Death by Excel

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Austerity kills. So the proponents of austerity really better get it right, if they want to argue that austerity kills less than…non-austerity. If you’ve been following the biz press, you’ve undoubtedly heard of the Reinhart-Rogoff Excel error scandal. To put a long story short, two prominent economists Carmen Reinhart and Kenneth Rogoff, published a paper stating that economic growth is negatively affected by debt-to-GDP ratios above 90%. This statement was used as a bludgeon by gleeful European (and other) policy-makers to anyone who suggested that relative fiscal contraction was the awesomest way to send many countries into a downward spiral of unemployment and social decay. This will not change their policies, but it tears away one of the biggest figleaves of public credibility.

Let’s leave aside the many things that can be unpacked in a critical analysis of that sort of statement. It turns out that the whole thing is due to an Excel error. The scientist in me has a very deep sad that anyone does anything serious on an Excel spreadsheet. It’s just begging for these sorts of discrepancies.

Anyway, here’s the goods on the student who figured it out, essentially as part of a class assignment. Also, Wolfgang M√ľnchau (in English in the FT) has a good summary of what went on, but it’s behind a paywall, so just Google “Perils of placing faith in a thin theory” and you’ll get around it if you click on the link under News.

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This page contains a single entry by Mandos published on April 22, 2013 11:55 AM.

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