When the media reports on a complicated issue, the truth can be horribly distorted – not so much through outright lies, but due to the journalistic practice of squeezing multi-layered facts into simple narratives.
We’ve just had an excellent example in the case of the economists Carmen Reinhart and Kenneth Rogoff, whose historical and international comparisons of recovery from past recessions have been cited in support of current-day austerity policies.
It was, therefore, a bit of bombshell when spreadsheet errors were recently discovered in one of their academic papers.
Anyone who uses spreadsheet software (such as Microsoft Excel) to perform complex calculations, or just to do their accounts, will know how easy it is to make a simple mistake which can then automatically and imperceptibly ‘infect’ the rest of your work. It is the sort of thing that keeps accountants, economists, scientists and politicians awake at night – which is why, in the case of Reinhart and Rogoff, it made such a great story.
But as explained by FF Wiley on the Cyniconomics blog, all is not quite as it seems.
First of all, a brief description of the paper in question:
- “[Reinhart and Rogoff’s] conclusions are well-known in both academic and political circles. In their 2010 paper and a second paper released last year (with Vincent Reinhart), they suggested that economic growth tends to slow after government debt rises above 90% of GDP.”
Now, a brief description of the mistake or, rather, the mistakes:
- “…three Massachusetts authors – Thomas Herndon, Michael Ash and Robert Pollin, now known on the Internet as ‘HAP’ – argued that a heavily cited 2010 paper by Carmen Reinhart and Kenneth Rogoff (RR) contained fatal errors. In a critique that was released to the public last Tuesday, they revealed a calculation error in one of RR’s spreadsheets. And they also argued that RR omitted data points without justification and used an unconventional weighting method in their statistical averages.”
Note that the ‘HAP’ critique of Reinhart and Rogoff isn’t just based on the spreadsheet error, but also on disagreements over data selection and the weighting of that data.
This matters because when you look at the rival analyses, it turns out that the spreadsheet error, while buttock-clenchingly embarrassing, actually made very little difference to the final results. In fact, the challenge to Reinhart and Rogoff is almost entirely to do with the other two points – which are essentially disagreements over methodology as opposed to straightforward mistakes. One might also add that this controversy applies to just one paper in a highly regarded body of work.
So for all of these reasons and others, it might just be that the economic policies of the western world are not in fact based on a stray mouse-click.
However, one could argue that the economic policies of the western world are based on the academic discipline of macroeconomics – and that isn't necessarily a good thing:
- “If you were to review all of the published papers in this field for the last, say, 100 years, and weigh them up against real life events, the vast majority could be shown to have major shortcomings. Many have done real damage, leading policymakers to adopt views that are hopelessly disconnected from reality. It’s no exaggeration to say that the foundations of conventional macroeconomic theory have been discredited repeatedly in the last century.”
There are those who see the entire discipline as fundamentally flawed – relying as it does on methods of slicing and dicing data that are more likely to obscure the truth than to reveal it. One of them is Nassim Nicholas Taleb, author of the Black Swan, who puts it this way:
- “Rejecting a macroeconomic idea over an excel error is exactly like falsifying astrology over a computer glitch.”