How about, just for grin and giggles, we talk some macro-economics?
So in 2010, Carmen Reinhart and Kenneth Rogoff, Harvard economics professors (they’re both at Harvard now; she was at Maryland when she wrote the paper), published a major study. “Growth in a Time of Debt,” about the relationship between debt and economic growth. To summarize; they argued that whenever a nation’s debt rises above 90% of GDP, it slows economic growth–destroys it, in fact. This paper proved very influential–was cited all over the place, especially by politicians suggesting that our number economic priority had to be deficit reduction. Reinhart/Rogoff was laid the the intellectual foundation for European austerity measures. David Cameron cited it, in Britain. Paul Ryan did so as well back here in the US of A. It was a Very Big Deal.
Most other macro-economists disagreed with it, and are on record opposing both the paper and the policies it spawned. Paul Krugman was prominent among them. But it took a grad student to completely blow Reinhart/Rogoff out of the water.
Guy named Thomas Herndon. A grad student at the University of Massachusetts, Herndon was taking a class in Applied Econometrics. For his term paper, he suggested replicating Reinhart and Rogoff’s findings. This story describes what happened: his profs almost didn’t approve it. It was too simple, they said. Just basic math. For a graduate level class, they suggested he do something more challenging. But he kept pushing, and they finally let him do it.
And Herndon discovered that Reinhart and Rogoff’s entire thesis depended on a spreadsheet error. That they’d made a simple mistake, probably because they didn’t know how to use Excel. That economic growth, according to their own statistics, for countries with debt exceeding 90% of GDP, wasn’t negative .1 percent. It was 2.2 percent, positive. That they had basically gotten all the math wrong. Because they didn’t know how to use the most popular and user-friendly spreadsheet program in existence. Why had no one caught it before? Because the initial publication of the most influential paper in macro-economics in my lifetime had not been peer-reviewed. That the first peer to review it was this kid. A grad student.
Nightmare. Some kid caught you. You’re a university professor, tenured and respected, and you’ve published a lot, many articles, and you write something really significant, something people pay lots of attention to. And some whippersnapper comes up to you and says, “uh, prof? Seriously, you can’t use Excel? Wow. Here, let me show you. You made this simple math error. It invalidates your entire argument.” Marketplace of ideas, indeed.
True story: many years ago, I was a grad student, and I had a paper accepted at an academic conference. I went, and my dissertation advisor invited me out to dinner with some of his friends. It was me, another grad student, and five of the most distinguished theatre historians in the world. Completely terrifying. We went to this incredibly nice restaurant in New Orleans–I couldn’t have afforded anything on the menu, but the profs kindly offered to get the check–and it immediately became clear that the two grad students were on trial. They were grilling us: I was holding my own. But I had just gotten the seventh edition (may have been the sixth), of Oscar Brockett’s History of the Theatre. And there he was, in the flesh, Brock himself, the great Oscar Brockett, right there at the table. And I’d read the book that night, preparing for the dinner, and caught a mistake. Not a little mistake either–he’d gotten Shakespeare’s birth year wrong. I mentioned this, and the look on Brockett’s face was priceless. As was the ribbing he got from his colleagues at the table.
Could have been worse. He could have had Stephen Colbert making fun of him/them. But it is great for the grad student who catches the big boys. If you catch a big enough prof in a big enough error, Stephen Colbert will put you on his show.
The Colbert clip with Herndon is great, mostly because Stephen Colbert has so much fun with it. But I loved this fact: Herndon wondered, initially, if he could have possibly gotten things wrong. So he had his results peer-reviewed. He showed ’em to his girlfriend.
It’s certainly possible to feel a bit bad for Reinhart and Rogoff. But I’ve gotten to feeling a lot less sorry for them since Herndon’s paper was published. Their reaction has been wholly defensive, insisting that their basic conclusions were basically right even when the evidence supporting those conclusions has gone pooft. Oh, and they admitted that they deliberately left out counter-examples. Australia, New Zealand and Canada had inconveniently robust growth despite massive debt; R/R excluded them from their data.
The fact is, these two became policy wonk celebs, testifying before the House Budget Committee and the British Parliament and the EU General Council. Anytime anyone talked about austerity, it was Reinhart/Rogoff they cited, unless they decided to put the guy’s name first, and call it Rogoff/Reinhart. Now they look like bozos. Caught by a kid. (Who now replaces them as policy wonk celeb du jour. By, among other things, going on Colbert.)
The thing was, as Keynes pointed out in his General Theory, austerity is always going to be puritanically attractive. When an economy stalls, it’s tempting to see that failure in moral terms. Our spending was too extravagant, too luxurious; our debt suggests profligacy and imprudence. We need to cut back. We need to punish ourselves, tighten our belts. Look at government, wicked, evil government! I wouldn’t run my family finances that way! When I want to buy a new car, by gum, I save up for it! We’re on a national (look at the moral implications of this language) spending spree. And we need to stop.
Except none of that’s true. Everywhere I look, I see a federal government where basic functions are endangered because they’re underfunded. Say that to people, and they’ll go on a tirade about wasteful government spending. And sure, there probably is some. But mostly what needs to happen right now is more spending, stimulative spending. We’re in a Keynes moment, and Keyne’s basic IS/LM model has actually performed superbly in this crisis. R and R published a paper that was deeply and obviously flawed, and they got away with it for three years because it said something policy makers wanted to hear.
So the whole thing would be pretty funny, if it weren’t also serious. People are suffering out there. Unemployment is too high and underemployment rampant. Europe is really struggling. Austerity has been tried and tested and found wanting. We know what works and we know what doesn’t work. Peer review, turns out, works good. Austerity, not so much.