Thursday, April 25, 2013

The Austerity Chicanery

By Jeff Simpson

What matters to me is that I do what I think is right and I see, I'm a numbers guy, that's my attitude. I know we have a debt tsunami coming, we are bankrupting this country and I'm in a position where I can actually advance ideas to prevent that from happening. That's exactly what I should be doing.

Last year, the US Department of Education administered the National Assessment of Educational Progress administered an economics test and found out less than half of high school seniors are proficient in economics.  

Fewer than half of high school seniors are proficient in economics, according to the results of the 2012 National Assessment of Educational Progress exam released Wednesday. This statistic is causing alarm among educators and advocates, especially in an era marked by economic crisis.

While that is disturbing, it only scratches the surface.  There is something that is truly alarming going on.   While less than half of high school seniors are not proficient in economics, an even greater percentage of Congress is not proficient in economics led by our friend, Paul Ryan (R- Wall St.).

Paul Ryan has fashioned a career advancing his austerity agenda, there is only one problem, his whole philosophy is flawed.  Seriously flawed!

Echoing the messaging of billionaire-funded groups such as the “Fix the Debt” coalition, Ryan has argued that any “pain” suffered by working Americans—in the form of restructurings of Social Security, Medicare or Medicaid, post office closures and cuts to state and local aid—was necessary in order to avoid an economic meltdown.

"Economists who have studied sovereign debt tell us that letting total debt rise above 90 per cent of GDP creates a drag on economic growth and intensifies the risk of a debt-fueled economic crisis," Ryan told a congressional hearing in 2011. When he accepted the Republican vice presidential nomination in Tampa, Ryan brought that sense of urgency into the national spotlight, declaring that "a defining responsibility of government is to steer our nation clear of a debt crisis while there is still time."

Since the defeat of his national candidacy, Ryan has continued to claim that the threat of economic ruin is so clear that—despite their rejection at the polls—his proposals must be adopted by President Obama and Congress. This has been and remains a steady message from Ryan, whose “Path to Prosperity” budget proposal rests on the premise that economists have "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth."

But the 90 percent threshold is a false precipice based on a false premise.
See Ryan's whole premise was upended when a 28 year old grad student(Thomas Herndon) sat down with the numbers.  

What Herndon had discovered was that by making a sloppy computing error, Reinhart and Rogoff had forgotten to include a critical piece of data about countries with high debt-to-GDP ratios that would have affected their overall calculations. They had also excluded data from Canada, New Zealand, and Australia — all countries that experienced solid growth during periods of high debt and would thus undercut their thesis that high debt forestalls growth.

Herndon was stunned. As a graduate student, he'd just found serious problems in a famous economic study — the academic equivalent of a D-league basketball player dunking on LeBron James. "They say seeing is believing, but I almost didn’t believe my eyes," he says. "I had to ask my girlfriend — who's a Ph.D. student in sociology — to double-check it. And she said, 'I don't think you're seeing things, Thomas.'"

So what did the original authors, Reinhart and Rogoff, have to say about their flawed study?  Oops

While other economists have been telling us that Austerity does NOT work, it did not stop our friends on the right from using this research to preach he need for austerity!  This research has been used to justify the economic mess all over the world, and even the International Monetary Fund's Top Economist had to say OOPs

As Crooks and Liars says, we instituted this failed austerity agenda all over the world because of a coding error!   Ouch!   

By the way the number of republican politicians in the US who have admitted the error of their ways in using this data is already up to 0.   I guess Paul Ryan is as fake of a numbers guy as he is a conservative

Raise your hand if your surprised!   

Here is Mr. Herndon's original paper.   




  1. Austerity is working out great for Great Britain! The Brits are enjoying a Triple-Dip Recession!

    Yup! THREE Recessions since 2008!

    The USA could have basked in such splendor. Instead Americans elected Barack Obama.

  2. Austerity economics in a nutshell: The beatings will continue until morale improves.

  3. In a further blow to the austerians, the noted communist organization Goldman Sachs reports that the federal deficit is already shrinking rapidly:

    "In our view, the most important implication from the reduction in the budget deficit for the near-term economic outlook is reduced pressure for further fiscal retrenchment. Partly for this reason, we expect the drag from fiscal policy on real GDP growth to decline sharply from around 2% of GDP in 2013 to around 0.5% in coming years. This is a key reason for our expectation that real GDP growth will accelerate from around 2% (annualized) in Q2/Q3 2013 to 3%-3.5% in 2014-2016."

    Since the big Wall Street banks own the government, I suspect that the drive for more austerity will slacken quickly, leaving the Teabilly caucus howling in the wilderness.