By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil
Over the past week there has been some fuss over alleged inconsistencies found by the economists Herndon, Pollin and Ash in the famous 2010 Rogoff-Reinhart study on levels of government debt and its effects on growth. It was this study that generated the meme according to which debt-to-GDP levels of over 90% would lead to substantially slower growth. The original study found that countries with a debt-load of 90% or over would experience average growth rates of -0.1% of GDP. When the critics rejigged the numbers a bit and corrected the errors, however, they got an average growth rate of 2.2% of GDP. Needless to say, that this is a substantial difference.
The public debate, however, has mainly focused on an error that the critics found in Reinhart and Rogoff’s Excel data-sheet. This is despite the fact that the error did not account for a great deal of the rather dismal findings of the original authors. So, why the focus? Well, it seems that the media like having economics around to treat as a sort of hard science that can generate yes or no answers – while the media are quick to throw certain figures under the bus if the mood is right; they are not so quick to question the system that their reporting largely relies upon. Even though most educated people treat economics with a healthy degree of scepticism they nevertheless often buy into debates that assume that economics can make purely objective judgments.
What is really interesting about the critique of Reinhart and Rogoff is that it raises the issue of just how contentious these studies are. With a little bit of simple tweaking dramatically different results can be obtained given the same historical data. What this means is that subjective bias – whether conscious or unconscious – is buried within the organisation of the data or the study itself and is given a sort of mask of objectivity. Researchers crunch out numbers that, while they seem objective and concrete, are actually based on any number of woolly and subjective assumptions.
John Maynard Keynes recognised the dangers of the new quantitative methods that were emerging in the economics profession even in his own time. He recognised that these methods gave a veneer of objectivity to highly subjective results. In his critique of econometrics, published in 1937, Keynes recalls an old religious story and compares it to the emerging statistical work in economics:
It will be remembered that the seventy translators of the Septuagint were shut up in seventy separate rooms with the Hebrew text and brought out with them, when they emerged, seventy identical translations. Would the same miracle be vouchsafed if seventy multiple correlators were shut up with the same statistical material? And anyhow, I suppose, if each had a different economist perched on his a priori, that would make a difference to the outcome.
Keynes is, I think, touching on a very deep issue here. The story of the translators of the Septuagint has a very specific motivation: namely, that it demonstrates the Purity and Truth of the Divine Material. The underlying assumption here is that the Septuagint contains a single truth that can be arrived at by every reader independently. This, of course, is at the heart of all religious or divine interpretation: the vagaries of subjectivism melt away and a single objective truth is given to the believer.
Today we attribute this same status to economists that we attributed to priests and interpreters of scripture in the past. These figures are supposed to have access to some sort of objective truth about the state of the economy. This objective truth is arrived at in the same way as the translators of the Septuagint arrive at theirs. The economists peer into the historical statistics and use opaque methods to arrive at some mysterious number that we then all accept as being, not a highly subjective impression formed by finite mortals, but an objective, crystal-clear and, in many ways, divine truth about how we should organise our lives.
This, of course, is precisely what the debate around the Reinhart-Rogoff study has degenerated into. Media commentators are not so much interested in the contentious nature of these studies as much as they are interested in the question as to whether Reinhart and Rogoff have engaged in some sort of mistranslation of their Septuagint. It is not that we should distrust such broad statistical studies generally, but simply that Reinhart and Rogoff are False Prophets – and that we need only await the True Prophets to guide humanity to prosperity.
Ironically, this was not the intention of the critics. In their Financial Times article derived from their critique of the Reinhart-Rogoff study, Robert Pollin and Michael Ash raise the same points as Keynes had in his critique of econometrics – although in order to find it one must know how to look for it. Pollin and Ash write:
But we cannot count on [the results of our own study] being true under all, or even most, circumstances. Are we considering the US demobilisation after the second world war or New Zealand experiencing a severe one-year recession? Our evidence shows that one needs to ask these and similar questions, including whether slow growth was the cause or consequence of higher public debt, before we can draw meaningful conclusions.
Pollin and Ash, being good Post-Keynesian economists who have likely read Keynes’ critiques of econometric and statistical studies, recognise well that simply throwing decades of heterogeneous historical data into a statistical blender and then proclaiming the mush that results as some sort of Grand Truth for the absurdity that it is. They are well aware that when it comes to history context is key; a severe one-year recession in New Zealand in the late-1950s is such a different historical constellation than demobilisation in the US after WWII that to compare them in simple statistical terms is patently absurd.
The irritating thing is that most economists and media commentators will admit this as being true, yet they will continue to engage with such nonsense regardless. After all, it is so much easier to comment on single numbers – however mysteriously arrived at – than it is to discuss complex historical constellations. In this regard not much has changed since the emergence of these statistical methods. At the end of his critique of econometrics Keynes recognised that the author, Professor Tinbergen, would likely admit that Keynes’ criticisms were valid yet carry on engaging in such pseudo-objective nonsense regardless:
I have a feeling that Prof. Tinbergen may agree with much of my comment, but that his reaction will be to engage another ten computors and drown his sorrows in arithmetic.
Keynes compared such statistical manipulation to black magic and alchemy in that he recognised what a powerful influence the idea of objective interpretations of manifestly subjective and context-dependent data could have over the minds of men. Today we would do well to keep this in mind as the dust settles on the Reinhart-Rogoff controversy and the whole edifice of the economic priesthood and its pseudo-scientific methods remain intact.
Yet it is only when this entire edifice is taken apart that we can even begin to consider how we might go about running our economies in any remotely rational way. Until then, there will be other Reinhart-Rogoff style studies; there will be other Excel spreadsheet mistakes; and there will be other misunderstood critics and hackneyed media controversies. Meanwhile unemployed workers rot on the dole queue; insulated academics teach mysticism in the classrooms; and the media proves itself time and again to be reliant on the very system it claims to place checks and balances upon.