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21-04-2013, 09:50 AM
Austerity frenzy proven to be wrong. So will it be halted?
Claims that an Excel error is to blame for moves by politicians and policymakers to shun people without jobs are disingenuous
Paul Krugman
In this age of information, maths errors can lead to disaster. Nasa's Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase's "London Whale" venture went bad in part because modellers divided by a sum instead of an average. So, did an Excel coding error destroy the Western world's economies?
The story so far: at the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, "Growth in a Time of Debt", that purported to identify a critical "threshold", a tipping point, for government indebtedness. Once debt exceeds 90 per cent of gross domestic product, they claimed, economic growth drops sharply.
Reinhart and Rogoff had credibility thanks to a widely admired earlier book on the history of financial crises, and their timing was impeccable. The paper came out just after Greece went into crisis and played right into the desire of many officials to "pivot" from stimulus to austerity. As a result, the paper instantly became famous; it was, and is, surely the most influential economic analysis of recent years. In fact, Reinhart-Rogoff quickly achieved almost sacred status among self-proclaimed guardians of fiscal responsibility; their tipping-point claim was treated not as a disputed hypothesis but as unquestioned fact, including in a Washington Post editorial earlier this year.
For the truth is that Reinhart-Rogoff faced substantial criticism from the start and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around. Another problem emerged: Other researchers using comparable data couldn't replicate the Reinhart-Rogoff results.
Finally, Reinhart and Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet - and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these and you get what other researchers found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign of a 90 per cent "threshold".
In response, Reinhart and Rogoff have acknowledged the coding error, defended their other decisions and claimed that they never asserted that debt necessarily causes slow growth. That's a bit disingenuous because they repeatedly insinuated that proposition even if they avoided saying it outright. But what really matters isn't what they meant to say, it's how their work was read: austerity enthusiasts trumpeted that 90 per cent as a reason to slash government spending, even amid mass unemployment.
So the Reinhart-Rogoff fiasco needs to be seen in the broader context of austerity mania: the obviously intense desire of policymakers, politicians and pundits across the Western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programmes.
What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretences. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 per cent of GDP. But "economic research" showed no such thing. Policymakers abandoned the unemployed and turned to austerity because they wanted to, not because they had to. So will toppling Reinhart-Rogoff from its pedestal change anything? I predict that the usual suspects will just find another dubious piece of economic analysis to canonise, and the depression will go on and on.
The New York Times
http://www.scmp.com/comment/insight-opin...-be-halted
-------------------------------------------------------------------------------------------------------------------
The mysterious powers of Microsoft Excel
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.
As much as oil and water, our lives are governed by Excel. As you read these lines somewhere in the world, your name is being dragged from cell C25 to D14 on a roster. Such a simple action, yet now you'll be asked to work on your day off. It is useless to protest. The spreadsheet has been printed - the word made mesh.
Speaking of printing, this is another area where Excel does not give up its mysteries too easily. Everyone remembers the first time they clicked "Print" and naively expected the outcome to resemble what they saw on the screen.
There followed an awkward wait at the printer as, necks reddening with shame, the spreadsheet came out with its data scattered across a sheaf of paper - information that was key to understanding page one was located on page 72.
In between there were dozens of other pages, blank apart from borders on some of the cells so that it looked like plans for the design of a wire fence.
Only very few of us will truly harness the full capabilities of the 31-year old machine. Most people will only tentatively sum up the odd column but there are others who can really make that the old engine fly.
I still remember looking over a colleague's shoulder at a spreadsheet which had a button in the middle of it. A BUTTON! Raised above the plain of the worksheet like a ziggurat. Instantly I fell to my knees in worship.
Try it now - take some time to play with formulas and Excel will reward you generously, with magic. There are hundreds, from the simple IF, to the rather rude CUMIPMT, all the way to MIRR - the formula for operating a space station.
Of course, Excel will not always reward you. You may have made a mistake in the formula. Your hand may have shaken as you tried to remember if "col_index" was the one on the right or the left.
Excel won't tolerate this. It will send you packing, Worse still you may have a "circular reference" and you will get a lecture. Or you've inserted a chart where everything is zero apart from one thing which is infinity, and Excel will say nothing.
There are many unanswered questions, like what happens if you start everything from cell XFD-1048576? If you summed everything in a spreadsheet, where would you put the answer (ok, in another worksheet).
Excel fans are often treated pejoratively. "'You can't learn this is in a spreadsheet, kid,' said the old man, his weather-beaten face grimacing as he swiftly removed the caribou's entrails" is a line found in many books. But spreadsheets have a beauty all of their own.
They speak to a need deep inside of us to arrange things in rows and columns. Ever since the first town planners pored over drawings of grids in the Indus Valley, man has wanted to locate points by how far over and up they were.
And now these rows and columns are used in spreadsheets processing billions of dollars of trades - often wrongly, as seen in the London Whale incident. But spreadsheets don't cheat people. People cheat people.
Yet despite this, Excel is under threat. Its processing power is not enough for the requirements of the sinister organisation known as Big Data. The Force that has been quietly watching and gathering details about your every move and now is in a position to guess what you're going to do next, once it finishes running the numbers.
Excel wouldn't do that. It would hourglass for a while before eventually coming to the rather plaintive conclusion that there weren't "enough resources".
If Excel ever goes, we will miss it. In times to come we will look at old Excel spreadsheets, our eyes growing damp with nostalgia. We will trace our mouse across its clunky yet sturdy workmanship, as we would now lovingly stroke the nameplate of a Victorian machine: "Ah… pivot tables. You see, they built stuff to last in them days, knowwhatImean?"
http://www.bbc.co.uk/news/magazine-22213219
Claims that an Excel error is to blame for moves by politicians and policymakers to shun people without jobs are disingenuous
Paul Krugman
In this age of information, maths errors can lead to disaster. Nasa's Mars Orbiter crashed because engineers forgot to convert to metric measurements; JPMorgan Chase's "London Whale" venture went bad in part because modellers divided by a sum instead of an average. So, did an Excel coding error destroy the Western world's economies?
The story so far: at the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, "Growth in a Time of Debt", that purported to identify a critical "threshold", a tipping point, for government indebtedness. Once debt exceeds 90 per cent of gross domestic product, they claimed, economic growth drops sharply.
Reinhart and Rogoff had credibility thanks to a widely admired earlier book on the history of financial crises, and their timing was impeccable. The paper came out just after Greece went into crisis and played right into the desire of many officials to "pivot" from stimulus to austerity. As a result, the paper instantly became famous; it was, and is, surely the most influential economic analysis of recent years. In fact, Reinhart-Rogoff quickly achieved almost sacred status among self-proclaimed guardians of fiscal responsibility; their tipping-point claim was treated not as a disputed hypothesis but as unquestioned fact, including in a Washington Post editorial earlier this year.
For the truth is that Reinhart-Rogoff faced substantial criticism from the start and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around. Another problem emerged: Other researchers using comparable data couldn't replicate the Reinhart-Rogoff results.
Finally, Reinhart and Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet - and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these and you get what other researchers found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign of a 90 per cent "threshold".
In response, Reinhart and Rogoff have acknowledged the coding error, defended their other decisions and claimed that they never asserted that debt necessarily causes slow growth. That's a bit disingenuous because they repeatedly insinuated that proposition even if they avoided saying it outright. But what really matters isn't what they meant to say, it's how their work was read: austerity enthusiasts trumpeted that 90 per cent as a reason to slash government spending, even amid mass unemployment.
So the Reinhart-Rogoff fiasco needs to be seen in the broader context of austerity mania: the obviously intense desire of policymakers, politicians and pundits across the Western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programmes.
What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretences. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 per cent of GDP. But "economic research" showed no such thing. Policymakers abandoned the unemployed and turned to austerity because they wanted to, not because they had to. So will toppling Reinhart-Rogoff from its pedestal change anything? I predict that the usual suspects will just find another dubious piece of economic analysis to canonise, and the depression will go on and on.
The New York Times
http://www.scmp.com/comment/insight-opin...-be-halted
-------------------------------------------------------------------------------------------------------------------
The mysterious powers of Microsoft Excel
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.
As much as oil and water, our lives are governed by Excel. As you read these lines somewhere in the world, your name is being dragged from cell C25 to D14 on a roster. Such a simple action, yet now you'll be asked to work on your day off. It is useless to protest. The spreadsheet has been printed - the word made mesh.
Speaking of printing, this is another area where Excel does not give up its mysteries too easily. Everyone remembers the first time they clicked "Print" and naively expected the outcome to resemble what they saw on the screen.
There followed an awkward wait at the printer as, necks reddening with shame, the spreadsheet came out with its data scattered across a sheaf of paper - information that was key to understanding page one was located on page 72.
In between there were dozens of other pages, blank apart from borders on some of the cells so that it looked like plans for the design of a wire fence.
Only very few of us will truly harness the full capabilities of the 31-year old machine. Most people will only tentatively sum up the odd column but there are others who can really make that the old engine fly.
I still remember looking over a colleague's shoulder at a spreadsheet which had a button in the middle of it. A BUTTON! Raised above the plain of the worksheet like a ziggurat. Instantly I fell to my knees in worship.
Try it now - take some time to play with formulas and Excel will reward you generously, with magic. There are hundreds, from the simple IF, to the rather rude CUMIPMT, all the way to MIRR - the formula for operating a space station.
Of course, Excel will not always reward you. You may have made a mistake in the formula. Your hand may have shaken as you tried to remember if "col_index" was the one on the right or the left.
Excel won't tolerate this. It will send you packing, Worse still you may have a "circular reference" and you will get a lecture. Or you've inserted a chart where everything is zero apart from one thing which is infinity, and Excel will say nothing.
There are many unanswered questions, like what happens if you start everything from cell XFD-1048576? If you summed everything in a spreadsheet, where would you put the answer (ok, in another worksheet).
Excel fans are often treated pejoratively. "'You can't learn this is in a spreadsheet, kid,' said the old man, his weather-beaten face grimacing as he swiftly removed the caribou's entrails" is a line found in many books. But spreadsheets have a beauty all of their own.
They speak to a need deep inside of us to arrange things in rows and columns. Ever since the first town planners pored over drawings of grids in the Indus Valley, man has wanted to locate points by how far over and up they were.
And now these rows and columns are used in spreadsheets processing billions of dollars of trades - often wrongly, as seen in the London Whale incident. But spreadsheets don't cheat people. People cheat people.
Yet despite this, Excel is under threat. Its processing power is not enough for the requirements of the sinister organisation known as Big Data. The Force that has been quietly watching and gathering details about your every move and now is in a position to guess what you're going to do next, once it finishes running the numbers.
Excel wouldn't do that. It would hourglass for a while before eventually coming to the rather plaintive conclusion that there weren't "enough resources".
If Excel ever goes, we will miss it. In times to come we will look at old Excel spreadsheets, our eyes growing damp with nostalgia. We will trace our mouse across its clunky yet sturdy workmanship, as we would now lovingly stroke the nameplate of a Victorian machine: "Ah… pivot tables. You see, they built stuff to last in them days, knowwhatImean?"
http://www.bbc.co.uk/news/magazine-22213219
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
