Source: http://dilbert.com/strips/comic/2007-08-08/ (h/t John Quiggin)
The error in the Reinhart-Rogoff (2010) [RR thereafter] paper titled “Growth in a time of debt“, also published in AER. RR (2010) concluded that a public debt-to-GDP ratio above 90% drags on a country’s economic growth. More importantly, there is somewhat a nonlinear relationship between debt and economic growth. Herndon, Ash and Pollin (2013) tried to replicate the results in RR (2010) and find that when the debt-GDP ratio breaches 90%, growth slows to 2.2% and not the -0.1% that RR (2010) finds.
This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel. – Next New Deal.
As a researcher in this area, I’ve read that paper a while ago. Yes, it is an influential paper. Yes, a mistake is a mistake. But,
i. It is one of the many papers that have been published on this topic involving debt-GDP ratio, and implications on the economy. And, I do not really think policymakers actually based their decisions to promote austerity soley on these papers. Paul Krugman explains what I think rather well in this piece. The Altlantic provides a rather good take on this too.
ii. Debt-GDP ratios above 90% can’t be good for an economy, whether a linear or nonlinear relationship between debt-GDP ratio and economic growth exists.
Economists and researchers alike should definitely be responsible for the work they put out to public and for the work they publish. As an economist that is a perfectionist and rather pedantic, I know how easy it is to make mistakes in what you do, despite the number of times you may have checked through your work. It is scary to know that you may still make mistakes despite your best efforts, especially when you are handling lots of data. Unfortunately, in academia, there isn’t a whole lot of cross-checking going on. It is already difficult to find someone working closely in the same field, using the same methodologies.
I was searching for some papers the other day, and came across these papers. I haven’t read through the whole paper, but have merely taken a glance through them, and mostly jumped straight to the tables. Fairly interesting insights, some of which you would probably have already known if you are an economist.
Disclaimer: All tables are from the papers.
Interesting new papers:
There is an increase in percentage of authors in the “51 and above” age group publishing in top economic journals over the years. The paper suggests that older economists are now healthier and more active compared to previous cohorts, and that the abolition of mandatory retirement for faculty in 1994 (that is a US regulation?) also increased the monetary incentives to continue publishing. In my daily reads of papers for my research, I do notice several papers published by prominent older economists, some of which are an extension of work done a while ago. Many of these publications also focus on contemporary topics relevant to the 2008-2009 global financial crisis. Perhaps crises and the aftermath of more data does result in more publications by older economists?
If data is anything to go by, I think this set of data suggests that it is indeed harder for someone who has just entered academia in Economics to publish, and that not many females has published in top economic journals (even if that percentage has increased slightly over time). But, really, that latter point is probably due to the fact that the Economics field is still men dominated.
More people are co-authoring over the years. It’s a good thing to know that there are more interactions between economists these days! I think people realise there could be synergy in co-authoring, although I really am not too sure about having 5 co-authors.
I have always thought that the “Theory with simulation” category is growing. I think it would be hard to conduct any research under the “borrowed data” category, just because to get a set of data these days, you really have to get it from different sources. Gone are the days where you can get data from just one source.
Theory with simulation includes calibration in macroeconomics; borrowed data are all data sets that are copied directly from books (the old technology) or provided electronically; self-generated data include data sets assembled from diverse electronic or other sources; and experiments include both laboratory work and author-initiated field experiments.
Some facts I found interesting:
1. Annual submissions to the top-5 journals nearly doubled from 1990 to 2012.
2. The total number of articles published in these journals actually declined from 400 per year in the late 1970s to 300 per year most recently. As a result, the acceptance rate has fallen from 15% to 6%, with potential implications for the career progression of young scholars.
9. Although the fraction of articles from different fields published in the top-5 has remained relatively stable, there are important cohort trends in the citations received by papers from different fields, with rising citations to more recent papers in Development and International, and declining citations to recent papers in Econometrics and Theory.
As a PhD student who has been in this academic environment for the last three years, I’ve seen how important journal publications are. I’ve seen people who have left when they were on a tenure track because they couldn’t get enough publications. I have seen peers who have started submitting to journals over the years because they would like to be an academic after finishing their PhD. I suspect the correlation between the number of publications and probability of getting tenured/getting an academic job has probably jumped over the years.
No. 9 is actually a little surprising, with regards to the declining citations to recent papers in Econometrics and Theory.
This article has been published on The Conversation.
Giving advice for the greater good: why economists should work with charities
It is a well-established tradition in the legal and accounting worlds, where lawyers and accountants would provide pro bono legal and accounting services to the voluntary sector. It has also become common for businessmen like Richard Branson, Warren Buffett and Bill Gates to donate money or lend their skills to society.
However, this kind of engagement has not been seen in economics till recently.
What is Pro Bono Economics?
In September 2009, a group of prominent UK private and government economists, including Sir Gus O’Donnell, launched a project called Pro Bono Economics. The concept is simple – matching volunteer economists with charities wishing to address questions around measurements, results and impact.
Few charities make use of economists. There are two reasons why this market is missing. First, most charities cannot afford to pay economists to analyse the effectiveness of their work. Second, there are information failures on both sides. On the supply side, economists are unaware that their skill sets can be useful in evaluating the effectiveness of charities. On the demand side, charities often do not understand the value of economic analysis to their business and hence do not seek it.
Pro Bono Economics is a UK-based charity. Currently, the organisation has in excess of 150 volunteers. Of these volunteers, over half are from the private sector, around a third are from the public sector, while the remainder are academics and individuals. The organisation has a relationship with the UK Government Economic Service, which allows them to find volunteers in various government departments.
So far, eight projects with a variety of charities have been completed. An example is the work done by the volunteer economists for Barnardo’s. Barnardo’s work with those who have been sexually exploited is clear. However, using a rigorous research framework, the volunteer economists at Pro Bono Economics show that the benefits to the taxpayers of Barnardo’s interventions for young people who have been sexually exploited far outweigh the costs. There is a potential saving of either £6 or £12 for every £1 spent, depending on the assumptions made. There is now tangible, economic evidence of the necessity for specialist help, highlighting its value to the society as a whole.
A further check with Pro Bono Economics reveals that the organisation has only, so far, been able to engage about half of their volunteer pool with projects. In fact, the organisation has found that the interest from economists has so far exceeded the demand from charities, or the number of feasible projects from these charities.
A non-zero-sum game
Charitable giving by individuals is not rationally based and often personal and quirky. This is a conclusion that is well embraced by economists. Research has shown that donors want to be inspired and shown individual illustrations of the kind of good they can do for society.
However, this can be potentially a “win-win” situation for charities and economists. In the coming years, many charities around the world could face a financial squeeze as recession hits private donors and governments are forced to slash spending. This means that charities will need to fight to win funding, and individual charities will have to think hard about the best ways to present their causes and to appeal to donors. There will be an increasing need for charities to show that their projects are effective and delivering value for money.
This is where volunteer economists can help.
Getting involved with charities can help the dismal science as well. After all, economists are known to be inherently attracted to transactions that encourage self-interested behaviour, having been exposed to the “homo economicus” model. The profession has suffered severe criticisms over the past few years for failing to foresee the credit crisis, which has been demoralising for some, particularly those working in the financial sector. If more economists could volunteer their skills and time for the voluntary sector, the image of economics might improve. For individual economists, such experiences in real-life scenarios could be inspirational and enhance day-to-day commercial work.
Universal implications of pro bono economics
According to the Australian Bureau of Statistics, there were 41,008 not-for-profit organisations in Australia at the end of June 2007.
The main source of income for these organisations was funding from federal, state and local government, accounting for 33.5% of total income. The latest statistics from the Australian Taxation Office showed that there were 53,773 tax concession charities at the end of October 2010.
Most charities took a hammering during the global financial crisis. In the 2008-09 income year, individuals claimed $2,093 million in deductible gifts, a decrease of 10.8% on the previous and the first decrease in the last ten years.
With 50,000 charities in Australia, it can be a challenge to decide which charities are worthy of your hard-earned cash. Besides, Philanthropy Australia has found that Australians are not as generous as their peers in the UK and Canada. The overall giving levels as a percentage of GDP are slightly lower in Australia than in the UK and Canada.
With evidence of sluggish economic growth in Australia for 2012, charities in Australia are likely to face a similar outlook as their peers in Europe and the United States. This would mean charities in Australia could possibly face a decline in government funding and would need to fight to win funding.
There would be an increasing need for charities to prove to their donors that their impact have been effective. Volunteer economists can help to evaluate the effectiveness of these charities.
An “economists’ charity” for Australia?
Pro Bono Economics is a UK-based charity and is only working in the UK at present. At present, the organisation is funded by a number of grant-giving bodies such as the City Bridge Trust and a small number of individual donors. At the moment, the focus of the organisation is to ensure sustainable operation in the UK, before looking to expand internationally.
But the concept of “pro bono economics” is a universal one and can also be implemented in Australia. This is certainly by no means an easy concept to put to practice, but the project yields significant benefits: it seeks to improve the effectiveness of charities in Australia and allows economists to contribute both to society and to their professional development.
For some, pro bono economics may appear to be a concept where economists are seeking atonement for past sins. However, the truth is that economists have a skill set that the society can harness. More often than ever, it isn’t that economists are not charitably inclined; but they do not realise there are opportunities to contribute positively to society by using their skills.
Currently, pro bono economics engagements exist in Australia. However, such engagements occur on an uncoordinated basis. For example, Melbourne-based consultancy, Economists at Large, and academics like John Quiggin do pro bono economics work from time to time. The pro bono economics consulting work done at Economists at Large is funded by their paid work and donations from clients.
The existence of such pro bono economics engagements indicates a market for providing economic services to charities in Australia. It would seem ideal to have an organisation, seen as the “economists’ charity”, that coordinate pro bono economics engagements in Australia. The objectives of such an organisation would be similar to what the National Pro Bono Resource Centre does for the legal sector in Australia. The long-term sustainability of such an ambitious initiative is likely only to be achieved if it starts from within the profession.