Michael Stephens — New Book: Rethinking Capitalism

A new book edited by Michael Jacobs and Mariana Mazzucato and featuring contributions from Joseph Stiglitz, L. Randall Wray, Stephanie Kelton, and others will be released tomorrow:

Multiplier Effect
New Book: Rethinking Capitalism
Michael Stephens

Larry Summers: Reinhart-Rogoff Debacle Shows No Policy Should Be Based 'On A Single Statistical Result'

The extrapolation from past experience to future outlook is always deeply problematic and needs to be done with great care. In retrospect, it was folly to believe that with data on about 30 countries it was possible to estimate a threshold beyond which debt became dangerous. Even if such a threshold existed, why should it be the same in countries with and without their own currency, with very different financial systems, cultures, degrees of openness and growth experiences? And there is the chestnut that correlation does not establish causation and any tendency for high debt and low growth to go together reflects the debt accumulation that follows from slow growth.

Reuters via The Huffington Post
Larry Summers: Reinhart-Rogoff Debacle Shows No Policy Should Be Based 'On A Single Statistical Result'
Larry Summers

Did Summers read Nersisyan and Wray? See Does Excessive Sovereign Debt Really Hurt Growth? – A Critique of This Time Is Different, by Reinhart and Rogoff by Yeva Nersisyan and L. Randall Wray, June 2010, Levy Institute.

Time to declare total victory.

Randy Wray — The Absolutely Final and Definitive Destruction of Reinhart And Rogoff

Two UMKC students have provided what I think is the most destructive empirical work to date on the simply awful book and articles by Reinhart and Rogoff that purported to find a magical debt ratio beyond which economic growth plummets to negative territory. They are Matthew Berg and Brian Hartley and their piece is at New Economic Perspectives:

Before presenting a quick summary of their findings, let me make two preliminary notes. First they validate what Yeva Nersisyan and I first pointed out three years ago: the crappy empirical research of Reinhart and Rogoff was driven by a small number of outliers, and by confusion of causation and correlation. Yes, some countries–Japan most notably–have high debt ratios and slow growth. R&R aggregated in such a way as to give very high weights to those countries. And those countries had high deficits and thus high accumulated debts because growth was low. Hence, there was never any support for their claim that 90% marks a causal turning point.

Economonitor — Great Leap Forward
The Absolutely Final and Definitive Destruction of Reinhart And Rogoff
L. Randall Wray | Professor of Economics, UMKC

Randy's definitive statement on MMT and the claim that MMT says deficits don't matter. 

But note that no UMKC-affiliated faculty member (and probably no student) has ever said something as silly as “no deficit can be bad”. I do not even know what that could mean. Deficits can be bad. Very bad. Very very bad. A sovereign country that issues its own currency cannot be forced into involuntary default so long as it floats its currency. That is certainly a true statement–accepted by anyone who knows anything about sovereign currencies. Whether it is talmudic I have no idea. If you’ve got the magic porridge pot, you can provide the porridge.

Can too much porridge be bad? You betcha–just read the damned story. Inflation? Yes. Currency depreciation? Probably. Leave too few resources for the private purpose? No doubt. Create a nation of couch potatoes? You’ve got it. Bury everything under a thick layer of suffocating porridge? Read the story.

Where do people like Epstein get this stuff? I have no idea.

Randy Wray — No, Rogoff And Reinhart, This Time Is Different! Sloppy Research And No Understanding Of Sovereign Currency

Carmen Reinhart and Ken Rogoff came as close to celebrity status as an economist can ever come, with their book, This Time Is Different. They claimed that 800 years (!) of financial history proves that high government debt ratios lead to low economic growth. Governments all over the world took heed and downsized, adopting austerity that cost millions upon millions of workers their jobs.

But it was all a lie. Yes, a lie. They screwed up their data analysis. Like so many times before—think Larry Summers at Harvard, Chicago’s Gene Fama, or Charles Plosser at the University of Rochester—the economists reach results counter to intuition and the real world.

Their work doesn’t pass the smell test: if it smells like nonsense it probably is nonsense.

Yeva Nersisyan (my brilliant student and coauthor) and I critiqued their book soon after it came out; see here: http://www.levyinstitute.org/pubs/wp_603.pdf. To put our conclusions as simply as possible, we concluded that they didn’t know what they are talking about.

Economonitor — Great Leap Forward
No, Rogoff And Reinhart, This Time Is Different! Sloppy Research And No Understanding Of Sovereign Currency
L.Randall Wray | Professor of Economics, UMKC