How Much Unemployment Did Reinhart and Rogoff’s Arithmetic Mistake Cause?

Thanks to WayneP for bringing this issue to my attention.  I have chosen an article by Dean Baker to highlight the story. The article on Truthout is How Much Unemployment Did Reinhart and Rogoff’s Arithmetic Mistake Cause?

Beside the “error” that Reinhart and Rogoff made, the quote below from Baker shows one of the reasons why Reinhart and Rogoff should have been suspicious about their numerical results.  It should have been a tip-off to double, triple check their results until they could explain why their numbers ran counter to so much economic theory.

Third, the whole notion of public debt turns out to be ill-defined. Countries can sell off assets to pay down debts, would this avoid the R&R high debt twilight zone of slow growth? In fact, even the value of debt itself is not constant.Long-term debt issued in times of low interest rates will fall in value when interest rates rise. If there is a high debt twilight zone effect as R&R claim, then we can just buy back bonds at steep discounts and send our debt-to-GDP ratio plummeting.

For all the people that use the comparison of the Federal Budget to their personal budgets, it is time to stop and ask themselves, if economic history runs counter to what they predict from their analogy, they really need to study the reasons why the facts do not match their intuition.  All good engineers check their calculations against whatever intuition they have built up overs years of experience.  If the calculation and their intuition disagree, they do not rest until they understand why.

If the numbers for building a bridge tell a engineer that the bridge will fall down, but their intuition says it will stand, they don’t build that bridge until they understand whether the numbers are wrong or their intuition is wrong.

I don’t think that lawyers and politicians without this engineering or scientific foundation realize the need to check the results they get from a single analysis of a complex situation.  Certainly many recent Supreme Court decisions show the dangers of using a single faulty analogy without a cross check against other ways of looking at the problem.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.