Here’s a number to remember:
2.2%
I’ll come back to that later – it’s a very important number. And now back to our story:
A paper by Carmen Reinhart and Kenneth Rogoff has been floating around, supporting the idea that austerity (aka: cut, cut, cut) is the only way to ensure growth when the debt is high.
This paper has been promoted all around the world as the holy grail of budgeting truth. It’s being touted by all the “serious people” inside and outside of the Washington, DC beltway. It’s being used in budget discussions at all levels of government, from the smallest towns to the largest nations. It’s being used to convince the people all over the planet that cuts are the necessary bitter medicine for their own future good – a bit of pain now to prevent more pain later.
It is also 100% wrong.
That is the reason NO ONE has been able to reproduce their results.
There isn’t one fatal flaw, there are three. And they are whoppers. More below the fold…
First off, the researchers made a major error in their Excel spreadsheet’s formula: they skipped 5 rows of data. Oops.
Second, they inexplicably (or maybe intentionally – no explanation has been presented) excluded post-WWII data for countries whose growth was positive while debt was above 90% of GDP from the spreadsheet.
Third, if a country had positive growth for multiple years while debt was above 90% of GDP, they averaged all those positive years together into a single number, then gave the multi-year aggregate result the exact same weight as a single year from a country that had negative growth.
The flawed (faked?) study concluded that economic growth in countries with debt greater than 90% of GDP is always negative at -0.1%.
But if you include the data that was left out of the spreadsheet, add in the rows of data that were skipped, and give each year’s data the same weight, the actual historic growth rate when the debt exceeds 90% of GDP is 2.2%.
Remember that number: 2.2%
What that number means is that harming people in order to “fix” the debt is nothing more than pointless cruelty.
I is actually simple to understand. There is a reason it’s called ‘currency’, the economy is the flow of money changing hands. When the economy is booming there is a lot of money changing through very many hands.
The Conservative austerity plan is designed to restrict and limit the flow of money, diverting most of it into offshore bank accounts where it is hoarded and taken out of the money flow.
The known-working solution was the method used to restart the global economy in the 1930s after the Conservatives intentionally crashed it: Inject massive amounts of cash into the system to kickstart the flow and then carefully and measuredly pull out the excess to prevent exponential inflation.
The ‘Stimulus’ plan of 2008 was only half, or 1/3 of what was needed to really get the economy started up again. The Conservatives HATE a well running economy because then poor people are less poor and a powerful middle class exists that challenges the power of the CEO class. Conservatives want the CEO class to have all the power and all the money. (David Koch even said so).
One reason for taxes to exist is to forcefully inject cash into the economic stream, forcing the obscenely rich to give up some of their hoarded cash back into society.
Cutting taxes causes the stagnation of the economy. The Conservatives falsely claim that cutting taxes frees up more money , but in reality the rich just hoard that money and don’t spend it. Or if they spend it, it’s on useless one-off things that do nothing for the economy, like buy a luxury yacht.
When was America at it’s strongest? In the 1950s when taxes on the rich were 90%, business taxes were 38% and union membership as 60%.
Want America to be the most powerful nation on the planet again? Raise taxes on the insanely rich, limit CEO pay, close business loopholes and force them to pay taxes that they owe, make tax refunds illegal for corporate entities, raise the Capital Gains taxes to at least 50%, and increase union membership.
Getting all the sequestered cash out of the money-vaults of the insanely rich will get the economy booming in no time, which will drastically reduce unemployment and lower the numbers of the impoverished.
It is really that simple.