by Paul Krugman
The New York Review of Books, June 6, 2013
"In normal times, an arithmetic mistake in an economics paper would be
a complete nonevent as far as the wider world was concerned. But in
April 2013, the discovery of such a mistake—actually, a coding error in a
spreadsheet, coupled with several other flaws in the analysis—not only
became the talk of the economics profession, but made headlines. Looking
back, we might even conclude that it changed the course of policy.
Because the paper in question, “Growth in a Time of Debt,” by the
Harvard economists Carmen Reinhart and Kenneth Rogoff, had acquired
touchstone status in the debate over economic policy. Ever since the
paper was first circulated, austerians—advocates of fiscal austerity, of
immediate sharp cuts in government spending—had cited its alleged
findings to defend their position and attack their critics. Again and
again, suggestions that, as John Maynard Keynes once argued, “the boom,
not the slump, is the right time for austerity”—that cuts should wait
until economies were stronger—were met with declarations that Reinhart
and Rogoff had shown that waiting would be disastrous, that economies
fall off a cliff once government debt exceeds 90 percent of GDP.
Reinhart-Rogoff may have had more immediate influence on public debate
than any previous paper in the history of economics. The 90 percent
claim was cited as the decisive argument for austerity by figures
ranging from Paul Ryan, the former vice-presidential candidate who
chairs the House budget committee, to Olli Rehn, the top economic
official at the European Commission, to the editorial board of The Washington Post.
So the revelation that the supposed 90 percent threshold was an
artifact of programming mistakes, data omissions, and peculiar
statistical techniques suddenly made a remarkable number of prominent
people look foolish."
Read the article, click here
This is a very good case history of critical thinking in the field of economics. False statements that were not subjected to critical thinking resulted in bad economic policies with large negative impacts on people.
But even after this and other critical thinking essays have been published, the policies resist change.
I consider Krugman to be one of the most level headed, critical thinkers in economics who has a broad public audience. But, even he seems to despair. The closing paragraph of this artilce was like a dagger. If he can't affect policy, who can? And, what's my roles?
"The Reinhart-Rogoff debacle has raised some hopes among the critics that
logic and evidence are finally beginning to matter. But the truth is
that it’s too soon to tell whether the grip of austerity economics on
policy will relax significantly in the face of these revelations. For
now, the broader message of the past few years remains just how little
good comes from understanding."