I am amazed at how much media coverage since yesterday this study criticizing the Reinhart-Rogoff work is getting thanks largely, apparently, to the Roosevelt Institute research support which I think is great (see below)! Needless to say, I am convinced that there was hardly any error from some incompetent research assistant but that it was most likely an exercise in data mining and selective use of data series that are rampant and that practically all economists engage in … not to mention the causality issue in interpreting the statistical evidence to which many now are also referring.
What bothers me about this is to suggest that the rejection of austerity is predicated on the basis of faulty data series. We know that, regardless of the amount of empirical evidence that one has to disprove a theory, unless there is a coherent alternative that is espoused and around which political forces can coalesce, the theory will remain intact and the proponents of austerity will continue to spew their toxic ideas and implement their destructive measures worldwide. That is why Krugman and his disciples will not get very far with this, since they do not have a coherent alternative to some loanable funds theory. All of them subscribe to some notion of debt stability as being a constraint ultimately on public spending and thus on economic growth. Hence, instead of 90% debt/GDP ratio, they may find some other higher ratio, say, 150% and they will then have to say that Greece and Japan must now still implement austerity measures! The problem here is that they are stuck in a faulty and misleading paradigm that must eventually lead them to austerity. The only viable framework that is truly a paradigm shift is the broad circuitist cum MMT framework. Unless we can get that through to the media, all of this interesting debate over data series will not go anywhere …. much like the conclusions last year on the IMF fiscal multipliers being larger than originally assumed has hardly changed anything in preventing governments from continuing to apply austerity measures internationally.
But there is some hope because at least there is a shake-up in the profession! As Alain undoubtedly would say: Ce n’est qu’un dbut, continuons le combat!
All the best,