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View Diary: Researchers finally replicated Reinhart-Rogoff, and there are serious problems. (124 comments)

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  •  Lyin' Ryan's Lyin' economists.... (0+ / 0-)

    would have been a better title for what's going on here.

    The sad thing is, even without knowing about the spreadsheet "error", it was obvious from the beginning that the data didn't really support their claimed result.  There was just no way you could reasonably have made such a claim based on the limits of their  data set.  For their 20 advanced economies from 1946-2009, they had a total of 96 years observed with debt levels over 90%, less than 5 per country.  

    So it was apparent from the beginning both that low growth, and especially economic crises, would cause high debt levels, and that brief data periods from one or two episodes of a few years duration (say Greece, one of he 20 countries in their set) could skew the overall results.  That it turns out they also skewed the results by leaving out some brief positive periods is only a bit more damning; what's more damning is that anyone paid attention in the first place to a result that could so easily be manipulated.  

    On top of which, the whole premise was idiotic.  

    First off, go into any bank and find out how much they will allow you to borrow against your income in order to buy a house.  If you have no other debts, you can probably get 20-50 times your income.  They will happily allow a person with a $100,000 income to buy a $2M+ home.

    So why would anyone believe that an advanced industrial economy like the US or Japan would be limited in any way to borrowing only ONE times it's income?  Certainly, countries are different from households, but there doesn't seem to be any reason to believe they are dramatically less creditworthy.

    Further, they never offered any reasonable mechanism for these assumed costs.  One would think the natural way to look at the costs of borrowing would seem to be to look at interest rates.  But that obviously wouldn't suit their political agenda.  So they patched together an illusion of a specious relationship on trumped up data, and left the supposed mechanism as something mystical and mysterious.

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