Harvard professor Ken Rogoff has not had a good week (Reuters)
For an economist, the five most terrifying words in the English language are: I can't replicate your results. But for economists Carmen Reinhart and Ken Rogoff of Harvard, there are seven even more terrifying ones: I think you made an Excel error.
Listen, mistakes happen. Especially with Excel. But hopefully they don't happen in papers that provide the intellectual edifice for an economic experiment -- austerity -- that has kept millions out of work. Well, too late. As Mike Konczal of the Roosevelt Institute reported, Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst, have found serious problems with Reinhart and Rogoff's austerity-justifying work. That work, which shows that countries with public debt of 90 percent of GDP or more tend to grow slower, omitted data for five of its 19 countries, and used the wrong data for another. The former was, embarrassingly enough, due to an Excel misadventure, and the latter an unrelated issue. If you use all of the (right) numbers, it turns out growth does slow when debt is high, but not nearly as much as Reinhart and Rogoff -- hereafter, R-R -- claimed.
In other words, there is no evidence for anything resembling a growth tipping point when debt hits 90 percent of GDP.
This is the academic's version of the dream where you're naked in public. Except it's not a dream. It's the mortifying reality for R-R, who have admitted that they forgot to drag their Excel formula down five more cells. But it's worse than mortifying for everybody else. It's been a catastrophe. Not that R-R made a pretty galling mistake; rather, that such a flawed paper gave the intellectual ballast to an idea that has failed everywhere it's been tried the past few years. Now, policymakers would have pursued austerity regardless, but R-R gave them a reason (and seemingly a bright red 90 percent of GDP line) to do so sooner. If too much debt is associated with too little growth, then there's no time to lose for slashing deficits.
Those are important words: "associated with". As I pointed out before, the best argument against taking R-R as austerity's gospel truth was it was just a correlation. Of course a ratio tends to increase more when its denominator increases less. That's how fractions work. But it doesn't prove that the rising ratio causes the stagnating denominator. If anything, the causality runs the other way -- lower growth tends to cause higher debt, as tax revenue falls and safety-net spending rises during a slump. Indeed, as you can see below, Arindrajit Dube of the University of Massachusetts, Amherst, found that debt-to-GDP predicts past GDP growth much better than future GDP growth. In other words, higher debt doesn't cause lower growth as much as lower growth causes higher debt.
Of course, this hasn't stopped deficit hawks from touting R-R's work as proof that we must tackle the long-term debt and we must tackle it now. Including, sometimes, R-R themselves. Now, in their paper, R-R are careful to say the relationship between higher debt and lower growth is just that: a relationship. In fact, that's been their defense: they never said it was anything more than a correlation, and that correlation still holds after correcting for all their mistakes, albeit not as strongly.
That's true ... if you only look at what they said in their paper, and ignore what they said about their paper. For example, here's what they said in Bloomberg View back in July 2011:
Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP....
The biggest risk is that debt will accumulate until the overhang weighs on growth....
Those who remain unconvinced that rising debt levels pose a risk to growth should ask themselves why, historically, levels of debt of more than 90 percent of GDP are relatively rare and those exceeding 120 percent are extremely rare (see attached chart 2 for U.S. public debt since 1790). Is it because generations of politicians failed to realize that they could have kept spending without risk? Or, more likely, is it because at some point, even advanced economies hit a ceiling where the pressure of rising borrowing costs forces policy makers to increase tax rates and cut government spending, sometimes precipitously, and sometimes in conjunction with inflation and financial repression (which is also a tax)?
To be fair, R-R do say that they only found that higher debt and lower growth are "associated" and that there's no "bright red line" (even if policymakers interpret it that way) at 90 percent. But they also make it quite clear that they think their correlation is more than just a correlation. They think higher debt causes lower growth, and, after a little throat-clearing, they're not too shy about saying so.
In a series of academic papers with Carmen Reinhart - including, most recently, joint work with Vincent Reinhart ("Debt Overhangs: Past and Present") - we find that very high debt levels of 90% of GDP are a long-term secular drag on economic growth that often lasts for two decades or more....
Of course, there is two-way feedback between debt and growth, but normal recessions last only a year and cannot explain a two-decade period of malaise. The drag on growth is more likely to come from the eventual need for the government to raise taxes, as well as from lower investment spending. So, yes, government spending provides a short-term boost, but there is a trade-off with long-run secular decline.
It's the same pattern: a few caveats, and then a semi-speculative overselling of their results. But their biggest overselling didn't come in the media. It came behind closed doors -- in Congress. Tim Fernholz of Quartz flagged the following passage from Senator Tom Coburn's recent book about the time R-R briefed members of Congress in April 2011, a few months before the debt ceiling debacle:
Johnny Isakson, a Republican from Georgia and always a gentleman, stood up to ask his question: "Do we need to act this year? Is it better to act quickly?"
"Absolutely," Rogoff said. "Not acting moves the risk closer," he explained, because every year of not acting adds another year of debt accumulation. "You have very few levers at this point," he warned us.
Reinhart echoed Conrad's point and explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous to let that much debt accumulate. She said, "If it is not risky to hit the 90 percent threshold, we would expect a higher incidence."
R-R whisper "correlation" to other economists, but say "causation" to everyone else. Now, they don't always say it outright -- at least not at first. Rather, they say "this isn't definitely causation ... but come on, what else could it be?" That's been more than enough for the austerians who have been desperate for any kind of justification to forget about unemployment and worry about debt instead.
The boring reality is the relationship between public debt and growth isn't clear. As Justin Fox of Harvard Business Review points out, there simply isn't enough data. Some countries run up big debts fighting wars, and then grow fine. Some countries run up big debts fighting financial crises, and then grow slowly as the private sector deleverages. Some countries run up big debts as a matter of course, and then grow slowly as rising rates crowd out private investment. And even the few data points we do have don't always tell us all that much. Indeed, as Paul Krugman points out, it shouldn't surprise us that the U.S. has averaged negative growth during its high debt years, because most of those years came during the World War II demobilization. In other words, it's impossible to say anything dispositive about debt and growth more broadly.
But that hasn't stopped R-R from trying. This kind of overhyping is why Joe Weisenthal called them "the most dangerous economists in the world" back in 2011. And it's a far more damning error than anything they did with Excel.
I traveled to every country on earth. In some cases, the adventure started before I could get there.
Last summer, my Royal Air Maroc flight from Casablanca landed at Malabo International Airport in Equatorial Guinea, and I completed a 50-year mission: I had officially, and legally, visited every recognized country on earth.
This means 196 countries: the 193 members of the United Nations, plus Taiwan, Vatican City, and Kosovo, which are not members but are, to varying degrees, recognized as independent countries by other international actors.
In five decades of traveling, I’ve crossed countries by rickshaw, pedicab, bus, car, minivan, and bush taxi; a handful by train (Italy, Switzerland, Moldova, Belarus, Ukraine, Romania, and Greece); two by riverboat (Gabon and Germany); Norway by coastal steamer; Gambia and the Amazonian parts of Peru and Ecuador by motorized canoe; and half of Burma by motor scooter. I rode completely around Jamaica on a motorcycle and Nauru on a bicycle. I’ve also crossed three small countries on foot (Vatican City, San Marino, and Liechtenstein), and parts of others by horse, camel, elephant, llama, and donkey. I confess that I have not visited every one of the 7,107 islands in the Philippine archipelago or most of the more than 17,000 islands constituting Indonesia, but I’ve made my share of risky voyages on the rickety inter-island rustbuckets you read about in the back pages of the Times under headlines like “Ship Sinks in Sulu Sea, 400 Presumed Lost.”
According to Franklin, what mattered in business was humility, restraint, and discipline. But today’s Type-A MBAs would find him qualified for little more than a career in middle management.
When he retired from the printing business at the age of 42, Benjamin Franklin set his sights on becoming what he called a “Man of Leisure.” To modern ears, that title might suggest Franklin aimed to spend his autumn years sleeping in or stopping by the tavern, but to colonial contemporaries, it would have intimated aristocratic pretension. A “Man of Leisure” was typically a member of the landed elite, someone who spent his days fox hunting and affecting boredom. He didn’t have to work for a living, and, frankly, he wouldn’t dream of doing so.
Having worked as a successful shopkeeper with a keen eye for investments, Franklin had earned his leisure, but rather than cultivate the fine arts of indolence, retirement, he said, was “time for doing something useful.” Hence, the many activities of Franklin’s retirement: scientist, statesman, and sage, as well as one-man civic society for the city of Philadelphia. His post-employment accomplishments earned him the sobriquet of “The First American” in his own lifetime, and yet, for succeeding generations, the endeavor that was considered his most “useful” was the working life he left behind when he embarked on a life of leisure.
Massive hurricanes striking Miami or Houston. Earthquakes leveling Los Angeles or Seattle. Deadly epidemics. Meet the “maximums of maximums” that keep emergency planners up at night.
For years before Hurricane Katrina, storm experts warned that a big hurricane would inundate the Big Easy. Reporters noted that the levees were unstable and could fail. Yet hardly anyone paid attention to these Cassandras until after the levees had broken, the Gulf Coast had been blown to pieces, and New Orleans sat beneath feet of water.
The wall-to-wall coverage afforded to the anniversary of Hurricane Katrina reveals the sway that a deadly act of God or man can hold on people, even 10 years later. But it also raises uncomfortable questions about how effectively the nation is prepared for the next catastrophe, whether that be a hurricane or something else. There are plenty of people warning about the dangers that lie ahead, but that doesn’t mean that the average citizen or most levels of the government are anywhere near ready for them.
Climate change means the end of our world, but the beginning of another—one with a new set of species and ecosystems.
A few years ago in a lab in Panama, Klaus Winter tried to conjure the future. A plant physiologist at the Smithsonian Tropical Research Institute, he planted seedlings of 10 tropical tree species in small, geodesic greenhouses. Some he allowed to grow in the kind of environment they were used to out in the forest, around 79 degrees Fahrenheit. Others, he subjected to uncomfortably high temperatures. Still others, unbearably high temperatures—up to a daily average temperature of 95 degrees and a peak of 102 degrees. That’s about as hot as Earth has ever been.
It’s also the kind of environment tropical trees have a good chance of living in by the end of this century, thanks to climate change. Winter wanted to see how they would do.
The tension between religious liberty and same-sex marriage may eventually come to a head in the courts, but probably not through the Kentucky clerk’s case.
As Rowan County clerk Kim Davis crawls further and further out on a limb, Supreme Court experts agree that she has little chance of prevailing. District Judge David Bunning, on August 12 ordered Davis, in her capacity as county clerk, to issue marriage licenses to all couples who meet the statutory criteria for marriage in Kentucky—a definition that, since the Court’s landmark decision in Obergefell v. Hodges, includes same-sex couples.
Davis has refused, citing “the authority of God.” The U.S. Supreme Court, without comment, denied her emergency request for a stay. This throws the case back to the Sixth Circuit, which will hear the appeal of Judge Bunning’s order. Assuming she loses in the Sixth Circuit—a fairly good assumption—she would then have the alternative of petitioning the Supreme Court to hear her religious freedom claim. The Court will eventually hear a case about religious freedom and same-sex marriage, but I don’t think it will be this one.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
The past is beautiful until you’re reminded it’s ugly.
Taylor Swift’s music video for “Wildest Dreams” isn’t about the world as it exists; it’s about the world as seen through the filter of nostalgia and the magic of entertainment. In the song, Swift sings that she wants to live on in an ex’s memory as an idealized image of glamour—“standing in a nice dress, staring at the sunset.” In the video, her character, an actress, falls in love with her already-coupled costar, for whom she’ll live on as an idealized image of glamour—standing in a nice dress, staring at a giant fan that’s making the fabric swirl in the wind.
The setting for the most part is Africa, but, again, the video isn’t about Africa as it exists, but as it’s seen through the filter of nostalgia and the magic of entertainment—a very particular nostalgia and kind of entertainment. Though set in 1950, the video is in the literary and cinematic tradition of white savannah romances, the most important recent incarnation of which might be the 1985 Meryl Streep film Out of Africa, whose story begins in 1913. Its familiarity is part of its appeal, and also part of why it’s now drawing flack for being insensitive. As James Kassaga Arinaitwe and Viviane Rutabingwa write at NPR:
How the Islamic State uses economic persecution as a recruitment tactic
Before Islamic State militants overran her hometown of Mosul in June 2014, Fahima Omar ran a hairdressing salon. But ISIS gunmen made Omar close her business—and lose her only source of income. Salons like hers encouraged “debauchery,” the militants said.
Omar is one of many business owners—male and female—who say ISIS has forced them to shut up shop and lose their livelihoods in the process. The extremist group has also prevented those who refuse to join it from finding jobs, and has imposed heavy taxes on civilians.
“ISIS controls every detail of the economy,” says Abu Mujahed, who fled with his family from ISIS-controlled Deir al-Zor in eastern Syria. “Only their people or those who swear allegiance to them have a good life.” When they took over Deir al-Zor, ISIS gunmen systematically took control of the local economy, looting factories and confiscating properties, says Mujahed. Then they moved in, taking over local business networks.
Though it wasn’t pretty, Minaj was really teaching a lesson in civility.
Nicki Minaj didn’t, in the end, say much to Miley Cyrus at all. If you only read the comments that lit up the Internet at last night’s MTV Video Music Awards, you might think she was kidding, or got cut off, when she “called out” the former Disney star who was hosting: “And now, back to this bitch that had a lot to say about me the other day in the press. Miley, what’s good?”
To summarize: When Minaj’s “Anaconda” won the award for Best Hip-Hop Video, she took to the stage in a slow shuffle, shook her booty with presenter Rebel Wilson, and then gave an acceptance speech in which she switched vocal personas as amusingly as she does in her best raps—street-preacher-like when telling women “don’t you be out here depending on these little snotty-nosed boys”; sweetness and light when thanking her fans and pastor. Then a wave of nausea seemed to come over her, and she turned her gaze toward Cyrus. To me, the look on her face, not the words that she said, was the news of the night: