Submitted by: Mike Spindell, Guest Blogger
When I started as a college student about 50 years ago I took the Sociology I course as a required subject. There is little I remember from that course and less I remember about the instructor, except for his introductory words on the first day of class. To paraphrase him he said: “You will be taking a lot of courses in what are called the Social Sciences. Approach them all, including mine, with skepticism because they really aren’t science courses like those you’ve learned as a high school student. They will spend a lot of lecture time though trying to prove they are truly scientific, don’t believe them”. His clear meaning was that although the Social Sciences try to operate as if they are using the scientific method of experiments/research to prove theories, most of the work done is skewed to prove the theory of choice by those doing the research. In the five decades since that lecture my own experience and reading has taught me how true the advice from that long forgotten Sociology instructor is.
The social science that has my attention at the moment is Economics. I’ve read many an economist, from all points on the political spectrum and frankly while I favor those such as Krugman and Baker, I take most of what they say as opinion, rather than scientifically determined truth. Yes I’ve even read “Freakonomics” by Levitt and Dubner and the follow-up “Superfreakonomics” and while they were good reads I see them as not only bad science, but a conflation of economics with other social sciences that is superficial at best. This is really the problem with many economists and their theories. They presume to divine human behavior via the prism of economic theory. In the end their proofs are merely retrofitting their pre-judgments. That brings me to the “Austerity” movement which has hampered the recovery from the economic “depression” brought on by the wars and tax reductions of the Bush years, while it has also caused a crisis worldwide through its imposition upon many nations. The foundation research that has justified this “Austerity” movement came from two Harvard Professors: Carmen Reinhart and Kenneth Rogoff. A University of Massachusetts student Thomas Herndon found that their work was filled with mathematical errors in their research spreadsheets. http://www.huffingtonpost.com/2013/04/16/reinhart-rogoff-austerity-research-errors_n_3094015.html Their spreadsheets were their “proofs” that economic austerity promotes economic recovery and this theory, long held by many economists, is the basis for the imposition of austerity onto so many Nation’s economies and is the source of bitter national debate in our own. Though I will present some overview and links amplifying “austerity’s” false assumptions, my interest is in presenting my view on why the powers that be have imposed this doctrine, whose effects fall squarely upon 99% of the people of these nations, leaving the wealthiest unscathed.
Thomas Herndon with others published a paper about Reinhart/Rogoff’s findings stating this:
“ The new paper, by Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst, set out to reconstruct the findings of an influential 2010 paper by Reinhart and Rogoff, called “Growth In A Time Of Debt.” Reinhart and Rogoff, both of Harvard, claimed that economic growth slowed fairly dramatically for countries whose public debt crossed a threshold of 90 percent of gross domestic product.
The problem is that other economists have been unable to recreate Reinhart and Rogoff’s findings. Herndon, Ash and Pollin now say they were able to do so — but only by leaving out big, important pieces of data.
Using the same spreadsheet that Reinhart and Rogoff used for their research, Herndon, Ash and Pollin found that “Growth In A Time Of Debt” was built around a handful of significant errors. Correcting for those errors changes the findings dramatically: Average GDP growth for high-debt countries jumps from negative 0.1 percent to 2.2 percent.”
What we see then is that calculation “errors” showed that GDP growth for high debt countries actual increased rather than decreased. Reinhart and Rogoff (R&R) have been arguing that debt decreases GDP as the rationale for austerity and their argument seems not only unproven, but wrong. It gets worse.
The Harvard economists have argued that mistakes and omissions in their influential research on debt and economic growth don’t change their ultimate austerity-justifying conclusion: That too much debt hurts growth.But even this claim has now been disproved by two new studies, which suggest the opposite might in fact be true: Slow growth leads to higher debt, not the other way around.
In a post at Quartz, University of Michigan economics professor Miles Kimball and University of Michigan undergraduate student Yichuan Wang write that they have crunched Reinhart and Rogoff’s data and found “not even a shred of evidence” that high debt levels lead to slower economic growth. And a new paper by University of Massachusetts professor Arindrajit Dube finds evidence that Reinhart and Rogoff had the relationship between growth and debt backwards: Slow growth appears to cause higher debt, if anything.
As you can see from the chart from Dube’s paper below, growth tends to be slower in the five years before countries have high debt levels. In the five years after they have high debt levels, there is no noticeable difference in growth at all, certainly not at the 90 percent debt-to-GDP level that Reinhart and Rogoff’s 2010 paper made infamous. Kimball and Wang present similar findings in their Quartz piece.
This contradicts the conclusion of Reinhart and Rogoff’s 2010 paper, “Growth in a Time of Debt,” which has been used to justify austerity programs around the world. In that paper, and in many other papers, op-ed pieces and congressional testimony over the years, Reinhart And Rogoff have warned that high debt slows down growth, making it a huge problem to be dealt with immediately. The human costs of this error have been enormous.
Even after University of Massachusetts graduate student Thomas Herndon found Reinhart and Rogoff’s work included errors and that their 2010 paper was missing important data, the researchers stood by their ultimate conclusion: that growth dropped off significantly after debt hit 90 percent of GDP. They claimed that austerity opponents like Paul Krugman have been so so rude to them for no good reason.” http://www.huffingtonpost.com/2013/05/30/reinhart-rogoff-debunked_n_3361299.html
What is so infuriating about R&R is the destruction that follows in the wake of there now debunked theories. The unemployment in Europe is has reached record high levels high levels, countries like Greece and Spain have rioting in the streets and a new neo Nazi movement is gaining popularity throughout Europe. http://www.huffingtonpost.com/2013/05/31/eurozone-unemployment-record-high_n_3364881.html The cost in human suffering is incalculable, but these fatuous academic asses are not concerned with people, they are concerned with their reputations and they are concerned with catering to wealth. Their theories, rather than being the result of real research and experiment, are in effect self-fulfilling prophecies. This is NOT science; it is overweening egotism in tandem with uncaring self interest. This tale, however, gets worse. Huffington Pos contributor: Mark Gongloff wrote this article on Friday: “Austerity Fanatics Won’t Let Mere Economics Stop Them From Thinking They’re Winning” in it he writes:
“Like Hiroo Onoda, the Japanese soldier who hid on an island in the Philippines for 30 years refusing to believe Japan had lost World War II, austerity fanatics are never going to admit their failure. Instead, they are going to keep pushing the policies that are making millions of people in Europe and the United States miserable.
The latest example of their denial is a piece by Michael Rosen of the American Enterprise Institute, a conservative think tank, entitled “Austerity And Its Discontents.” He declares that, far from being shamed by the recent discovery of errors in influential research by Harvard economists Carmen Reinhart and Kenneth Rogoff, austerity fans have recently gained “the upper hand” in the global argument over austerity.
Rosen argues that Reinhart and Rogoff’s many loud rebuttals to their critics helped give austerians the “intellectual high ground.” He ignores that, in fact, Reinhart and Rogoff’s rebuttals have only compounded their errors. He also ignores that further research has debunked Reinhart and Rogoff utterly, revealing that their biggest mistake was in confusing the cause-effect relationship between high debt and growth. It turns out, contra Reinhart and Rogoff, that there is no evidence that high debt causes slow growth — in fact, the opposite might be true.
But then the austerians have never really needed the intellectual high ground. Their phobia of government debt is based mainly on the idea that debt is just bad because of course it has to be. It is bad when people take on a lot of debt, ipso facto the same thing is bad for government. We must eat our spinach, not our dessert!
Rosen is absolutely right when he points out that Germany, and the American Enterprise Institute, and the Wall Street Journal editorial page, and Michael Kinsley, and the many, many other long-time fans of austerity have only redoubled their efforts to push austerity measures in the wake of the Reinhart-Rogoff debunking and re-debunking. http://www.huffingtonpost.com/2013/05/31/austerity-failure-fanatics_n_3367787.html?ref=topbar
Now that I’ve presented the situation to you at least from my side of the fence, you can make up your minds about austerity. While I agree with many of the conclusions delivered by the writers quoted above my slant on it all is somewhat different. I believe that all economic theories and political theories, despite their validity, mask what is truly going on in our world today. It is easy of course to compare the call for austerity by conservatives under Democrats and the out of control spending and debt run up in the Reagan, Bush I and Bush II administrations. This comparison would lead one to believe there is fiscal hypocrisy at the bottom of this and that is true. However, the fiscal hypocrisy exist as much among Democrats as Republican’s as Max Baucus proved in his terms as Senator. Bill Clinton cut government to balance the budget. He aided in the erasure of Smoot Hawley and he hurt American jobs by signing NAFTA and CAFTA. President Obama has likewise played the fiscal conservative card, while complaining it has been forced on him. He has even put cuts of Social Security and Medicare on the table, although neither is related to the national debt.
What is happening here is the result of the wealthiest people and the largest corporations becoming international entities. The rise of the multi-national could well herald the decline and fall of the nation state. From the perspective of the “Haves” it makes perfect sense. Why be bound by the laws of a particular nation, when you can break free and roam the world as you please? Truly, to these multi-nationals and the people behind them, the world is their oyster. The only problems they have are government regulation, taxes and those pesky workers who want more wages. The solution is to bring the 99% to a level slightly above starvation. This ensures that they will work for any amount that helps them put some food on the table. It necessitates that social assistance programs be destroyed so the peasants will have no choice but to seek shelter from devastation at some low paying job that keeps them little above subsistence.
Imagine yourself as one of the Super Rich, or as the CEO of a huge multinational corporation. My guess is that most of them see themselves as extraordinary people, chosen by fate or God to be in their exalted positions. They are able to go anywhere in the world on a whim. They don’t have one palatial home they have five, some in the world’s greatest Cities and others in the world’s most beautiful places. They don’t have one luxury car they have twenty collectibles and a fleet of limousines to take them place to place, flanked by bodyguards. While it’s true some wealthy eschew these outward signs, usually it is done as some sort of reverse snobbery, like the Kennedy penchant for driving Oldsmobiles, or J.B. Hunt driving to work every day in an old Chevy, with a paper bag lunch prepared by his wife.
The rich are not like your and me and moreover they know it. The truth is austerity is one more step on the road toward worldwide feudalism. Our wealthy class has helped to plot this out and they are served by people like Reinhart and Rogoff as courtiers and henchmen. They are leading us to a chaos they believe will result in solidifying their hold on the world and their eventual Nobility. However, when chaos descends on society through the discontent of so many, even wealth might not be protection against the violent psychopaths that gain control. That’s what I think about austerity, what do you think?
tony c:
“I just do not agree that you own everything you get, that is as simplistic and childish a view as thinking you shouldn’t have to pay your employees, suppliers, or provide any return to your investors.”
Are you serious or just joking around? I hope you are just joking around . . .
michael murry:
you are correct, money taken in by government is money not available to the private sector unless directed to them in the form of infrastructure or defense spending.
Mike S.,
If I may make a suggestion, I think the word “collusion” comes closer to the essential point than “conspiracy.” Just saying …
Tony C.
I gave you additional citations from Sheldon Wolin’s Democracy Inc., which track with Orwell’s analysis nearly to the letter, giving especially, the example of post-WWII U.S. “Cold War” policy designed specifically to redirect national resources to [War] spending so as to keep those resources unavailable for domestic economic and social purposes favorable to the working and middle classes — i.e., the New Deal. So, I’ll whisper it for you again:
“The policy-makers of the Cold War would decide [the] issue by assigning a huge proportion of the nation’s resources to defense [war] rather than welfare.”
Not Orwell’s words. But supportive of Orwell’s analysis. If you can’t get that, then you can’t get anything. But do feel free to drop in on conversations that I have here with others. To the extent that you can read and comprehend them, perhaps you can even come up with interesting and supported views of your own.
Bron: The proper use of money is whatever the person who owns the money decides to do with it.
I agree. I just do not agree that you own everything you get, that is as simplistic and childish a view as thinking you shouldn’t have to pay your employees, suppliers, or provide any return to your investors. When others contribute to your success you owe them their share; the revenue isn’t your property and you do not pay your investors their share of the profit out of your magnanimous beneficence, you are just the conduit to the rightful owner. When the rest of society contributes to your success, they are entitled to their share (as defined by the taxes you knew about when you went into business here), and you are correct: It is our money, we own it, and the proper use of it is whatever we wish to do with it.
tony c:
When i was a kid, there were some rich people who tipped well and some who didnt. A wealthy person once told me that a proper tip is part of the cost of a meal out or part of a round of golf with a caddy.
You are the one who is projecting your opinion of the rich. Carry on the hate.
What about the starfish, Tony C.? Maybe the rich guy helps one person at a time in his own way. Which I know they do.
The proper use of money is whatever the person who owns the money decides to do with it.
The left likes to say get your hands out of my pants, I couldnt agree more.
Bron: Except the rich guy doesn’t act like that, they aren’t generous with their money, and they don’t waste it on fifty dollar tips when twenty is standard. If they wasted money and routinely overpaid for no good reason, they never would have gotten rich in the first place.
It is pretty funny that you simultaneously argue that a rich man will utilize the money more efficiently, then describe a rich man as being a fool with his money and showering individuals with happy cash.
The proper and efficient use of that $50 is feeding fifty hungry people a few thousand calories of vegetable soup each, it isn’t creating a moment of happiness for one individual like a waiter, most of whom can wrangle a free meal in the kitchen anyway.
Extreme Conservatives’ Driving Gold Lower: Roubini
Published: Monday, 3 Jun 2013 | 1:14 AM ET
By: Patrick Allen | CNBC EMEA Head of News
Gold is likely to fall below $1,000 an ounce, nearly half the level it reached at its peak in 2011 according to Nouriel Roubini, the founder of Roubini Global Economics. And the man credited for calling the financial crisis believes one of the key factors that will drive prices lower is “extreme political conservatives, especially in the United States”
Writing in an op-ed published by Project Syndicate, Roubini said the hyping of gold by political conservatives had become counterproductive.
“For this far-right fringe, gold is the only hedge against the risk posed by the government’s conspiracy to expropriate private wealth,” he said.
“These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks’ “debasement” of paper money. But, given the absence of any conspiracy, falling inflation, and the inability to use gold as a currency, such arguments cannot be sustained,” he added.
http://money.msn.com/now/post.aspx?post=b7cee953-0cd4-4d3c-a108-0086f2ba22a0
http://www.cnbc.com/id/100597323 Wealthy say higher taxes have not hurt their spending or investing.
Mike Spindell:
The reason I want to lower taxes is exactly because they hurt the poor and middle class the most. Paying 15 or 20% of 1,000,000 dollars isnt that big a deal it just means that much money is taken away from the private sector which prevents it from being more efficiently used.
The rich guy just cuts back a bit, doesnt eat out as much, doesnt order new suits, doesnt buy a new boat, takes less of a vacation, instead of tipping a $50.00 he tips a $20 bill. The person who suffers is the waitress, the bell hop, the boat maker, the hotel maid, the tailor. The rich guy doesnt suffer at all.
And the more you take from the rich guy, the less he spends and the fewer jobs are supported and the less money people make. I should point out that even government workers depend on rich guys. Taxes dry up and bye bye government employment and pensions and health care.
If I was a government employee I would be really worried about soaking the rich, you soak them too much and they close up shop and go somewhere else. Just look at France.
Socialist are not concerned with the poor and middle class, all they are concerned with is hurting the rich. Just like the frog and the scorpion.
Michael Murry: If you were trying to make some point, I missed it. I disagree with Orwell, and do not care who else agrees with him. I provided my reasons for why I disagree. You provide nothing except to reiterate his position and praise him for it.
If you want to argue against me, provide the logic for why I am wrong, if you don’t have any logic, then shouting louder does not convince me of anything, other than that you are immune to logic. If you think somebody else’s logic applies, then summarize it, I am not inclined to read pages of quoted material from people that are not present to argue against.
what do you think about the internet sales tax? Speaking of austerity. This will raise money but will hurt small business. Amazon is pushing hard because they already have to collect sales tax because of their business model. So they are using government to get a competitive edge over the little guy.
I wonder how many liberals who wont shop at Wal Mart shop at Amazon?
Laissez faire helps the little guy and big government socialism [read oligharchical collectivism] pretends to help the little guy while lining the pockets of the big boys. I would have thought the wall st. bail-outs would have shown the truth in that.
“I own a small business in Virginia called Peace Frogs. My three dozen employees and I make T-shirts and other cool stuff. We’re a positive company that loves being able to do all our work from Gloucester, VA, where I grew up.
What makes it possible is the Internet. By reaching out to a worldwide base of customers, companies in rural parts like ours can thrive and have a much bigger presence than they otherwise would through traditional sales.
This is why I’m incredibly concerned about the Internet sales tax that’s being debated in Washington.
It’s an attack on small businesses like mine. If you look at who’s lining up for and against the misnamed Marketplace Fairness Act, mostly large corporations are beating up on us small guys. They have the lobbyists, they have the muscle, and they have what it takes to impose burdensome regulations on online entrepreneurs.
We don’t have the same access to Washington.
I’ve spoken out against this threat and recently shared my story with Heritage. They visited our warehouse and I explained how the Internet sales tax would harm my growing business. Here’s a short video of our conversation that I want to share with you:
http://www.youtube.com/watch?v=UE93LDCcAQM&feature=youtu.be&roi=echo3-15852468691-13031065-bb007fd50ed58528f3553f7fcbd293e7&utm_source=Newsletter&utm_medium=Email&utm_campaign=Morning%2BBell
The Internet offers the best opportunity for Gloucester natives to come home and operate a business. There aren’t many other enterprise vehicles that allow this type of flexible marketplace. But an Internet sales tax would threaten the well-being of my family and my employee’s families and result in higher costs for my customers.
Proponents of the Internet sales tax want to make me a tax collector for 9,646 tax jurisdictions. Their misguided efforts could make Peace Frogs at risk for audits by 46 states, the District of Columbia and countless other U.S. territories.
We need as much help as we can get to educate Americans about this.
Thanks so much for reading my note. If you wouldn’t mind, please share this video with your friends and family.
Live Fun, Do Good.”
“This is why I’m incredibly concerned about the Internet sales tax that’s being debated in Washington.”
Bron,
It comes down again to whose Ox is being gored. With guys like you who hate income taxes, government in deference uses sales taxes that repressively affect lower income people, rather than share the burden equally among all levels proportionately. The fact is that while sales and other taxes come from both political parties, it is the aggressiveness of the anti-tax movement that has led to the use of these sales taxes etc. to pay for government. In NY for instance, which you would consider Liberal, the last Republican Governor doubled car registration fees as a hidden tax that would keep him on good terms with the party. The burden of those fees fell on those with the lower incomes.
Taxes should be proportional to income, w/o deductions. If they were fairly distributed there would be more than enough money to pay for the services we needed. I know though that you don’t believe in many of those services, but that is another argument, one that speaks to the entire austerity topic.
Require the afternoon siesta in Germany so that all things are equal. Fine those Krauts you catch not napping. Then the Germans wont be so ragged at the Greeks for their apparent laziness and they can both live under the Euro. But really Greece needs to go back to the Drachma and Germany needs to go back to the Deutschmark. Maybe France and some of he middling countries could keep the Euro but I dobt it. It was a bad idea from the start.
Outlaw the siesta in Greece and only outlaws will have siestas.
“It is not enough that I succeed. Everyone else must fail.” — Attila the Hun
Tony C,
Before going further into Orwell’s classic, prescient, and timeless analysis of Oligarchical Collectivism, I would like to share a citation from Barbara Tuchman’s masterful history, The March of Folly:
As with the England of 1848, the government practices of the United States — once quaintly known as “public” — have long-since become “privatized,” by which we mean “virtually the private preserve of the propertied [i.e., corporate] class. But as the evanescent blooming and immediate smashing of the Occupy Movement has demonstrated, the privately owned and operated government of the United States (and governors of the particular states) will respond to participatory democracy among the working class with nothing but reactionary panic and not the commendable investigation, much less the cessation, of its own counter-revolutionary policies: especially continuous, never-decisive “war” aimed not at vague, impoverished, poppy-farming demons in the remote valleys of the Hindu Kush poised to strike at America at any moment — what a simply ludicrous postulation — but at eviscerating what few shreds of The New Deal now remain.
As Sheldon Wolin updates Orwell’s analysis in Democracy Inc., Managed Democracy and the Specter of Inverted Totalitarianism [emphasis added]:
Mike Spindell 1, June 2, 2013 at 6:42 pm
Dredd & Oly1,
Your stuff wound up in a the spam filter, perhaps because there is an unbelievably heavy traffic of spam comments (from Penis Enlargement to Louis Vuitton). I identified them as not spam, which they clearly weren’t and they should (I hope) appear shortly.
=======================================
I guess that means my reply to the nickster did not meet those standards?
It is still censored after all these hours.
maybe this will shed some light on what is happening, these are free and open to the public:
The Problem with Europe’s Austerity Debate
featuring
Simeon Djankov
Former Deputy Prime Minister and Finance Minister, Bulgaria
Creator and former lead author of Doing Business (World Bank)
and
Anders Aslund
Senior Fellow, Peterson Institute for International Economics
moderated by
Ian Vasquez
Director, Center for Global Liberty and Prosperity, Cato Institute
Top officials in the U.S. government, the International Monetary Fund, and the European Union blame Europe’s ills on fiscal austerity and advise Europeans to pursue stimulus spending or delay spending cuts. Simeon Djankov and Anders Aslund will show how the evidence counters that prevailing view. Countries that have reined in their spending are growing briskly while the profligate founder. Aslund will discuss why the level of debt and access to international markets still matter to responsible fiscal policy; Djankov will explain why Europe badly needs a growth plan that includes reducing the burden of regulation. Both speakers will explain why Europeans should focus on policy reform rather than devaluation or exit from the Euro.
Policy Forum
Wednesday, June 5, 2013 at 4:00PM
Reception to follow
Cato Institute, 1000 Massachusetts Ave., N.W., Washington, D.C. 20001.
To register to attend this event, click the button below and then submit the form on the page that opens, or email events@cato.org, fax (202) 371-0841, or call (202) 789-5229 by 4:00 p.m. on Tuesday, June 4, 2013.
No comments are being censored. The spam software has problems with falsely identifying legitimate comments as spam. I get to them as soon as I can. Since I don’t have internet access at home at the present time, evening false positives will have to rely on others.
David Blauw, Bron, good job.