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Friday, May 10, 2013

Transcript: Thomas Herndon, hero, Niall Ferguson, Idiot

The Computer ate my podcast (Transcript is not precisely accurate)
Listen to this episode

That was Thomas Herndon and Stephen Colbert.  Herndon is the University of Massachusetts Amherst grad student whose work exposed the poor job done by Harvard University economists Ken Rogoff and Carmen Reinhart in their work on sovereign debt as it relates to growth.  We'll play the entire Colbert interview of four and a half minutes in just a moment.

Then we'll look at Rogoff and Reinhart's continuing attempt to minimize their error.  A "Scholarly debate."  The errors identified by Herndon refute the premise of "This Time It's Different."  This is not just that two Harvard economists made a mistake on a spreadsheet that dilutes their conclusions.  The mistake is such that their conclusions are not valid, wrong, the opposite of the truth.

And finally today, Idiot of the Week returns with a vengeance.  A HARVARD UNIVERSITY economic historian who has himself had a tough time with facts and competence.

So, here's audio of Thomas Herndon with Stephen Colbert


Is that cool or what?  Humble, clear, articulate, gives a shout out to his girlfriend.  Thomas Herndon should make you proud to be an economist.

Rogoff and Reinhart, on the other hand ....  Well, here's Arthur Levitt -- full disclosure, his podcast A Closer Look is often very good and not coincidentally Levitt is not a graduate of HARVARD -- here he is missing the boat entirely.  Cribbing from the April 25 NY Times defense by Rogoff and Reinhart.


Just a day or so ago R&R released an errata to their 2010 paper, acknowledging more errors in the figures, but defending their conclusions.  Wow.  This was AFTER being called to account for continuing the errors in the April 25 op-ed.

As the Financial Times says,

"The original paper was widely cited as an argument for fiscal austerity in 2010, and the fight over their figures has become a proxy for broader battles about deficits."

Like whether they lead to slower growth or not.

It is not only that their figures are wrong -- let us be clear -- it is also the arbitrary method of weighting and the omission of some key data.  The corrected numbers in the errata weaken their argument.  A robust methodology eliminates it.  Rogoff and Reinhart are wrong.  Their continued failure to come clean eliminates the need for us to defend them as objective economists.  One might say that their advocacy of writing down debt as a way to eliminate its burden separates them from the austerians.  But we won't say that, because they are locked in on their slavish devotion to an error.


So we have one Harvard grad passing off the presidency to another Harvard alum, and keeping the same banker-centric policies.  The second Harvard alum calls in a former Harvard president to help him do too little.  Of course, that second Harvard alum has an additional burden, being a University of Chicago grad as well.  In any event, along come two Harvard professors making elementary mistakes in their spreadsheets and employing sophomoric methodology to prove the point they started out with.  Who can top all that?  All that bad economics and bad results?  Hint.  He has to be from Harvard


Niall Ferguson,


Yes. Niall Ferguson elevating Rogoff and Reinhart's amateurish 90% debt blunder to a quote "Law of Finance."  But Ferguson  had the class to apologize.

Apology:  ‘I had been asked to comment on Keynes’s famous observation ‘In the long run we are all dead.’ The point I had made in my presentation was that in the long run our children, grandchildren and great-grandchildren are alive and will have to deal with the consequences of our economic actions.’

He added: ‘I should not have suggested – in an off-the-cuff response that was not part of my presentation – that Keynes was indifferent to the long run because he had no children, nor that he had no children because he was gay. This was doubly stupid. First, it is obvious that people who do not have children also care about future generations. Second, I had forgotten that Keynes’s wife Lydia miscarried.’”


What was he apologizing for?

“Ferguson asked the audience how many children Keynes had. He explained that Keynes had none because he was a homosexual and was married to a ballerina, with whom he likely talked of ‘poetry’ rather than procreated. The audience went quiet at the remark. Some attendees later said they found the remarks offensive.

Ferguson, who is the Laurence A. Tisch Professor of History at Harvard University, and author of The Great Degeneration: How Institutions Decay and Economies Die, says it’s only logical that Keynes would take this selfish worldview because he was an ‘effete’ member of society.’”
William K. Black observes :

We have just witnessed a variant of what economists call “revealed preferences.”  Economists are skeptical of what people tell pollsters they would do in terms of economic actions in response to hypothetical financial incentives.  We teach that it was people actually do in response to the incentives that reveals their true preferences.  Ferguson’s great problem is that he spoke what he believed – and what he believes is false and bigoted.  Begin with what should have been the most obvious point that Ferguson’s apology ignores.  If Ferguson’s “obvious[ly]” incorrect claim was based on the “stupid” premise that adults who do not have children do not care about future generations – why did he raise Keynes’ sexuality?  It would have sufficed for Ferguson to simply make the “obvious” and “stupid” claim that because Keynes had no children he did not care about future generations.  Keynes’ sexuality is irrelevant and gratuitous to Ferguson’s obvious and stupid claim about the purported reason that Keynes was childless.
For our part, we accept Ferguson's apology for what it is, an attempt to limit damage, as his remarks are clearly in character and consonant with what he believes.

We remember Larry Summers from Harvard when we remember economics mixing with questionable bias.  But we didn't resurrect Idiot of the Week for any bush league idiot.  Harvard's Niall Ferguson has made a professional career of it.

Last August on Bloomberg

Well, that’s not really a part of the argument I made in the piece. The point I made in the piece was that the stimulus had a very short-term effect, which is very clear if you look , for example, at the Federal employment numbers there’s a huge spike in early 2010 and then it falls back down.


Ferguson's spike was census hiring, making Harvard's Rogoff and Reinhart look almost professional by comparison.

The big claims and conclusions Ferguson has offered in recent years, with the extra authority of his academic standing, have been attention-getting and mostly wrong. 

 For instance:

   - U.S. budget deficits were going to lead to a US-China breakup. They didn't.
   - U.S. budget deficits were going to drive bond rates sky high. The opposite has occurred.
   - U.S. budget deficits would make us like Greece. They have not.
  - A year ago, Ferguson warned that we were on the verge of a damaging new round of inflation. We were not.

So being wrong, incompetent, and ... biased ... Ferguson still has his place at Harvard.  Skulls and bones.  Boneheads and numbskulls.

Niall Ferguson, Idiot of the Week.


On the other hand, a man who has been right theoretically and pragmatically throughout this whole affair, whose competence is without question, and whose command of theory and history demonstrable, does not get a good hearing.  That is Steve Keen, whose latest world tour starts here in Seattle on May 23.  Two events, noon and evening.  See Steve Keen in Seattle dot com for complete information and registration links.

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