Reinhart-Rogoff and Their Apologists are Trying to Have it Both Ways

      The other day I referred to the current meltdown of R-R as a Richard Rorty moment in the sense that they have taken a real hit now in their peer group; the late philosopher Rorty argued that what motivates us is the respect of our peers. This led to other vexing questions about truth: aren't the hard sciences about more than just the consensus of our peers; isn't science a truth discourse in a way that say literature isn't?

      Well we won't go too far down that rabbit hole today though it's an interesting one. However, the important thing here is that R-R are now in the middle of such a Rortian crisis. They are losing the respect of many of their peers: that is to say, their fellow economists. One economist who is a fan of Rorty is the Market Monetarist Scott Sumner. 

      He spoke of the idea of a "Richard Rorty moment" in much the same way I am here in late 2011 when some notable New Keynesians-Christina Romer, Krugman, Brad Delong, Woodford, et. al-gave some tacit support to Sumner's cause celeb: NGDP targeting. 

     http://www.themoneyillusion.com/?p=11469

     Sumner has also repeatedly said that there is no public opinion in economics; what this amounts to is that on some complex economic and monetary matters, what counts are only the opinions of economists. This formulation may put many off as well of course, as it implicitly sounds elitist: only those in my club are even worthy of speaking with me. However, even this, at least in theory is right out of Rorty as he always stressed that issues of truth can only come up in a dialogue with a worthy conversation partner. 

    For example, a progressive has nothing to say to a Klansman.  Or a scientist has nothing to say to a non scientist which is Sumner's argument amounts to. 

   If one thing has impressed itself on me in the two years I've gotten into economics is that for economists, the respect of their peers is very important. So to bring us back to R-R, right now the respect of their peer group is under attack. This is what concerns Krugman: that they be held fully accountable by this peer group-other economists. As we can see here, being right isn't enough, if the peer group ignores this:

   "Henry Blodget says that the economic debate is over; the austerians have lost and whatshisname has won. And it’s definitely true that in sheer intellectual terms, this is looking like an epic rout. The main economic studies that supposedly justified the austerian position have imploded; inflation has stayed low; the bond vigilantes have failed to make an appearance; the actual economic effects of austerity have tracked almost exactly what Keynesians predicted."

  "But will any of this make a difference? The story of the past three years, after all, is not that Alesina and Ardagna used a bad measure of fiscal policy, or that Reinhart and Rogoff mishandled their data. It is that important people’s will to believe trumped the already ample evidence that austerity would be a terrible mistake; A-A and R-R were just riders on the wave."

  "The cynic in me therefore says that after a brief period of regrouping, the VSPs will be right back at it — they’ll find new studies to put on pedestals, new economists to tell them what they want to hear, and those who got it right will continue to be considered unsound and unserious."

But maybe I’m wrong; maybe truth will prevail. Here’s hoping

     http://krugman.blogs.nytimes.com/2013/04/24/evidence-and-economic-policy/

     The crucial insight here is that the truth may not prevail. Whether it does depends on the Rortian peer group. Krugman has taken to task some peers who have attempted to give R-R a pass. Speaking of R-R themselves today, he argues that they're trying to have it both ways:

     "OK, Reinhart and Rogoff have said their piece. I’d say that they’re still trying to have it both ways, on two fronts. They deny asserting that the debt-growth relationship is causal, but keep making statements that insinuate that it is. And they deny having been strong austerity advocates – but they were happy to bask in the celebrity that came with their adoption as austerian mascots, and never to my knowledge spoke out to condemn all the “eek! 90 percent!” rhetoric that was used to justify sharp austerity right now. Sorry, guys, but with so much at stake you have a responsibility not just to put stuff out but to make crystal clear what you think it implies for policy."

     "What was new in this piece, however, was the creation of a straw man. R-R:

The fact that high-debt episodes last so long suggests that they are not, as some liberal economists contend, simply a matter of downturns in the business cycle.

     "Who are these “some liberal economists”? As far as I know, none of their prominent critics have made that particular argument. It has always been about the effects of sustained low growth, for whatever reason, on debt ratios."

     http://krugman.blogs.nytimes.com/2013/04/26/grasping-at-straw-men/

     Miles Kimball the other day defined well the crisis of R-R in the Rortian sense:

      "Ken Rogoff is an economist who has always been kind to me, and for whom I have deep respect. And I have no animus toward Carmen Reinhart. Nevertheless, I hope there has been a nightmarish quality to the last few days of what Quartz writer Matt Phillips called a “bone-crunching social media pile-on that Harvard economists Ken Rogoff and Carmen Reinhart received in recent days after some other researchers questioned their influential findings that high government debt is a drag on economic growth.” I say this because I know from my own experience as a researcher how powerfully the hint of such an embarrassment motivates economists and other researchers to sweat the details to get things right.  Some errors will always slip through the cracks, but a researcher ought to live in mortal fear of a contretemps like that Reinhart and Rogoff have found themselves in this week."

      http://diaryofarepublicanhater.blogspot.com/2013/04/the-rogoff-reinhart-meltdown-richard.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DiaryOfARepublicanHater+%28Diary+of+a+Republican+Hater%29

      He also takes some responsiblity for himself having uncritically bought into R-R:

      "Reinhart and Rogoff have not only caused embarrassment for themselves, but also for all those who have in any way relied on their results. Those who made their case by overinterpreting the particular results that have now been discredited should be the most embarrassed. Quartz’s Tim Fernholz gives a rundown of politicians and other policy makers who relied heavily on Reinhart and Rogoff’s results in “How influential was the Reinhart and Rogoff study warning that high debt kills growth?”

  "But I, like many others, have relied on Reinhart and Rogoff’s results in smaller ways—and wish this embarrassment on myself as a warning for the future. No one is perfect, but it is important not to undercut the motivation to be careful by softening the penalty for error too much."

     For all this, his mea culpa is less than meets the eye-even with his great image on the post of egg in his own face. He argues that despite R-R's Excel error and other errors and omissions, the basic point that debt cuts down growth stands. 

   "And despite the recent revelation of errors in Carmen Reinhart and Ken Rogoff’s famous study of debt levels and economic growth, which I discuss here and which motivated the update you are reading (the original passage can be found here), there are reasons to think that high levels of debt are worth worrying about."

   "First, for a country like Italy that does not have its own currency (since it shares the euro with many other countries), Paul Krugman’s own graph shows a correlation between national debt as a percentage of GDP and the interest rate that a country pays."

   "Second, the paper by Thomas Herndon, Michael Ash and Robert Pollin that criticizes Reinhart and Rogoff finds that, on average, growth rates do decline with debt levels. Divide debt levels into medium high (60% to 90% of GDP), high (90% to 120% of GDP), and very high (above 120% of GDP). Then the growth rates are 3.2% with medium-high debt, 2.4% with high debt, and 1.4% with very high debt.  (I got these numbers by combining the 4.2% growth rate for countries in the 0 to 30% debt-to-GDP ratio range from Table 3 with the estimates in Table 4 for how things are different at higher debt levels.) Moreover, contrary to the impression one would get from the column here, Herndon, Ash and Pollin’s Table 4 indicates that the differences between low levels of debt and high levels of debt are not just due to chance, though what Herndon, Ash and Pollin emphasize is that very low levels of debt, below 30% of GDP, have a strong association with higher growth rates. Overall, with the data we have, we don’t know what causes what, so there is no definitive answer to how much we should worry about debt, but ample reason not to treat debt as if it were a nothing."

     So the apology is something of a mirage. Why worry about it if it makes no material difference to anything? So you have to give it to Miles: his is a very inventive way of having it both ways: apologize but still stick by your guns and insist you're right about what matters. 

     So the fight among the peers will continue. Kimball's method-ok there was a spreadsheet error, but it's just a little spreadsheet error-is going to be used repeatedly. Expect some incantation of this argument to recur. For example this post at EconoMonitor: It's a bit Early to Declare a Winner in the Economic Debate. There's two levels of this. We can certainly declare a "winner" or at least say that R-R are wrong. However, the "debate" may well have to run its course; much more hashing and re-hashing among the "peers."

     The EM piece was indeed a varient of Mied' mea culpa: I was wrong to use R-R without noticing the Excel error but the Excell error doesn't make any difference anyway. 

     And despite the recent revelation of errors in Carmen Reinhart and Ken Rogoff’s famous study of debt levels and economic growth, which I discuss here and which motivated the update you are reading (the original passage can be found here), there are reasons to think that high levels of debt are worth worrying about.

     "Reinhart/Rogoff May Not Necessarily Be Wrong.  While there was a calculation error in their study which changes the dynamic of the 90% threshold of debt to GDP – there is clear and ample evidence that rising debt-to-GDP ratios slow economic growth.  The chart below is the debt-to-GDP ratio of the United States on an annualized basis as compared to the annual growth rate of GDP.   You don’t have to hold a doctorate in economics to clearly see the problem."

     http://www.economonitor.com/blog/2013/04/its-a-bit-early-to-declare-a-winner-in-the-economic-debate/

     All this chart does is show the correlation without asking which way causation runs. It merely begs the question yet again. Here, just like with Kimball we go from pointing out a correlation to assuming causation and categorically again stating that, of course, debt cuts into growth. 

     So we're probably going to see a lot more of this: yeah, that was a silly Excel error, crazy huh? But nothing really changes. In fact the Excel error is not the only-or most important issue; though it does a good job of highlighting it. It was the omission of some countries that didn't prove out this high debt low growth narrative as well as how to weight the data they did include.

       http://www.nextnewdeal.net/rortybomb/guest-post-reinhartrogoff-and-growth-time-debt

    In any case it will be interesting to see how more peers try to let R-R off the hook. Krugman had called out another kind last week; that it's just about a lack of nuance.

     http://krugman.blogs.nytimes.com/2013/04/19/lack-of-nuance-is-not-the-problem/

     P.S. As for the philosophical idea of Rorty's pragmatism it's an interesting argument about how the sciences work. It seems true that a science is not just a truth discourse but is also a an inner society with it's own rules of discourse, cods of conduct, etc.