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Thread: German austerity doctrine based on .. um .. coding error.

  1. #1
    Politics.ie Member Volatire's Avatar
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    Default German austerity doctrine based on .. um .. coding error.

    The German Finance Minister Dr Wolfgang Schauble is chief architect of the German Austerity Doctrine. According to this Doctrine peripheral European countries must be subject to brutal austerity for their own good. Schauble believes that levels of sovereign debt above 90% of GDP damage growth. Therefore there is no option but to impose crippling austerity on already broken economies for their own good.

    A permanently stable European currency is an indispensable part of this European growth model. As we discussed in Tokyo, and on several other occasions again and again, our conviction is that an excessive level of sovereign debt poses a risk to sustainability. Therefore I strongly believe in the research of Rogoff and Reinhart, for example, that as soon as you have reached a certain limit of sovereign indebtedness, increasing the deficit and the debt will not create more growth but will actually harm growth. For this reason, we have to know that if we want to achieve sustainable growth, we have to reduce sovereign debt in nearly all advanced economies.
    Dr. Wolfgang Schäuble MdB: Position

    Unfortunately, it turns out that the Rogoff & Reinhart research is based on flawed methodology and ..um.. coding errors.

    According to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.

    Fix all that, say Herndon et al., and the result apparently melts away.
    Holy Coding Error, Batman - NYTimes.com

    It seems that the research that Dr Schauble "strongly believes in" and which justifies the German Austerity Doctrine is an innumerate pile of crap.

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    That now discredited research was also relied on by Rehn iirc.

    FTAlphaville has a good (free to access but may need to register) summary on this fiasco.

    http://ftalphaville.ft.com/2013/04/1...rt-and-rogoff/
    "It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Sinclair.

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    Politics.ie Member Sync's Avatar
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    If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.
    Oh I dunno Kruggy, if it's true I find it hard to blame people who made decisions in good faith based on bad maths over the people who got the maths wrong.

    A coding error in the RR working spreadsheet entirely excludes ve countries, Australia,
    Austria, Belgium, Canada, and Denmark, from the analysis.
    Seriously? You guys left out frigging Canada and Australia, 2 of the top 15 GDP countries and didn't notice???
    Last edited by Sync; 16th April 2013 at 10:59 PM.
    I'm living in America, and in America, you're on your own. America's not a country. It's just a business. Now f***ing pay me.

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    Politics.ie Member neiphin's Avatar
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    Quote Originally Posted by Sync View Post
    Oh I dunno Kruggy, if it's true I find it hard to blame people who made decisions in good faith based on bad maths over the people who got the maths wrong.
    you have no problem blaming low paid public servants
    "If we VOTE YES there will be no more austere budgets. Fact " Hammer, mayday 12'

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    Less than 90% debt/GDP and a deficit less than 3% are very good things.

    Until the McCarthy report is implemented in near full, effective corporation tax is closer to 12%, public sector pensions are capped or social welfare is reformed - then we don't have an austerity programme (what we have is 5 years of disjointed short term measures which have reduced the deficit to 7.5%!!!).

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    Politics.ie Member cyberianpan's Avatar
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    A ) Rogoff and Reinhart have yet ro answer

    B) And more importantly : current crises in PIIGS have fiscal, rather than business cycle roots - so corrections are simply necessary accounting (rather than attempting to encourage growth)

    The Rogoff and Reinhart work gave nice political cover though as it allowed the pretense of austerity as a good , rather than merely necessary thing
    "Yawn , am I alive yet ?"

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    Politics.ie Member seabhcan's Avatar
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    This adds to a long list of recent misguided policies caused by politicians placing too much faith in computer modelling:

    Foot and Mouth cull in the UK

    Global Warming

    Millennium Bug

    The Ash cloud air traffic closures

    And now Austerity.

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    Politics.ie Member neiphin's Avatar
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    "If we VOTE YES there will be no more austere budgets. Fact " Hammer, mayday 12'

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    Quote Originally Posted by Sync View Post
    Seriously? You guys left out frigging Canada and Australia, 2 of the top 15 GDP countries and didn't notice???
    Day probly forgoh to send in dare self-worf.

    Self-worf is all dah mahhers.

  10. #10
    Dylan2010
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    im not sure what the problem is, only tards would run an economy above 90% debt to gdp if they need to borrow on foreign markets. below 60% better

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