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“THE only function of economic forecasting is to make astrology look respectable.”
(John Kenneth Galbraith)
“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”
(Joseph Cassano, AIG’s financial product head – a year before the company’s $182bn bailout became necessary.)
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
(Ben Bernanke, US Federal Reserve chairperson)
“The use of a growing array of derivatives and… more sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions... Derivatives have permitted the unbundling of financial risks.”
(Another Fed Reserve chairperson, Alan Greenspan, just three years before the proverbial hit the fan.)
“Why the Real Estate Boom Will Not Bust”
(Title of a February 2006 guide to profiting from the booming housing market, by David Lereah, chief economist for the National Association of Realtors in the US.)
“Ha, ha, ha – go home, Dr Doom!”
(It may not be the exact words, but it was the reaction in September 2006 of a bunch at the International Monetary Fund to New York University Professor of Economics Nouriel Roubini’s suggestion that a housing crisis would lead to a huge recession.)
Had a bit of a laugh? Ja, me too. But you know, the failures of economists and other experts are about much more than numbers and graphs and charts.
Expert economists decided that austerity was the way to go for southern Europe. And so Dimitris Christoulas, a retired Greek pharmacist living on pension, about the same age as my mother, put a gun to his head in front of the Greek parliament in April last year.
He left a note saying that “I can’t find another way to react apart from putting a dignified end to things before I start looking through garbage in order to survive and before I become a burden for my child”.
And now, after Dimitris and many others have killed themselves ("Spanish suicides point to worsening crisis, UPI January 4 2013; "Recession drives up suicide rate in Greece", PressTV, November 23 2012), the latest news out of the USA doesn’t look so funny, does it?
“Since 2010, the names of Carmen Reinhart and Kenneth Rogoff have become famous in political and economic circles. These two Harvard economists wrote a paper, ‘Growth in the Time of Debt’ that has been used by everyone from Paul Ryan to Olli Rehn of the European Commission to justify harmful austerity policies.
"The authors purported to show that once a country’s gross debt to GDP ratio crosses the threshold of 90 percent, economic growth slows dramatically.” (Alternet, April 18 2013)
Policy buffs have used the professors’ conclusions to push for austerity measures of the kind that drove Dimitris Christoulas to his death.
About two weeks ago, University of Massachusetts graduate student Thomas Herndon made waves in the world of economics by debunking this paper’s claim about the 90% threshold.
Apparently, the pair had made very basic mistakes in their Excel coding. (And in their response to the storm of criticism, they continued to base their reasoning on the very same flawed data – see Herndon’s beautifully measured input in reply here.)
“The implication for policy is that, under particular circumstances, public debt can play a key role in overcoming a recession,” says Herndon.
“The current historical moment, with historically high rates of mass unemployment in both the US and Europe and with interest rates on US Treasury bonds at historic lows, is precisely the set of circumstances under which we would expect public borrowing to have large positive effects, with comparably fewer costs.
"Moreover, it is precisely the set of circumstances under which we expect austerity to have substantial negative effects.”
I am willing to bet that there will be many more papers and counter-papers on what is being called the "RR" debacle, and I’m not equipped to make a final judgement call on the rights and wrongs of this.
And I’m sure there were other motives underpinning the austerity drive… aren’t you?
But it makes you think, doesn’t it?
Do those who operate in the ivory towers of academia and the polished corridors of power ever think about the real humanity of those whose lives they will affect by their sweeping policy decisions?
Have they ever been so far down the ladder that they can imagine the cold sweat that breaks out when the bailiffs knock on the door, the sick hard lump in your diaphragm as you lie awake at night, your mind scampering like a rat in a maze, trying to think what to do, where to turn?
If they have, surely they would need to be very, very sure of their facts and figures before turning their ideas loose on a fragile world.
Or do they simply think, in the words of the imperialist Joseph Chamberlain, "You cannot have omelettes without breaking egg”, and who cares what the eggs’ opinion of that is?
And should we trust people who think of us as units, as numbers, as expendable pawns on the board, to be doing this kind of thinking or making policy?
- Fin24
*Mandi Smallhorne is a versatile journalist and editor. Views expressed are her own.
(John Kenneth Galbraith)
“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of these [credit default swap] transactions.”
(Joseph Cassano, AIG’s financial product head – a year before the company’s $182bn bailout became necessary.)
“At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”
(Ben Bernanke, US Federal Reserve chairperson)
“The use of a growing array of derivatives and… more sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions... Derivatives have permitted the unbundling of financial risks.”
(Another Fed Reserve chairperson, Alan Greenspan, just three years before the proverbial hit the fan.)
“Why the Real Estate Boom Will Not Bust”
(Title of a February 2006 guide to profiting from the booming housing market, by David Lereah, chief economist for the National Association of Realtors in the US.)
“Ha, ha, ha – go home, Dr Doom!”
(It may not be the exact words, but it was the reaction in September 2006 of a bunch at the International Monetary Fund to New York University Professor of Economics Nouriel Roubini’s suggestion that a housing crisis would lead to a huge recession.)
Had a bit of a laugh? Ja, me too. But you know, the failures of economists and other experts are about much more than numbers and graphs and charts.
Expert economists decided that austerity was the way to go for southern Europe. And so Dimitris Christoulas, a retired Greek pharmacist living on pension, about the same age as my mother, put a gun to his head in front of the Greek parliament in April last year.
He left a note saying that “I can’t find another way to react apart from putting a dignified end to things before I start looking through garbage in order to survive and before I become a burden for my child”.
And now, after Dimitris and many others have killed themselves ("Spanish suicides point to worsening crisis, UPI January 4 2013; "Recession drives up suicide rate in Greece", PressTV, November 23 2012), the latest news out of the USA doesn’t look so funny, does it?
“Since 2010, the names of Carmen Reinhart and Kenneth Rogoff have become famous in political and economic circles. These two Harvard economists wrote a paper, ‘Growth in the Time of Debt’ that has been used by everyone from Paul Ryan to Olli Rehn of the European Commission to justify harmful austerity policies.
"The authors purported to show that once a country’s gross debt to GDP ratio crosses the threshold of 90 percent, economic growth slows dramatically.” (Alternet, April 18 2013)
Policy buffs have used the professors’ conclusions to push for austerity measures of the kind that drove Dimitris Christoulas to his death.
About two weeks ago, University of Massachusetts graduate student Thomas Herndon made waves in the world of economics by debunking this paper’s claim about the 90% threshold.
Apparently, the pair had made very basic mistakes in their Excel coding. (And in their response to the storm of criticism, they continued to base their reasoning on the very same flawed data – see Herndon’s beautifully measured input in reply here.)
“The implication for policy is that, under particular circumstances, public debt can play a key role in overcoming a recession,” says Herndon.
“The current historical moment, with historically high rates of mass unemployment in both the US and Europe and with interest rates on US Treasury bonds at historic lows, is precisely the set of circumstances under which we would expect public borrowing to have large positive effects, with comparably fewer costs.
"Moreover, it is precisely the set of circumstances under which we expect austerity to have substantial negative effects.”
I am willing to bet that there will be many more papers and counter-papers on what is being called the "RR" debacle, and I’m not equipped to make a final judgement call on the rights and wrongs of this.
And I’m sure there were other motives underpinning the austerity drive… aren’t you?
But it makes you think, doesn’t it?
Do those who operate in the ivory towers of academia and the polished corridors of power ever think about the real humanity of those whose lives they will affect by their sweeping policy decisions?
Have they ever been so far down the ladder that they can imagine the cold sweat that breaks out when the bailiffs knock on the door, the sick hard lump in your diaphragm as you lie awake at night, your mind scampering like a rat in a maze, trying to think what to do, where to turn?
If they have, surely they would need to be very, very sure of their facts and figures before turning their ideas loose on a fragile world.
Or do they simply think, in the words of the imperialist Joseph Chamberlain, "You cannot have omelettes without breaking egg”, and who cares what the eggs’ opinion of that is?
And should we trust people who think of us as units, as numbers, as expendable pawns on the board, to be doing this kind of thinking or making policy?
- Fin24
*Mandi Smallhorne is a versatile journalist and editor. Views expressed are her own.
