[dolanbaker]

http://www.bbc.co.uk/news/magazine-22213219
After two Harvard economists admitted a faulty spreadsheet calculation caused errors in a study used by numerous politicians to support their austerity policies, writer Colm O'Regan pays tribute to the power of Microsoft Excel.

They called it a "coding error". This made it sound like they were sequestered in a bunker surrounded by black screens on which a continuous parade of figures flickered past.

Instead it was just someone using Excel on a laptop who was highlighting cells for a formula and released his index finger from the left-clicky button of his mouse too soon.

The debate has raged - well raged is a strong word, perhaps sulked? - since Monday about the significance of the calculation mistake made by Reinhart and Rogoff in their 2010 paper for the American Economic Review, Growth in a Time of Debt.

Did the conclusions about debt, growth and need for painful correction send the politicians of the world to the special cabinet to dust off the scourges?

That debate is meaningless because the last five years of economic prediction have told us one thing: No one knows anything any more and the people who say they know something know even less.

The main point to take from this debacle is the truly awesome power of Excel. Not its processing ability, just its ubiquity.

Never in the field of economics has so much faith been placed by so many in the results of a spreadsheet produced by so few!

[dorlomin]

Funny how another error was also found, one that strongly defends the need for austerity

http://en.wikipedia.org/wiki/Fiscal_multiplier#IMF

In October 2012 the International Monetary Fund released their Global Prospects and Policies document in which an admission was made that their assumptions about fiscal multipliers had been inaccurate.
"IMF staff reports, suggest that fiscal multipliers used in the forecasting process are about 0.5. our results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession. This finding is consistent with research suggesting that in today’s environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronized fiscal adjustment across numerous economies, multipliers may be well above 1.[10]
This admission has serious implications for economies such as the UK where the OBR used the IMF's assumptions in their economic forecasts about the consequences of the government's austerity policies.[11][12] It has been conservatively estimated by the TUC that the OBR's use of the IMF's under-estimated fiscal multiplication values means that they may have under-estimated the economic damage caused by the UK government's austerity policies by £76 billion.[13]
In their 2012 Forecast Evaluation Report the OBR admitted that underestimated fiscal multipliers could be responsible for their over-optimistic economic forecasts.
"In trying to explain the unexpected weakness of GDP growth over this period, it is natural to ask whether it was caused in part by [fiscal] tightening – either because it turned out to be larger than we had originally assumed or because a given tightening did more to depress GDP than we had originally assumed.
In answering the question, we are concerned with the aggregate impact of different types of fiscal tightening on GDP (measured using so-called ‘fiscal multipliers’) and not simply the direct contribution that government investment and consumption of goods and services makes to the expenditure measure of GDP. This direct government contribution has been more positive for growth than we expected, rather than more negative."[14]

[radon]

Symptomatic. These things going public basically mean that everyone is going to print ever more money, and that IMF/World Bank and their ilk are losing influence.

[Pops]

In arguing the angel capacity of a pinhead dance floor, one must first stipulate angels.

Ohh I'm creative today, LOL

In this case meaning you gotta believe in angels, after that everything else is just filler, IOW this will change exactly zero votes because it convinced exactly zero people in the first place. Austerity vs intervention is a belief system surrounded by competing "proofs". I'd imagine just like pinhead dancefloor capacities.

[ROCKMAN]

Pops – Keeping it lighthearted an example of common sense vs. believing your lying eyes. This does get some folks upset but I think that says more about them then the question.

I flip a coin 19 times and it shows heads every time. So when I flip it the 20th time what are the odds of it showing heads? Those addicted to spreadsheets and formulas have a difficult time understanding the best answer is 100% and not 50/50.

I didn’t create the question. It was asked by the professor in my first college statistics course a lifetime ago. He asked the same question the first day of every class he taught. Needless to say all us smarties would say 50/50. And he would laugh and explain it didn’t matter what the stat charts say: it was extremely unlikely anyone of us would ever see 20 head flips in a row if we spent the rest of our lives flipping a coin. Obviously it was a two-headed coin. And he never offered that it was an honest coin…we just made that assumption. But he had a very serious purpose to the joke that he pounded on us every class: thoroughly understand the population you were studying. The coin flip population was very poor if you assumed, as we all did, that it was an honest coin. The professor was a biologist and showed us one flawed study after another where the populations were skewed for a variety of reasons, like sampling error, after another. It ingrained in me a deep distrust for anyone’s stats if I didn’t understand the validity of their data base first.

Or as he put it: Use a little common sense…it goes a long way to avoid believing the wrong answers.

[C8]

I will only add that the problem goes both ways. Economists may get too much into their spreadsheets but Peak Oilers sometimes get too much into their charts. A chart is just a historical measure of production- it has no ability to predict the future by itself. Technological innovations can alter the seeming downslope of a production curve (or at least delay it). OTOH political collapse can cause a gentle down slope to turn into a cliff. Sometimes I think charts are given a kind of embedded mystic power by some Peak Oilers- almost like a religious symbol such as a cross- its just a chart. To echo what Rockman said- question the assumptions behind the data you are expecting.

[ROCKMAN]

C8 – Excellent point. Some folks have pointed out recently how the chart design, even when the data is correct, is design to promote more propaganda then fact. A common ploy seen these days by starting oil production rates in 2000. You’ll notice I don’t post a lot of charts and would rather discuss the dynamics behind the numbers rather than make a projection using a straight edge. As a geologist reviewing drilling proposals I don’t tend to worry nearly as much about what I understand from the available data as what important data I don’t have. Many of the dry holes I’ve seen drilled happened as a result of one of those data holes. And yes...more than once I've caught a prospect generator intentionally trying to create on of those holes.

You remind me about the “happiness quotient” chart of the life of a turkey: a great upwards trend…until slaughtering day arrives.

[ROCKMAN]

C8 – Excellent point. Some folks have pointed out recently how the chart, even when the data is correct, is designed to promote more propaganda then fact. A common ploy seen these days by starting oil production rates in 2000. You’ll notice I don’t post a lot of charts and would rather discuss the dynamics behind the numbers rather than make a projection using a straight edge. As a geologist reviewing drilling proposals I don’t tend to worry nearly as much about what I understand from the available data as what important data I don’t have. Many of the dry holes I’ve seen drilled happened as a result of one of those data holes. And yes...more than once I've caught a prospect generator intentionally trying to create on of those holes.

You remind me about the “happiness quotient” chart of the life of a turkey: a great upwards trend…until slaughtering day arrives.

[sparky]

.
The spreadsheet error was only one of the objection to Reinhart and Rogoff, they shamelessly cherry picked their data too
excluding the inconvenient years in some countries
quoting from the Robert Pollin and Michael Ash rebuttal
" When we performed accurate recalculations using their dataset, we found that, when countries’ debt-to-GDP ratio exceeds 90 per cent,
average growth is 2.2 per cent, not -0.1 per cent.
We also found that the relationship between growth and public debt varies widely over time and between countries."

There is a lot of politics behind this academic cat fight , all the rich countries government WANT to borrow more
the U.S. does it , Japan does it , Europe does it ,
all financial institutions and official economists are for it
the very though of choking off the river of government money give them cold sweat
they would actually have to work for it !

a paper telling it's not good for growth is quite inconvenient
since the paper is pretty dodgy , the big thing is to say it prove the reverse , borrowing is good for growth

It well might be , after all doping is a true and tried way of getting a horse to run faster
even if it kill it eventually !

[radon]

This entire occasion is a continuation of the Strauss-Kahn affair, a sequence of actions aimed at preservation of the privileged position of the mighty dollar. More of the kind should follow.

[PrestonSturges]

We knew they were lying anyway.
They knew that we knew that they were lying.
We knew that they knew that we knew they were lying.
But the corporate media and conservative politicians just keep pushing a narrative everyone knows is false, and those are the only voices that get heard.

[dinopello]

Did Paul Krugman win ?