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Longwood Gardens.  February, 2013. Photo by joanneleon.

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The Rogoff & Reinhart Round Up.

Austerity advocates unfazed by errors found in leading report

It’s been two weeks since economists at the University of Massachusetts Amherst said they had discovered “serious errors” in one of the studies most often cited by conservative deficit hawks and austerity advocates. But while that study has taken a serious hit to its reputation, the call for spending cuts has not abated.
Meanwhile, proponents of deficit reduction, spending cuts, and entitlement reform have continued to make their case by marshaling other studies and arguments. As recently as this Sunday, the Washington Post published an op-ed from Fix the Debt’s Erskine Bowles and Alan Simpson, promoting yet another of the duo’s proposed deficit reduction plans.
“Nothing has been done to make our entitlement programs sustainable for future generations, make our tax code more globally competitive and pro-growth, or put our debt on a downward path,” write Simpson and Bowles.

R&R got two op-eds in the NYT, and now the Catfood Codgers get a op-ed in a Sunday edition WaPo.  Amazing. And note that right in the first paragraph, they lie.  They say that their commission "released its final recommendations" when the commission released nothing. The Codgers released something but the commission did not agree on any recommendations.  
A grand bargain is still possible. Here’s how.
By Erskine Bowles and Alan Simpson, Published: April 28

Erskine Bowles and Alan Simpson co-chaired the National Commission on Fiscal Responsibility and Reform and currently co-chair the Moment of Truth Project.

In the 2½ years since the National Commission on Fiscal Responsibility and Reform that we co-chaired released its final recommendations on charting a path toward meaningful and bipartisan debt reduction, we have traveled the country, speaking to hundreds of thousands of Americans of all ages, incomes, backgrounds and ideologies about our debt challenge. No matter our audience, those we spoke with shared two things: a thirst for the truth about what it will take to right our fiscal ship and a willingness to be part of the solution so long as everyone is in it together.
To be sure, some progress has been made the past two years. Policymakers have enacted about $2.7 trillion in deficit reduction, [...] Yet what we have achieved so far is insufficient. Nothing has been done to make our entitlement programs sustainable for future generations, make our tax code more globally competitive and pro-growth, or put our debt on a downward path. Instead, we have allowed a “sequestration” to mindlessly cut spending across the board — except in those areas that contribute the most to spending growth.
That’s why we released a new plan this month that builds on the most recent negotiations between the president and the speaker. [...]

Our proposal contains concrete steps to reduce the growth of entitlement programs and make structural changes to federal health programs, such as reforming the health-care delivery system to move away from the fee-for-service model and gradually increasing the eligibility age for Medicare. At the same time, it would provide important protections and benefit enhancements for low-income and vulnerable Americans, such as an income-related Medicare buy-in for seniors affected by the increase in Medicare’s eligibility age and greater protections against catastrophic health-care costs for low-income seniors.

Our proposal recognizes that additional revenue must be part of a comprehensive deficit-reduction plan for both substantive and political reasons. Our plan raises revenue through comprehensive tax reform that lowers rates, improves fairness and promotes more vibrant economic growth.

Pollin, the Amherst prof, gets an op-ed in the Monday NYT.
Debt and Growth: A Response to Reinhart and Rogoff

(Ms. Reinhart and Mr. Rogoff have substantial disagreements with us about the proper selection and weighting of data. They elaborated on these points in their Op-Ed appendix. We have presented all our data, calculations and methodological arguments on the Web site of the Political Economy Research Institute at the University of Massachusetts, Amherst, where we teach.)

Our critique of Ms. Reinhart and Mr. Rogoff — one they have not adequately rebutted — emphasizes the fact that the relationship between public debt levels and G.D.P. growth varies substantially by country and over time.

Herndon (the Amherst student who debunked R&R)... Oh now I know why he should be ignored.  Marxist! Well, no, he's not, but.... Marxist!
The grad student who exposed Reinhart and Rogoff: They still can’t get their facts straight

Thomas Herndon is on a tight schedule. The University of Massachusetts-Amherst doctoral student of economics has a steady stream of media interviews lined up with global VIPs to discuss the far-reaching impact of his paper refuting the work of renowned Harvard economists Carmen Reinhart and Kenneth Rogoff.  But his mind is already looking ahead to more pressing matters: his looming microeconomics final next week and the piles of homework waiting for when the media attention dies down.


While the economists have responded, Herndon notes “in their public response, they admit the spreadsheet error that was in Table 2 but then they point to Table 1 and they say the spreadsheet error is not in Table 1. But in fact, those errors are present in Table 1. That is problematic.” Herndon sat down with Quartz to discuss his unexpected celebrity and the impact he hopes his paper will have in shifting economic policy going forward.
UMass-Amherst’s economics department is often called a Keynesian-Marxist hybrid. Have you received any criticism from conservative circles?

Overwhelmingly, the response has been really positive. People have been able to separate whatever intellectual influences we’ve had from the fact that there was just a gross error.  The fact that we read really fascinating books has nothing to do with the fact that Rogoff and Reinhart made a mistake. That was independent of us. There is really a role in economics for critical departments. This is a good example of that. We didn’t just buy the claim. We investigated it. That’s science, right? I really enjoy the introduction to the world that our department has gotten in the last week or so.

New Yorker.

As far as I recall, neither Reinhart nor Rogoff objected to Osborne’s speech, or to the citing of their work by other austerity-minded politicians, such as Paul Ryan and Olli Rehn, the euro zone’s commissioner of economic affairs. In the debate between the Keynesians and the Hooverites, they were clearly on the side of the latter. Trying to rewrite history won’t alter that.
Set aside the last sentence, which is another example of Reinhart and Rogoff trying to distance themselves from their intellectual protégés. Whichever way the causation goes, the issue has always been whether there was room for further fiscal stimulus, or whether debt levels were getting so high that further borrowing and spending was likely to be counter-productive. Back in 2010 and 2011, the Keynesians said there was room; the austerians said there wasn’t. Purely on the basis of the corrected Reinhart and Rogoff figures, there was, and is, room. In the United States, the ratio of net debt-to-G.D.P. is seventy-three per cent. In the United Kingdom, it is about the same. In Germany, it is about eighty per cent. In France, it is about ninety per cent.

NY Times Editorial Board seem to be pushing back against McCain and Graham on Syria at the beginning of this column, and they defend Obama saying that he's been cautious but it's not true that he's done nothing.  But then they start pushing too for him to act, or to declare what he is going to do.  It's a sneaky editorial, IMHO, because the assumption is that the U.S. is somehow required to act, and it completely ignores the fact that the Gulf Council states all have an interest in this situation and all have quite capable militaries. We know that because we're constantly doing big arms and equipment deals with them.
Ill-Considered Advice on Syria

There have never been easy options for the United States in Syria; they have not improved with time. And Russia and Iran, both enablers of Mr. Assad, deserve particular condemnation. Without their support, Mr. Assad would not have lasted this long. Still, the country is important to regional stability. Mr. Obama must soon provide a clearer picture of how he plans to use American influence in dealing with the jihadi threat and the endgame in Syria.

I have often picked up an item at the store and thought to myself, "how could you possibly have produced and shipped this for such a ridiculously low price?"  I've refused to buy things because they are too cheap.  But at other times, when trying to  clothe three kids we've bought the cheap clothes too.  I don't feel good about it. It is a vicious cycle affecting all of us as the cost of labor is driven down, unemployment persists, etc.  It's a downward spiral for almost everyone, except the 1%, who profit from all of this misery and whose wealth is unprecented and continues to grow.  Will they ever say "Look at this inequality, I've got more than my family could spend in multiple lifetimes and I think I've got enough now?"  A sane person would come to that conclusion.
Clothed in Misery

These Bangladeshi disasters do not merely share a kinship with the Lawrence one, but a genealogy. They are part of a cyclical system that has governed the textile industry since it moved out of cottages and into mills.

Again and again we see the same pattern, which stretches back to the original hiring of rural New England girls to operate the first spinning and weaving machines. The girls were delighted, for the most part, to leave behind rural drudgery. After a few decades, management began various cost-cutting measures that eventually became untenable. Labor activism spread rapidly and was countered, sometimes brutally. To avoid increased expenses associated with labor reform, the mill managers essentially would flush their working population and pull in a new one. Protestants were flushed in favor of destitute Catholics. The Irish were hired in the same New England mills in the 1840s, and then, when they became too demanding, the French Canadians, the Italians — waves of immigrants, one after the other.

In this way, for the last 200 years, garment manufacturing has flowed from ethnicity to ethnicity, as well as from region to region, from New England to the Middle Atlantic states, from North to South. Each group, when it begins to demand more accountability and a living wage, is discarded. Manufacturing change flows quickly to stay ahead of legislative change. Like water, industrial management seeks a route of least resistance — eventually flowing out of our shores altogether in the 1990s and, finally, flooding (among many other places) the alluvial plains of Bangladesh.

Yves Smith and Warren Mosler.
Reply to Reinhart and Rogoff’s NYT Response to Critics

One of the striking aspects of the furor over Thomas Herndon, Robert Pollin and Michael Ash’s dissection of the considerable flaws in the Carmen Reinhardt and Kenneth Rogoff austerity-justifying paper are the “the earth is still flat” efforts to salvage the theory, which was that high levels of government debt kill growth. Some of the recent sightings: James Hamilton entered the fray and are batted back by Pollin and Ash. Matt Yglesias comes remarkably close (as did Paul Krugman) to questioning the integrity of Ken Rogoff (remember, elite economists are members of a protected class, so this is about as much opprobrium as one can expect to see coming from Very Serious People).

Warren Mosler is more straightforward in his assessment and demands.

By Warren Mosler, an economist and co-founder of the Center for Full Employment And Price Stability at the University of Missouri-Kansas City. Cross posted from his blog

The intellectual dishonesty continues. As before, it’s the lie of omission.
Carmen, Vince, please come home! I hereby offer my personal amnesty- come clean NOW and all is forgiven! As you well know, coming clean NOW will profoundly change the world. As you well know, coming clean NOW will profoundly alter the course of our civilization!

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