[governance] [Dewayne-Net] REINHART AND ROGOFF: 'Full Stop,' We Made A Microsoft Excel Blunder In Our Debt Study, And It Makes A Difference

[Riaz K Tayob]

Michael and David

This is tangential, but goes to the important economics edifices of many 
public policy arguments.

 From one of many Third Worldist perspectives, there is often deception 
in dealing with the rich countries. And it is well known that domination 
is easier to manage with 'ideology'. Free trade and neoclassical 
economics shapes much of the discourse causing much trouble and 
problems. So this is tangential but related.

If anyone is familiar with effectively the family business of the doyens 
of economics (Paul Samuelson, Kenneth Arrow and nowadays Larry Summers), 
they would know the significant influence they have had in the 
profession and on public policy discourse. The interview between the 
Chief Economist of the Financial Times (not a radical by any means!) 
with Larry Summers which can be found here 
<http://ineteconomics.org/video/bretton-woods/larry-summers-and-martin-wolf-new-economic-thinking> 
is instructive (it really is worth the time!). As some would have it, 
the Queen of the Social Sciences, by his own admission is not very 
helpful in real life. In other words, modern scholastics.

In Europe they are going for austerity (pro-cyclical) whereas John 
Dewey's American pragmatism rules more in the US with spending (Bernanke 
is pushing Congress, but there is little traction) with marked 
differences between the performance of these regions. So even Bernanke 
is more taking reality more into account, rather than relying on failed 
models which cannot account for crisis adequately nor deal with reality 
very well (but banks are still allowed to use them for capital adequacy 
calculations!).

On the paper, it was one of many of the planks used to argue for 
austerity, as David points out. But it was very influential. The reasons 
for eccentric formulae for averages and exclusion of New Zealand data 
will need to be backed up. So let us see where this goes. Why is it that 
we accept self-interest as the guiding force in neoliberal economics, 
but exclude economists from this equation? After all, they would  sell 
their ideas to the highest bidder - and neoliberal ideas pay. In fact it 
is quite consistent. Even the oracle Alan Greenspan said to Congress 
that he found a flaw in his theory. If he read outside of his Randian 
economists he might have known, but there is confirmation bias here too. 
The Oracle was a charlatan.

So I think first principles distinctions between schools of economics is 
very important to be differentiated. Mainstream economics says it is a 
science based on its physics based methods. That is correct. But its 
problem is concordance with reality. When the Queen asked the London 
School of Economics 
<http://www.britac.ac.uk/news/newsrelease-economy.cfm> why they did not 
see the crisis coming they said, /"So where was the problem? Everyone 
seemed to be doing their own job properly on its own merit. And 
according to standard measures of success, they were often doing it 
well. The failure was to see how collectively this added up to a series 
of interconnected imbalances over which no single authority had 
jurisdiction. This, combined with the psychology of herding and the 
mantra of financial and policy gurus, lead to a dangerous recipe. 
Individual risks may rightly have been viewed as small, but the risk to 
the system as a whole was vast."/ Translation: there is no systemic 
understanding.

The problem for scientifically valid observations, as David argues for 
and to which I agree, is that a science that starts of from unrealistic 
assumptions and deduces what logically should happen without ex post 
validation is only one form of knowledge. There are other forms of 
knowledge on the economy, like the American Institutionalists, that are 
simply marginalized and ignored, primarily because they do not serve the 
interests of the large powerful corporations in the US.

So do please engage in these matters as neoliberal type economic views 
still hold political sway, but are increasingly becoming untenable 
because of the social costs and suffering they impose. The difference 
with crises in the South (Mexico, the Tequila crisis, as if they were 
drinking too much; Argentina; SEA Asia - spawned crony capitalism) and 
the North is how it is dealt with. In the South it is internal factors, 
but for the North the tenor of the major finance houses is now systemic 
problems.

One would have thought Americans would have taken their cue from Enron, 
WorldCom, Tyco, etc *this is not anti-Americanism, btw - happy to be 
guided on these formulations! On or offlist!). Or now from the fraud on 
foreclosures and lack of regulatory ability to prosecute known crimes. 
It is a terrible situation for the 99% and we hope that the more 
sensible forces prevail in America otherwise the situation for us 
Africans downstream will be terrible.

Riaz


On 2013/04/18 03:55 AM, michael gurstein wrote:
> David,
>
> My reference was overall to Economists' work as Economists (but I see where
> there was probably an ambiguity in what I wrote... and yes, evidence based
> policy is certainly a good idea if the evidence is accurate, appropriate,
> unbiased i.e. not ideologically driven etc.etc. But there should always be a
> caution and a modesty concerning linking policy particularly to theory in an
> area as inexact as Economics and that's where the hubris comes in...
>
> M
>
> -----Original Message-----
> From: David Conrad [mailto:drc at virtualized.org]
> Sent: Wednesday, April 17, 2013 5:02 PM
> To: michael gurstein
> Cc: governance at lists.igcaucus.org
> Subject: Re: [governance] [Dewayne-Net] REINHART AND ROGOFF: 'Full Stop,' We
> Made A Microsoft Excel Blunder In Our Debt Study, And It Makes A Difference
>
> Michael,
>
> On Apr 17, 2013, at 4:03 PM, michael gurstein <gurstein at gmail.com> wrote:
>> Economists of course, are split on the "scientific" validity of their
>> work especially as it interfaces with the real/policy world
> Well, no.  As far as I can tell Economists, by and large, weren't split: the
> vast majority considered the correlations R&R drew tenuous at best.  It was
> politicians, policy makers, and pundits that used the R&R paper as a
> justification for positions they already held to the exclusion of evidence
> and arguments to the contrary (see
> http://en.wikipedia.org/wiki/Confirmation_bias).
>
>> and the above should
>> if nothing else, suggest modesty and caution before we go around
>> flaunting and drawing policy directions from the supposed "scientific"
>> validity of this or that set of observations or conclusions.
> Actually, I'd argue basing policy direction on _scientifically valid_
> observations and conclusions (which wasn't done for policies based on the
> R&R paper) is far better than alternatives such as anecdotes, appeals to
> emotion, over generalizations, accusations of hubris, etc.
>
> Regards,
> -drc
>
>

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