World’s most dangerous software program…
…is evidently Excel.
CEPR has a new report out that Reinhart and Rogoff’s infamous This Time it’s Different was based on a piece of bad arithmetic.
We also know that Excel was at least partly behind the shenanigans involving the London Whale, which leads me to believe that this may in fact be the most economically dangerous software program floating around in the world.
Forget high speed margin trading software and automated trades, it’s the ability for humans to utterly screw up entering math into excel cells that can cost lots and lots of jobs in an economy.
Edit:
On the Reinhart and Rogoff issue, this is an enormous blunder that not only threatens their credibility as economists, but the entire notion of doing quantitative research and modeling. It’s been the go to study for austerity advocates and deficit hawks, and formed the center piece of Paul Ryan’s actual data based argument for his budget plans.
You can find an initial version of the full paper here.
That’s not Excel, that’s stupidly and lack of proofreading one’s work (and proofreading the work of people one peer-reviews).
Nothing’s idiot-proof for a sufficiently talented idiots.
But it’s preposterous and maddening that economic dogma can be created by something as simple as a mathematical error. It come down to people accepting what they want to believe – if they believe neoliberalism is true, they’ll assume anything that supports it is correct and anything that contradicts it is wrong, without the most basic oversight.Report
Well, to be fair — it’s often subtler than that. The answer comes out what you expect — so why check further?
In this case, there were several other questionable choices in the model — the Excel error was just icing on the cake. That seemed a deliberate thumb on the scale, whereas an issue with updating some fields seems like the sort of mistake that gets overlooked — because the results were ‘as expected’.Report
A spreadsheet is a program — at least a spreadsheet that does any calculations is. Spreadsheet software is a terrible programming environment — the literature on the subject goes back to the 1980s. Among the more egregious problems: (1) There’s almost never a test plan. In part because intermixing code and data makes it hard to do test cases. (2) Inserting or deleting a row or column can result in the software changing an unknown number of formulas. Sometimes the changes are incorrect. But without a test plan, who knows? (3) The nature of the “language” makes code inspection hard. It’s not APL, but checking that a range is right in a big spreadsheet can involve a miserable amount of scrolling. So people don’t do it.
The error rate in samples of spreadsheets from the real world, even those where there were the equivalent of code reviews, are enough to make most programmers cringe. If my real-time hobby code had the same number of errors as the typical spreadsheet, well… God only knows what the controller would be doing, because I sure wouldn’t.Report
I agree. Spreadsheets are an awesome tool. Just not an awesome tool for doing serious data analysis, anything with a lot of intermedate variables, or anything with a lot of conditional flow. Which pretty much makes it useless for this type of work.
If you’re mathematically and logically literate enough to do statistics work on data sets like the ones R&R were using, you’re certainly sharp enough to learn a language designed for that kind of task. Can’t everybody who does this sort of thing use matlab or octave yet? R? You probably wouldn’t have to get past Chapter 2 of a “Dummies” book one one of those tools to learn enough to repeat this analysis without any bugs.Report
I have to agree, it is very strange to do economic analysis in Excel.Report
Excel’s greatest strength is ubiquity. If you are doing an analysis of a modest-sized collection of data, and you’re going to share it with an arbitrary set of people, Excel on Windows is the one numerical package (that includes optimization tools and a full programming language) that you can assume all of those people will have access to, no matter what other restrictions their local IT organization imposes. I have taken graduate classes within the last few years where Excel was mandated — when I asked if I could use R for the statistics, I was simply told no, Excel was the only option. I assume that using Excel becomes a habit.
In the world of odd coincidences, I recently discovered that some 35 years ago, I had a small hand in the code that eventually became the nonlinear optimizer in Solver. I set up one of the test cases from those days — the algorithm as currently implemented seems to have the same weaknesses that it did back then.Report
Yes, but if you’re doing analysis for a journal article, you’e not going to be shopping your working around to a lot of people who can’t read it with anything better than excel.
I certainly stick some stuff in Excel because non-technical people need to be able to read it, or in some cases even edit it. There’s even one report I keep in excel because I use it as a desktop publisher for that report.
But academic analysis seems like a poor fit for excel.Report
But academic analysis seems like a poor fit for excel.
You and I agree on that. But that doesn’t mean that there’s not a lot of academic analysis being done that way. I suspect there are many, many cases for each one that gets found like this one.Report
Yes. So one wonders why people didn’t jump down their throats when they went to a publisher with data from a freaking spreadsheet.Report
At least for the original book, consider: two well-known and reputable economists approach you with a manuscript. It’s a hot topic in current affairs and they’ve taken one side of the controversial argument. They tell you they’re willing to do the rounds to push the book. Are you really going to ask them, “What analysis tools did you use to get your numbers?” or tell them, “Well, we’ll have to have an independent expert verify your data analysis; can you provide your data files and code, please?”Report
This doesn’t have anything to do with “neoliberalism.” Whether the government should run a surplus or a deficit is largely orthogonal to the question of how much it should be spending. Depending on revenue levels, you can run either a surplus or a deficit at any nonzero level of government spending.
Even if you could produce research showing that high levels of government debt created jobs, doubled economic growth, cured cancer, and added three new colors to the rainbow, cutting spending by 5% of GDP and taxes by 7% of GDP would be entirely consistent with that finding.Report
But we’re talking to debt to GDP ratio as a variable affecting GDP growth here. In that sense the size of the deficit does matter, because the argument is hinged that reducing debt-GDP ratio is a net driver of economic growth. Neoliberalism is perhaps less relevant than Katherine says it is, (and I agree here) but it’s still germane to the reasons for why this hypothesis came into being in the first place. Specifically they were probably thinking about crowding out effects and capital flow problems.Report
I didn’t say that the deficit didn’t matter, but rather that you can run a deficit at either high or low spending levels. I’d be pretty happy to get countercyclical fiscal policy paired with low spending levels.
Really, even taking R&R’s original conclusions at face value, there’s nothing wrong with running deficits in a recession as long as you pair it with countercyclical austerity to bring it back down. If you’re doing it right, you shouldn’t have to run debts up to 90% of GDP, because you pay off the debt during the high-growth periods.
Skimming the paper, it looks like they had a textbook Keynesian mechanism in mind. Specifically, debt can’t keep growing as a percentage of GDP forever, so at some point you need to start paying that debt down. The contraction needed to do that then reduces growth.Report
Garbage In, Garbage OutReport
If you build something even an idiot can use only an idiot will use it.Report
Yeah, but it’s never been restricted by ITAR.
http://www.cypherspace.org/adam/rsa/Report
Similarly, automobiles are the most dangerous form of transportation because they kill the most people. So go ride a motorcycle instead.
Just pointing out the logic gap. I am not a big fan of Excel, but it has its place in simpler calculations.
But this is how science proceeds. A journal referee (surely there was one?) takes a fresh look or an independent team (HAP) tries to reproduce the findings. Shame on R&R for such an egregious blunder.Report
R & R have responded.
I think Yglesias succinctly sums it up: “It’s great that when challenged [R & R] retreat to the more defensible claim that their work is actually irrelevant, but many policymakers and pundits seem to feel otherwise.”Report
R&R’s response is a smoke screen with no real responding being done.Report
You echo what seems to be the consensus. What will be interesting to see is whether or not R & R value their cred. If they do, surely they’ll be forced to eat some crow but they’ll hold on to their professional dignity. If not, guess we’ll see them on Fox News sometime soon. Gotta make a living.Report
I live in Excel for the majority of my workday. I have also seen accounting blunders of nearly a million dollars that go uncaught for months. It’s a useful tool but middle management treats it like a miracle worker. The problem is lack of oversight and often people that aren’t really good at math being placed in positions where they are asked to do accounting and use Excel to close the knowledge gap.
Beyond that I have no real answer for how this happens at the scale it did in this situation. These people should know better.Report
Cell reference errors are easy to make, and nearly impossible to spot.
There’s a reason why I do all but the simplest work in R these days.Report
R?Report
Statistical program. It’s got a learning curve steeper than El Capitan.
I’m partial to Stata and SciPy personally.Report
Thx.Report
Talking out of my ass:
R is like C. You can create the universe with it, but you can make really stupid errors if you don’t understand what the actual learning curve is. If you need to program and you’re not a programmer by trade, don’t use C. If you need to do some statistical manipulation and you’re not a stats nerd by trade, don’t use R. If you’re a world builder, though, it’s the right tool for the job.
Stata is like Python. If you need to do statistical manipulation and you’re not *just* a statistician, just use it, it gets the job done.Report
I tend to agree with this analysis. Which is probably why I like Stata and SciPy. :pReport
It’s the quantitative analysis programme most preferred by pirates.
After all, it is open source.Report
Then it can’t be pirated. What fun is that?Report
I’ve been using S for many years, going back to maybe 1985. For me, R is just an improved S.Report
five bucks says that the tent pole of the “austerity now” worldwide faction being shown to be made of confidence fairy dust and magic thinking will not change anything. the Ryan’s and Osborne’s and Merkel’s of the world will continue to say cut cut cut kill your safety net now and save bankers and bondholders from having to live with their bad decisions. because we all know that the stupid poor and gullible middle class do not deserve even a functioning safety net while the wealthy deserve billion dollar bailouts because they suck at their jobs.
and money always talks and walks loudest.Report
I’ve not had much exposure to the Reinhart and Rogoff argument, but I’m not terribly surprised it doesn’t stack up. Austerity isn’t a good idea because it’s good for economic growth, austerity is a good idea because the alternative is disaster, as Greece is demonstrating. That’s not an endorsement of any possible austerity programme, but it is an endorsement of avoiding structural deficits like the plague.Report
Greece is a terrible example to use to demonstrate anything of general applicability.
First off, the Euro plan with the disconnect between fiscal and monetary authority is deeply flawed.
Second, Greece in particular had a historic record of dismal tax collection with evasion being something of a national sport.
Third, we’re seeing worldwide the flaws inherent in a debt-based monetary system where the majority of the money in an economy is created by banks issuing loans. In short, structural deficits are absolutely necessary to maintain economic growth in such a system.Report
True.
Also true, but every government had to set its budgets in accordance with how much tax money it can get out of its citizenry. That the Greek people had a low tolerance for taxation is a real constraint on the Greek government’s ability to raise revenue, and therefore to spend. A shame they didn’t seem to realise that.
What? That makes no sense. Structural deficits are a fiscal issue, not a monetary one. This has nothing to do with banks. And governments don’t need to run structural deficits at all, New Zealand stopped running structural deficits in the late 1980s, because our borrowing brought us to disaster.Report
I hesitated to put that last part in because I’m not sure if I’m ready to defend it here. (I’ve been collecting links and composing, mostly in my head, an OP on this. Maybe.) You’re an economist by trade, which means, as a purely practical matter, you have to adhere to the conventional orthodoxy to keep food on your table. I’m under no such intellectual constraints.
What? That makes no sense. Structural deficits are a fiscal issue, not a monetary one.
Nominally, that’s absolutely correct. But the current orthodoxy on how to run a monetary system forces governments to run either maintain trade surpluses or run structural deficits to keep things running half-way smoothly.
This has nothing to do with banks.
It has everything to do with banks. More specifically, it has everything to do with the role banks play in the money supply. Anywhere from 87% to 97% of a country’s money supply, depending on the country and the policies of their central bank, is created by the issuance of loans by private banks.
And governments don’t need to run structural deficits at all, New Zealand stopped running structural deficits in the late 1980s, because our borrowing brought us to disaster.
And what does your trade situation look like? And what is the policy of your central bank in creating new base money (M1)?Report
I can’t really engage with a half-formed idea Rod, so what I suggest is you take whatever time you need to be ready, and then go for it. I’m sure the Bees that Power will give you some room for a guest post.Report
Congrats on the vote by the way James. I saw a youtube of the singing in Parliament and was a bit moved. Good on the kiwiis.Report
Thanks North, it’s a proud day for me.Report
You mean these guys? I’ll never think of our League overlords the same way again.Report
Rod, I for one am looking forward to such a post. I’d recommend adding this article to your reading list.
James K. is glossing over important structural changes in New Zealand’s “structural” deficit reductions. Bottom line, they reduced expenditures, dramatically. Given all the places to park capital in a society, having the gov’t suck up a big chunk of it to finance deficits will absolutely have a deleterious effect on the economy. So-called deficit hawks are hunting in the right arena, not because they are focusing on deficits per se, but because they are concerned with expenditures. We don’t have an income problem in this country, we have a spending problem. Only a fool believes the gov’t spends money better than its citizens could. Regulatory capture, bribery, graft, Solyndra, A123 et al are mere cases in point.Report
If a corporation stops running structural deficits, they generally go out of business.
Why should we treat governments any differently?
Ought governments to be evaluated by how much they give for how much they cost?
Also, there are strategic ramifications to Breton Woods II, in more military senses, which ought to be considered…Report
“If a corporation stops running structural deficits, they generally go out of business.
Why should we treat governments any differently?”
You can start by reading Krugman.
Not to be harsh, but your question indicates that at best, you don’t know what you are talking about.Report
… umm… Krugman writes a lot. cite a damn article, or cite twenty, but seriously! It’s not like you’re just saying “go read deLong’s past week of papers”Report
… and exactly where has Krugman argued that leveraged assets are automagically a bad idea? (note: i’m not talking about overleveraging here, 20-to-1 is probably bad news, if only because you can’t sustain any losses without margin calls).
Debt means that you’re leveraging your assets (and your future income).Report
Okay, I’ll cite first, simply because I was browsing and came across this…
http://delong.typepad.com/sdj/2013/04/is-the-us-treasury-a-cost-or-a-profit-center-for-the-federal-government.htmlReport
If a corporation stops running structural deficits, they generally go out of business. Why should we treat governments any differently?
I can indeed think of many critical reasons why we treat governments and corporations/Biz very differently, in terms of their roles in any democratized society.
So I guess I’m disagreeing with the basis of your argument, but not actually disagreeing with your point vis structural deficits.Report
kt, oh, I quite agree with you. I just find using Republican memes rather amusing, particularly when it illustrates how much Republicans don’t know about how businesses run.Report
As I suspected, you and I are on the same page.
Speaking of how Republicans don’t seem to know how businesses run … I’m recently struck–like a fishing lightening rod–by the Dumbassery (not a real word but imo it oughta be) of Eden Foods’ CEO. Is he really that out of touch with the particular sensibilities of his own consumer base? Apparently he is.
But I digress. Apologies.Report
I’d hope that you’d be more concerned with the fact that Kimmi’s assertion is simply wrong than with the corporation/government analogy. When a corporation stops running a structural deficit, that’s called making a profit.Report
… am I totally misreading terms again? I understood it to be borrowing to pay the bills, something that all businesses do regardless of whether they make a profit or not.
I’m not talking merely about utilities, which are bought and sold because they hold so much debt.Report
or, I’m sorry, nearly all solvent companies borrow on future earnings…Report
“This has nothing to do with banks.”
… tell that to JFK.Report
He could have just as easily used 1990’s Canada or 1980’s New Zealand in place of Greece. Countries can overborrow and it’s painful, embaressing and unpleasant to unwind the mess that such things cause*.
*note that the US is not close to such a ceiling… yet.Report
Exactly. Point being, when democratized First World countries screw the pooch, history proves they ultimately recover their footing one way or another. Which is why it seems obvious to me that it’s such a bad idea to use Greece as some kind of uniquely relevant cautionary tale.
Greece is, currently, a problem child for the EU, no question. (Here in the US, we have at least a few states who also fit the Problem Child category.)
But seriously, the minute I see someone waving Greece around like it bears any relevance to our own [admittedly considerable] US economic challenges, I realize they’re either robotic partisans, or economically illiterate, or historically illiterate. Or any combination of these.Report
I picked Greece for currency, not because it’s unique. I fit were truly uniqe it would make for a poor warning.
The US has a long way to go before it hit the problems Greece has, but it does not have an infinite way to go.Report
100% agreed.Report
I’d say that because the U.S. prints its own currency, any debt problem it has is different in kind from Greece and not just different in degree.
The Fed can buy up all the debt, ensuring that there is no chance (barring the a Republicans destroying the government in a hissy fit by voting to stop paying bills) that we’ll default, thereby keeping U.S. bonds safe and reasonably low interest.
In Greece, that didn’t happen, and the cost of borrowing increased. And then you borrow more to pay the increased cost of borrowing, and you’ve got a death cycle.
There are theoretical problems if the fed buys up too much debt: currency becomes worth less, price of imports goes up (each person can’t buy as much junk), price of exports goes down (that is good for exporters). But we’re not talking Greece-style explosion here. And we’re so far away from these theoretical problems, it’s like worrying about global cooling in a billion years while we have global warming in the present.Report
But the only way it can buy up the debt is to buy it with freshly-minted currency, leading to inflation. This works to get rid of the debt you’re holding, but bond markets aren’t stupid and when you go back out to borrow more money you’ll have to pay higher interest rates to account for your new inflation rate.
There are ways to get rid of your debt, but you actually have to stop borrowing money for them to work.Report
Or tank the economy of everyone else, so people have to buy your bonds.Report
No one has to buy your bonds, you can buy stocks, corproate bonds or not invest at all.Report
I don’t think we’ve ever actually seen a country with the scale of the US economy and a global reserve currency try to massively inflate its way out of debt.
Not that I want to actually see that happen, but there are several conditions that do make the US’s fiscal situation substantially different.Report
Shazbot touches upon my immediate argument with citing Greece specifically for currency. Apples to oranges.
The US has a long way to go before it hit the problems Greece has, but it does not have an infinite way to go.
Wha? Because of the infinite possibilities that exist in the universe, we should be seriously debating that the US might perhaps go the way of Greece, even though there’s next to zero reason it would?
If we’re gonna start seriously debating the Fat Chance In Hell stuff, don’t we have domestic issues more worthy of our attention? Seriously, if I’m gonna expend any energy at all on the Fat Chance In Hell stuff, it’ll be on US Election/Campaign Reform.Report
This comment makes me think of this:
http://www.hulu.com/watch/1451Report
I’m talking about time, not probability. If your government continues to run structural deficits, it is near-certain you will suffer a major fiscal crisis. The reason you should care now, is that the more time you have to implement an austerity programme, the less it will hurt.Report
People have been saying this about the Japanese fiscal system for the better part of the last two decades and so far it’s come to naught. Given how durable even a yen financed debt regime has been, I’m not convinced the dollar is particularly vulnerable, either. Simply put, we’ve yet to see a multi-trillion dollar economy with a strong reserve currency get into a state suffered by the likes of New Zealand or Argentina. It’s likely to happen at some point if the US Congress keeps futzing around with revenues, and keeps nibbling at the edges of expenditures instead, but I don’t think it’s likely to happen unless the US debt to GDP ratio reaches into the 2-300% range.Report
In Canada’s case, it could’ve been less painful, nearly invisible, really, if they’d been a bit smarter about how they went about it.
Once the economy is growing, long term debt is not tht hard to deal with, provided you don’t have Bush the Conquerer in charge of military spending and Bush The “These Tax Dollars are Yours” in charge of tax policy,Report
Well once the issue becomes a problem the political incentives align very strongly to kick the can down the road until some force takes away the cookie jar. Of course if a country addresses the problem early enough to make the correction relatively painless it wasn’t a very big problem to begin with.Report
The long run history of the country suggests we can handle debt and deficits over the long haul. Reagan ran up debt. Clinton cleared it.
Bush ran up debt and presided over a crash of the economy at the same time. (A dubious distinction, to be sure.) The corrct course of action now would be to run up more debt to rev up the economy and the next few presidents will clear the debt. (Instead, Obama, constrained by Congress, is engaging in a kind of holding action on debt that is also a holding action on growth.)
There is no reason to think that future debt clearing won’t happen and lots of reasons to think it will happen, even if we don’t get some grand bargain now.
This is the richest country in the history of the world and it is richer now than ever and is going to be richer and richer, even if the government borrows a lot of money.
There is some theoretical problem that could be caused by debt, but it is not a practical concern for the U.S. at all. For practical purposes, the U.S. becoming Greece is impossible. Theoretically possible. But not practically possible.Report
@10-20 years at current rates (and this from a liberal economist, not yours truly).
It’s time to start pushing for some deficit reduction, or nearly so…
http://www.calculatedriskblog.com/2013/01/the-futures-so-bright.htmlReport
Did you read that post that you linked to?
“The key short term risk is too much additional deficit reduction too quickly.”
Read more at http://www.calculatedriskblog.com/2013/01/the-futures-so-bright.html#WcErxQGObUlhyKlt.99
“There are a number of longer term challenges from rising health care expenditures, climate change, income and wealth inequality and more, but I remain very optimistic about the longer term too. There is a constant focus on the aging population, but by 2020, eight of the top ten largest cohorts (five year age groups) will be under 40, and by 2030 the top 11 cohorts are the youngest 11 cohorts. The renewing of America! And these young people are smart (less exposure to lead is a significant story), and well educated too. I’ll write more on the long term soon.
Last year, I said that looking forward I was the most optimistic since the ’90s. And things are only getting better. The future’s so bright, I gotta wear shades.”
Read more at http://www.calculatedriskblog.com/2013/01/the-futures-so-bright.html#WcErxQGObUlhyKlt.99
That is a long way from Greece.
It is true that as the economy grows, interest rates will eventually have to go back up somewhat to more historically normal levels, instead of the crazily low point it’s at now. I mean it’s basically 0, now, so it has to up, but as long as there’s decent growth over the next two decades, and we can get healthcare waste and costs down like they do in socialist healthcare systems, there’s no reason to think long term debt is a problem at all.
Socialize medicine. Stimulus now. When the economy is booming, elect a Clinton (I know one who might run) and she’ll clear the deficit down to more reasonable levels (as noted Vince Foster killer Bill Clinton did) and we’ll start growing out of the debt, just as we have in the past.
Actually, we’re already on track to do that (with no stimulus, sadly), as long as we can get health insurance costs under control, which may require extending Medicare or some socialized system to cover everyone or more people.Report
We agree more than we disagree. Reagan (and the Dems in Congress) ran up the debt. Then Bush the Elder (and the Dems in Congress) laid the framework for paying it down. Then Clinton (and the Republicans in Congress) cemented that deal*. Then Bush the lesser blew the entire fiscal issue into a debacle and Obama has mostly avoided the issue (while pulling the economy out of a dive, wrapping up Bush Minors’ wars and generally doing cleanup as the GOP collectively lost their minds in congress).
As long as the US keeps it’s own dollar the possability of the US becoming Greece is exceedingly remote. The US is, however, quite capable of becoming Canada by being too sanguine about their finances with the added penalty of potentially loosing their global reserve currency status if they fish it up too much.
The main reason, however, for Obama, Liberals and Dems to want to ameliorate, resolve or solve the fiscal issue is so they can do so on their own terms rather than risk that conservatives are in charge or get put in charge when all hell breaks loose if it isn’t resolved.
*mainly by fighting like cats in a bag and accomplishing little (except welfare reform) while the previous Bush-Dem deal autopilotted the national fisc to solvency.Report
Again, I’ve asked this before. What is going to be the reserve currency that replaces the dollar in the near future? The Euro? Is it still going to exist in ten – scratch that, five years? The Chinese yuan? Yeah, I want my business tied to a currency a secretive government could decide to inflate to deflate depending on the mood. The yen? Nahhh.Report
Again, I’ve asked this before. What is going to be the reserve currency that replaces the dollar in the near future?
And that’s an excellent question. The Chinese have already said, unequivocally, that they won’t stand for having the yuan be a reserve currency. They’ve proposed an international agency that would create a pure fiat currency with value tied loosely to a basket of currencies — but again, specifically not including the yuan — to replace the dollar. The necessary conditions for a particular country’s currency becoming a reserve currency seem to be: (1) the government issues large amounts of paper denominated in that currency and (2) large liquid markets where that paper can be bought in sold with any other currency. Lots of public debt, and giving up any serious thought about control over exchange rates. I don’t see any other contenders.Report
Also
(3) There has to be reasonable belief on the part of everybody else that the central bank of the country with the reserve currency isn’t going to let inflation reach 1000%
Which means China’s proposal is… not going to work.Report
The whole “Let’s do a super IMF with a super SDR” thing is never going to sell.Report
At the moment there aren’t any plausible candidates. I’ve asserted that before myself. But just because there aren’t any now doesn’t mean there won’t be and we’re talking mid-to longer term here.
The old American economy in the 50’s and 60’s was predicated on the fact that America was the only industrial power not flattened by war or Communism. That didn’t work out so well once the rest of the world rebuilt. I don’t think we need to replicate that error by assuming all is well because there isn’t an alternative viable currency out there.Report
“The US is, however, quite capable of becoming Canada”
I’m confused what you mean by this.
Canada hit an economic hole in the early 1990’s (partially caused by commodities markets, IMO, because Canada’s exonomy is mostly about primary, natural resource exports, mot manufacturing and manufactured goods exports). Then, they engaged in some austerity, some of it necessary (taxes to bring in revenue for the higher level of social services that Canada provides), some of it not, and then used monetary policy to grow the economy via making exports a bit cheaper and more competitive.
http://krugman.blogs.nytimes.com/2013/03/31/the-ecb-and-the-austerity-trap/
There was a cyclical downturn that we used expansionary monetary policy to grow out of. The slump might have been avoidable, but it was grown out of.
http://krugman.blogs.nytimes.com/2012/03/24/lessons-from-the-great-canadian-slump/
The only problem for the U.S. is that interest rates are already so friggin low, that they can’t use monetary policy effectively to grow out of the slump. So they need to use government deficit-spending. (Also, it is hard to grow by lowering costs of exports as Canada did when everybody is not doing well economically.)Report
I like this bit, too, though I think a little bit more cutting was needed than it suggests.
Also, my bad for remembering that the Libs brought in a tax increase. I twas all cuts.
“Martin and others argue that Canada was in such a fiscal mess in the mid 1990s that there was no alternative to deep cuts. However, as argued at the time by the labour movement and leading Canadian macro-economists such as Lars Osberg and Pierre Fortin (both past Presidents of the Canadian Economics Association), rising debt was not the result of over-spending but of a very deep recession, 1989 to 1991, exacerbated by the exceptionally high real interest rates inflicted by Bank of Canada governor John Crow in his search for the holy grail of zero inflation.
The cyclically adjusted budget balance in the mid 1990s was the same as the OECD average (4.6% of GDP in 1995), and below that in the Euro area. Canada could, like other countries, have made much more modest fiscal adjustments to gradually return to balanced budgets as the economy improved. Taxes in the mid 1990s were a bit lower than the European average and could have been raised at least in line with US taxes under Clinton. Canada had no real trouble financing government borrowing which was and is overwhelmingly denominated in Canadian dollars.
A key feature of Canada’s deficit wars was the deliberate cultivation of fear. As documented by Canadian journalist Linda McQuaig in her book Shooting the Hippo, the media and officials fanned totally groundless fears of a debt default and even resorted to talking down Canada’s debt standing in influential international circles such as the Wall Street Journal editorial board to create a sense of crisis.”
http://column.global-labour-university.org/2010/01/beware-canadian-austerity-model.htmlReport
Based on the Canadian dollar’s modern value, one might even think they’ve been having a bit of deflation in the past 5 years or so.Report
Yes it was the conservatives that brought in the tax increases, the LIbs then did most of the spending cuts and then held the line on the budget. The economy was on the upswing when they did it, the timing was essentially near-perfect and Canada has been doing tolerably ever since (and the LIberals were rewarded with a generation in power). I see no reason why liberals in the US shouldn’t have similar savvy wrt the nations finances. I’m not, however, advocating some hair brained austerity plan now. Just some kind of long term strategy.Report
Nob, at least Iceland didn’t adopt the Canadian Dollar. They were seriously considering it for a while and that would have made things get very odd.Report
Clinton cleared it due to gridlock and a massive surge in capital gains taxes from the tech bubble. That was an anomaly and nothing more. I see no evidence that your government’s political process can deal with their Budget in a mature way.
If your debt was growing more slowly than your economy, I wouldn’t be worried. Look, I’m not saying you should slam on the brakes, my deficit hawkishness is quite different from the Republicans (for one thing, I actually mean it). But if you set up a gradual programme of cuts now, you can minimise the harm austerity will cause.Report
That’s the thing though, the current budget projections seem to be forecasting a sufficient growth in receipts (we’ve seen it go from 15% of GDP as recently as FY 2011 to about 18% for FY 2013, from FY 2014 onward it goes up to 19-20% of GDP) and a leveling off of outlays (at about 22% of GDP) that unless things go catastrophically wrong (like say the Cantor/Ryan wing of the party sweeping House, Senate and Presidency in 2016) the structural deficit is likely to stabilize at about 2-3% of GDP. Barring a global economic catastrophe triggered by a war in East Asia or something along those lines, that’ll likely keep the US debt shrinking as a percentage of GDP after about FY2015.
Granted, these are projections and one must always be careful about them. But this is hardly unsustainable spending. And heck in FY 2011, the US deficit to GDP ratio was something like 8.7% which compares rather fine to say New Zealand’s 8.4% and even rather well compared to say the Austerity regimes in Britain (7.9%) or Spain (9.someodd), or even Ireland (10.someodd)Report
You mean you do believe that high deficits do cause slow growth?
If not, What is “the disaster” deficits cause in first world countries that have their sovereign currency?
The problem is if borrowing costs sky rocket on your debt. That’s the only possible disaster, as I see it. That will happen in countries with no control over currency far more than those with such control.
But that isn’t happening now, and so austerity now is unwarranted in the here and now. Rather the opposite is warranted: expansionary fiscal and monetary policy. More debt is good right now.
In the long run, there may be some wisdom of keeping deficits below 100% of GDP just because of the possibility of higher borrowing costs in the not foreseeable future. First we need stimulus, then we should try to slowly bring the debt down when the economy is hot (also smoothing out any economic bubbles) giving us more ammunition for when the next bust hits that we need to stimulate our way out of.Report
Well sure, you and Keynes both agree on that (and I don’t particularily disagree). Of course the problem is that while people in general are happy to borrow and stimulate during down times the times never quite get up enough for people to be happy to reduce debt during the up times.Report
We were actually doing it during the last two years of the Clinton presidency. GW declared that the surplus meant the government was keeping too much of “your money” and called for tax cuts.
I’ve never been able to take Republicans seriously wrt to debt reduction since.Report
Exactly. Well, for me it fell apart when Bob Dole (a stalwart debt reducer) shot his credibility in the foot by calling for tax cuts.Report
I couldn’t agree more. The only person I damn more than Bush Minor for it is Gore for giving it away to him.Report
??
Was there a big, red button marked “WIN” that Gore neglected to hit that I hadn’t heard about?Report
It was called “Tennessee”.Report
Saying that Gore should’ve won the electoral votes for Tennesse because he won a statewide election there ten years previous (his last Senate race was in 1990) when he also largely held different views on many issues is like stating Romney had a magic partial win button named Massachusetts. It’s a misnomer. You can point to all the reasons that Gore ran a bad campaign without pulling out the “he didn’t win his home state” argument.Report
Agreed, I wouldn’t hold Tennessee against him. I don’t think that’d be fair at all.Report
Golly, looking at the map, the next one that went Red that was even close was New Hampshire.
The other states that just barely SQUEEKED by really, really close went blue (Oregon, Wisconsin, Iowa, New Mexico were all really, really close).Report
Gore was not, let’s be honest, an enormously good politician during the 2000 fight. He didn’t run a particularly great campaign and he (for both personal and also calculated reasons) purposefully kept one of his party’s most powerful political assets on the sidelines of the contest and he was a nor particularly appealing or engaging candidate.
Obviously there’s plenty of armchair generalling in my sentiment but I still look at 2000 and think that was a winnable election. This is particularly bitter for me because I honestly do think (contra Sully) that as President Gore would have handled 9/11 infinitely better than Bush Minor did and that nothing would have been better for the collective lizard brains of the congressional GOP than having a Dem president to fight with and to veto their idiotic propositions.
Gore losing that election ranks right up their with Sharon’s blood clot on my personal “Why God(ess?) why?!” list.Report
I’m fine with all those arguments for why both Gore himself and his performance were suboptimal. but noting that a candidate wasn’t perfect doesn’t rise to case that he gave an election away. I just think that’s grossly not the case, especially in the political context he had to operate in in that election, running as the VP of an impeached president who had sex with a White House intern and then lied about it under oath (and however much he shouldn’t have had to answer those questions in that deposition, he did, and he lied). these aren’t choices Al Gore made, but they’re choices that shaped the political environment of the election you’re saying he “gave away,” including creating the difficulty of the decision he had to make about how to use/deploy the person who did make those choices, which he may have gotten wrong, but if he did, almost certainly did so in an attempt to maximize his chances to win.Report
It’s interesting how Bill Clinton went from being a liability in 2000 to an asset in 2012 in terms of campaigning.Report
He might have been an asset in 2000, I just don’t hold Gore accountable for failing to figure that answer out correctly in the very midst of the facts of the matter precipitating and becoming detectable. He had to choose a strategy and go with it; I don’t blame him for guessing (I’m guessing on the basis of some, but hardly a reliable amount, of polling) he’d be a net drag.Report
Also…to give the American people a little bit of credit, they had no idea that George W. Bush would be so many series of disasters at that point.
2004 is another matter.Report
…a net drag in the critical states, that is.Report
Gore’s 2000 campaign failed because he allowed himself to become a creature of his handlers. Mitt Romney’s campaign died for the same reasons. The days of Karl Rove and James Carville are over. The Internet has changed everything.
With Gore’s failure, the Democrats examined that battlefield and came to some harsh conclusions about how they had failed to manage their candidate. Clinton was a goddamn political genius, he knew how to win at a grass roots level. Plouffe and Axelrod never allowed Obama to take direction from anyone but grass roots operators, at a state level in Illinois, at a US Senate level and his run for the President.
Plouffe ran a masterful campaign because he never allowed a bubble to form around Obama. To be sure, these candidates are managed within an inch of their lives, can’t be helped. The logistics and finances of a presidential campaign demand the rigour and timing of a military assault. But these days, wars are driven by realities on the ground, not Pie in the Sky talk.Report
Perhaps I’m being harsh MD? It’s entirely possible, I’m not a fan of Gore. He was always wooden and stuffy to me.
Clinton left office with the highest end-of-office approval rating of any U.S. president since World War II. Impeachment or no leaving him exiled from the campaign was massive political malpractice. I do think if he’d been deployed to one of the swing states, Ohio perhaps, he could have swung it back.
I’ve never read any assertion that the Bush minor campaign was in any way inspired or remarkable in its execution. Gore was running off of a term that, regardless of the surface optics, was a substantively excellent run for the electorate. He spent his campaign hiding from that accomplishment.
I just think that the campaign was winnable and yes I do partially blame him for the loss.Report
I think “gave away” is ridiculously harsh, tbh. But anything in the vicinity of “he kinda sucked and here’s why” is totally fair. I just think that somewhat sucking doesn’t remotely amount to giving the thing away. From all I’ve read, dude desperately wanted it (that might have been part of his problem), and did everything he could figure out to do to get it done. He just made some (I would say not too many, and not many completely terrible but that’s debatable) poor decisions, and suffered from having to carry most of the downside of the Clinton years and the man himself, while not being able to sustain the upside (and I think that would have obtained even if he’d held tight to WJC’s lapels throughout the campaign). Only one politician has the skills to be fully associated with Bill Clinton’s failings and come through a winner, and we all know who that is.Report
Fair enuff.Report
Cheers, mate.Report
Again, as I noted above, I really do think people forget the extent to which Bush seemed a reasonable, pragmatic and even charismatic figure circa 2000. He seemed down to earth, even if he wasn’t super cerebral people assumed he’d take his dad’s corps of advisers who were by that point being remembered fondly with rose-tinted 1990s glasses.
In that sense, I don’t think Gore running on a Clinton continuance platform would’ve been as successful as people think. Bush seemed a reasonable alternative, especially with his soft peddling of Compassionate Conservatism and the whole “let the world take care of itself” thing.
In that sense Gore suffered as much from Clinton fatigue (in that people liked Clinton, but they were okay with changing the guard) and the simple inability of the electorate to fathom just how disastrous a Bush presidency would be.Report
Nob,
if GW had taken Elder Bush’s team, instead of Nixon’s, I’d have been far happier.
O’Neill had plenty to say about those cabinet meetings…Report
The disaster is that as government debt grows larger, serving the debt becomes a larger and larger fraction of the government’s revenue. This causes borrowing to rise at a faster and faster rate. What looks like no big deal, can turn into a big problem with disturbing speed.
The crisis happens when the government saturates its capacity to hold or service debt. AT that point it becomes necessary to immediately balance the budget. Suddenly everyone who had planned their lives around the existing programme of government spending is cast into the cold, with no time to adapt.
I’m coming from a different place than the house Republicans or Paul Ryan. I want gradual austerity over the next 20 years so as to avoid urgent austerity in the future.Report
As much as I enjoy bashing Microsoft, this doesn’t really indicate a problem with Excel or even it’s applicability to this analysis. I mean… this wasn’t a particularly large dataset nor was it a particularly difficult or complex analysis; just some basic summations and averages. Frankly, a more sophisticated tool would have been overkill.
The real problem here is two-fold:
First, just basic sloppiness. If they can’t get something this simple right in Excel why would anyone imagine they could do better with a more sophisticated software package?
Second, and this is the more serious charge IMHO, is that they appear to have chosen a highly debatable analytic method, with no justification offered, that’s just about the only way you could munge the data to get the results they apparently were hoping to find. This is practically the antithesis of a proper scientific methodology. And I find it impossible to believe that it wasn’t entirely politically motivated. Every single problem with this analysis worked to drive the conclusion in the same direction.
Considering that governments have based, or at least justified, economic policies on work like this, it is grossly unethical, bordering on criminal negligence IMO.Report
I don’t disagree that it’s negligence and maybe I’m being too cute with the basic post.Report
Look, the whole Reinhart ‘n Rogoff megillah is suspect. This analysis would never have survived peer review. Those of us whose careers depend on actual probability and statistics don’t check our own work. I’ve been at this long enough to know not to trust myself — and if I don’t, and I know most of you don’t — this isn’t a conspiracy. It’s just sloppy work, done in a tool which buries sloppiness within itself.Report
This isn’t just about sloppiness. And it isn’t about Excel being an inferior tool for the job. This wasn’t a complicated set of calculations–basically just a single table on one sheet. It didn’t involve complicated cell references over several large sheets or anything. The fact that the error was so easy to find once someone else had access to the sheet is proof of that.
I find it very hard to believe this wasn’t motivated by ideology. For example, the deliberately, not by an accident with Excel, excluded data from countries that showed decent post-WWII growth while including data for the U.S. which experienced a temporary decline upon de-mobilization. No explanation or justification offered.
Then there’s the way they averaged their data. They did so in a way that made one data point–New Zealand in 1951 with a -7.6% growth rate–count equally to 19 years of the U.S. experiencing +2.6% growth. Again, no justification or explanation offered.
This is why I don’t trust economists.Report
Weeeeell… it kinda is about Excel. I presume you know about the Model-View-Controller pattern. MVC is a software architecture pattern which separates the representation of information from the user’s interaction with it
Spreadsheet programs created as many problems as they solved. The results were obvious, the underlying formulas weren’t. That’s why software architects go to so much trouble to compose Controllers, keeping the Model stuff hermetically sealed away from the View. Spreadsheets also violated the rule of never storing intermediate totals.
Perhaps Reinhart ‘n Rogoff were fudging their calculations. I never attribute to conspiracy what stupidity will adequately explain. But I do consider Excel to be a Problem Child in the world of information. Those who grow dependent upon spreadsheets will eventually come to grief. It isn’t a question of If — only of When.Report
Look, Blaise, I don’t want to get into a fight with you; I’ve witnessed where that leads. But I repeat: This wasn’t a particularly complex set of calculations nor was it a particularly large data set. Lastly, it wasn’t a real-time system with an underlying database being constantly updated.
My last assignment in the Navy was shore-duty where I ended up as lead NCO in the division office and part of my duties was the division-level computer security officer, tending the computers, non-networked PC’s running MD-DOS, in the main office and workshop offices. Oh lordy, did I see people using the wrong tool for the job! Formtool being used as a word processor. WordPerfect being used as a database. dBase not being used at all because nobody knew what the hell it was or how to use it. I did my best to straighten out the mess, but G-d only knows what happened there after I left.
I guess my point here is that you’re being a bit of an tech-elitist git here. I have a vague idea of what your M-V-C business is and to the extent I understand it, I agree with the basic notion. But so what? This isn’t a real-time database application so the criticism simply doesn’t apply. If I were tasked with conducting this sort of analysis I could easily set this up in Excel (actually I would likely use Calc, but whatever). If I had to try to do it your way… well, I simply couldn’t. I’ve fussed with R and it has a damned steep learning curve unless you’re already a programmer type. Something I could set up in a matter of an hour or two in Excel I would be screwing around with for days in R and most likely end up fucking it up because of the complexity of the tool.
If you read the actual critique of the Reinhart and Rogoff findings it’s clear that Excel played only a peripheral role in this debacle.Report