, he's right.'"
Herndon approached Reinhart and Rogoff earlier this year for the spreadsheets they used in their paper. The two professors provided them at the start of April, unlocking the mysteries of the data that had stumped Herndon.
Herndon said only 15 of the 20 countries in the report had been used in the average. He also said Reinhart and Rogoff used only one year of data for New Zealand, 1951, when growth was minus 7.6 percent, significantly skewing the results.
Reinhart and Rogoff have admitted to a "coding error" in the spreadsheet that meant some countries were omitted from their calculations. But the economists denied they selectively omitted data or that they used a questionable methodology.
For Ash, the findings mean the claim that causes growth to stall no longer holds water. "Their central thesis has been substantially weakened," he said.
Reinhart and Rogoff, however, say their conclusion that there is a correlation between high debt and slow growth still holds. "It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," they said in a joint statement. "We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."
Now that Herndon has ably crossed swords with some of the most eminent figures in his field, he is thinking about expanding his work into a Ph.D. thesis.
Inside the Ignition of an Hysterical Focus.
28 Jun 2010
The spontaneous formation of order into a random set of 40 million diverse humans grew out of at most 50 humans , but the tinder was dry .
I was privileged to follow the ignition process . I never thought I would experience this rather rare phenomenon .
I was listening to CapeTalk 567 , a talk radio program in the Western Cape .
At about 10h00 on 4th June 2010, they reported receiving numerous SMS , emails , twitter and calls about delays in the issuing of tickets .
I expected the whole thing to die down , as disgruntled citizens just gave up on it as another example of incompetence . (Sepp Blatter's nephew was in charge)
The opposite happened .
Really amazing !
The small group interaction of the queuer's via twitter , SMS, emails , cellphone was amplified by the inrush of new connectors because of long-range network information systems like CapeTalk radio .
By 11h00 the tone had been set . Note network theory . The long-range network elements like Twitter and TalkRadio had spread and the resultant inpour of messages escalated the system into a runaway positive feedback system .
By 12h00 the system had lurched into the present benign mode of "Foreigners with money-good , foreigners like Zimbabweans , Somalis – bad : get them later ."
This will get externalised as wars .
The sheer speed of it was amazing . By the afternoon , I was living in an entirely new society .
This is typical of an Hysterical Focus .
A seemingly trivial matter precipitates a phase change , focusing large-scale frustrations into a Focus . The Focus then fractures the society in totally unforeseen ways . When the breaks anneal , you have a new , more competitive society (cf French Revolution) .
Has it happened before ?
Yes , but they had to work hard at it . Newspaper owners in the USA , UK (Like Hearst) thought they could ignite Hysterical Foci . They could , but only with months of saturation propaganda .
Barack Obama got elected mainly because of a minor ignition of the effect via Facebook .
Can it happen again ?
Of course . It is every marketer's wet dream . A small , controllable group influencing millions of other people .
Why Twitter ?
The interesting point here is that this is first hint of a workable system to break the 150 person tribal ceiling . This ceiling is hard-wired in by genetic , epigenetic and meme systems . Twitter paradoxically bypasses this by the limitation on number of characters allowed (140 , amusingly near the tribal ceiling . Not surprising) .
The right of reply and fairness .
Fairness is hardwired in humans . Abuse of Right of reply leads directly to systems like Twitter , where there is no reply . 140 characters cannot give sufficient data-space
The lack of fairness can only be compensated for by large numbers of twitters of various other persuasions . The totality sums .
We can actually put some numbers on this :
See http://andreswhy.blogspot.com "Inside of zero " and others . We need only 26 different centers of uniqueness to describe any particular Universum .
This translates into a minimum necessary sufficient of 27 individuals to ignite a Hysterical Focus .
Notice that 26=27-1
This is known as God's Mercy .
Infinite descent is possible .
The cocktail party .How many guests to invite .At last we can put a minimum number to it . And it is 27 .
Bagh. I am sick and tired of it .