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Economic strategy, research, and the Republican mind-set about Debt, with some added links

2015-11-15

We have many times referred to the apparent Republican distaste for science.  Worst of all these attitudes is that towards global warming.  This attitude has arguably the most deleterious effects for man and her environment and is based on the least supportable evidence.  The second most deleterious Republican attitude towards science is that towards economic research, because it has the most negative effects on the economy, upon which people depend for their livelihoods as well as for their enjoyments.

In May 2010, an “academic paper” entitled “Growth in a Time of Debt“, was published by Carmen M. Reinhart and Kenneth S. Rogoff. This paper concluded that “high levels of government debt…90 percent or more of GDP” was “associated” with lower growth. Specifically, the countries with that high of a debt were said to have an average growth rate of -0.1 percent.
Four years later, the authors released a paper , apparently in response to another paper that was sharply critical of its findings, that identified a “spreadsheet coding error” that led to miscalculation of the growth rates of highly indebted countries after WW II. The new figure for growth in high debt nations was +2.3 percent. The figure for growth in low debt nations was still +3.5 percent.  Other statistical errors in the paper made even that apparent weak relationship questionable: see this paper that responded to the response and laid out some devastating arguments that Reinhart and Rogoff were using reverse causation: it could be that lower growth causes high debt to GDP ratios, not the reverse.  What was worse, Reinhart and Rogoff knew about the reverse causation problem and were spreading their initial hypothesis around the TV talk shows and right-wing talk circuit.

Since its release in 2010, the findings of the original paper were cited as evidence by a large wing of the Republican Party that demanded immediate steps be taken to limit federal debt burdens. The Republicans, in control of the House of Representatives, were able to force through a bill that caused across the board spending cuts of 10% for the rest of this fiscal year, and more afterwards. Despite its presentation as a stimulus to force reasonable cuts, the Republicans were able to manoeuvre Congress into falling back on the sequester, an eventuality that was not supposed to happen.
Now the conclusions of the only academic paper that supports the view that high government debt is unsustainable have been watered down, if not rendered completely implausible. What is more, as Paul Krugman in his Guardian post (here) points out, another study by Alberto Alesina and Silvia Ardagna  (1998) called “Tales of Fiscal Adjustment” (which is available through the DASH library, thankyewverymuch)  that supported “expansionary austerity” had its findings reversed within a year (see, for example, most recently and with many references, “Expansionary Austerity and Reverse Causality“). There is little other research that supports the notion that austerity does anything good for an economy; science as well as common sense both support the theory that governments should step in to support people with jobs and aid when recession hits, and collect plenty of taxes when times are good.
This theory, known as Keynesianism to economists in the know and “Communism” to Republicans, is supported by conclusive research and many real world examples.
It is a crying shame that once again, Republicans are sitting on the side of anti-science. Here the economic theories of John Maynard Keynes have been supported by reams of research, yet they are anathema to conservatives. Why? Possibly because Keynesian policies include large amounts of support for individuals and families who say that they don’t have enough money to live on. Support given in small amounts to large numbers of individuals is said by Keynes to have an immediate stimulative effect on the economy because the money will go into immediate circulation– none of it will be saved.
“Conservatives tend to be hesitant to give people money. Whether this is a true moral precept or a character flaw (even a sign of mental illness) I will leave as an exercise for the reader.” (Krugman)
“nice strategy” of San Francisco, California says: “The reality is that debt is a concept, and credit has always been about power — about making claims over the work, the time, the life of other people.”

2 Comments leave one →
  1. 2015-11-15 3:48 PM

    A list of references for the papers discussed would be handy and appreciated.

    Like

    • 2015-11-15 5:18 PM

      Links to the articles discussed, and a few more articles, were added for your reading pleasure.

      Like

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