Opinion

Felix Salmon

Counterparties: R-squared regression analysis

April 17, 2013

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The fallout over the Reinhart and Rogoff errors continues. Yesterday’s debate circled around what this all means for austerity. Today, the debate widened, taking a few steps backwards in search of perspective. The economic profession as a whole – along with that of the bloggers who popularize it – ended up coming  in for criticism and soul-searching.

The authors at the heart of the controversy did continue to argue about the substance of the criticisms. RR published their second response, conceding that the UMass paper has indeed found a “significant mistake” in their data on international debt-to-GDP ratios. They said that their overall argument, however, remains valid. Meanwhile, Robert Pollin and Michael Ash, two of the UMass researchers, kept pushing in an FT op-ed this morning, saying that the time has come to “rethink austerity economics”.

Both Josh Barro and Matt Yglesias took issue with one of the most common interpretations of RR’s work  – the existence of a sort of economic tipping point for countries with debt-to-GDP ratios above 90% – and argued that new evidence makes that thesis extremely weak. Other bloggers, however, moved on from the argument over minutiae in the data to ask what this mistake means for the field of economics.

Chris Dillow questions whether today’s economists value the right skills. He says that RR’s errors “reflect a culture which prizes” the ability to produce brilliant, explanatory theories over the “dull pedantry” of meticulously examining data. Justin Fox likens the debate to “watching the sausage of macroeconomics being made.” Data is relatively scarce in the field, he says. As a result, we should “acknowledge that our knowledge is limited and proceed anyway on a mix of data, theory, and intuition.”

Peter Frase uses the controversy to rail against non-academic econobloggers, or “wonks”, who parrot the findings of academics:

When Wonkblog presents the findings of Reinhart and Rogoff without comment, they are implicitly telling us, “trust these people—they’re famous academic economists”. This is because they don’t have the ability to do what people like Paul Krugman did, and actually assess the correctness of the famous economists’ claims.

Zach Beauchamp echoes Frase’s sentiment, wondering if “the new spate of academic-study blogging might, far from informing the public, actually be lulling it into a false sense of intellectual security”.

Paul Krugman, writing no less than three posts on the issue, just wishes policy-makers would stop using research which hasn’t gone through peer review to validate their political views. After pointing out RR’s clear errors, he concludes that “the larger story is the evident urge of Very Serious People to find excuses for inflicting pain.” – Shane Ferro

On to today’s links:

The Fed
The Fed may be creating “abnormal growth that looks precancerous” – Jesse Eisinger

Right On
An imperfect immigration reform bill would still be enormously positive for America – Eduardo Porter

Takedowns
The self-defeating, self-interested push for financial literacy – Helaine Olen

New Normal
How student debt is hurting homeownership and auto sales – Liberty Street Economics

TBTF
Fed’s Stein: There is actually a subsidy for too big to fail banks – Federal Reserve

Popular Myths
Sorry Millenials, but you’re part of the least entrepreneurial generation – Quartz

Earnings
BofA’s disappointing first quarter: both lower expenses and lower revenue – Reuters
BofA’s full first quarter earnings release – Bank of America

Servicey
How not to make =SUM errors in Excel – Quartz
Acetaminophen is good for your existential problems – The Awl

Your Daily Outrage
Foreclosure-relief checks are bouncing – NYT

Niche Markets
The cupcake market is crumbling – WSJ

Advanced Strategy
Before the late 1990s, no one used the phrase “business model” – Quartz

Interesting
Seeing a digital rendering of your elderly self makes you save more for retirement – Cass Sunstein

Oxpeckers
The Boston Marathon is in Boston, and other facts the New York Post got right – Vanity Fair
CNN’s 90 minutes of error-strewn reporting – TPM

Billionaire Whimsy
Dan Loeb buys Sandy Weil’s yacht for about $50 million – CNBC

So There
You can blame your parents for why you don’t go to the gym – NYT

Ugly
T Boone Pickens is suing his son for cyberbullying – Forbes

Stuff We’re Not Linking To
The meatpacking district is “in the infancy stages of being gentrified” – NYT

And, of course, there are many more links at Counterparties.

Comments
2 comments so far | RSS Comments RSS

Well, anything that “hurts” home ownership can’t be all bad.

Posted by dWj | Report as abusive
 

I’m a big fan of homeownership, prosecuted sensibly, but I have to agree with dWj in this instance. We are talking about relatively SMALL student loan balances. The vast majority of student loans are under $100k per household. If that encourages young people to restrain their spending, instead of blowing $400k on a house, then it will ultimately leave them richer.

Perhaps that is the secret to stabilizing personal finance? Load a little more debt on the youth so they have something to work towards?

Posted by TFF | Report as abusive
 

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