Posted on 04/18/2013 7:13:08 AM PDT by SeekAndFind
Whoops.
An apparent error in Carmen Reinhart and Kenneth Rogoff’s influential study of government debt was the result of a simple mistake in Microsoft Excel that all spreadsheet jockeys fear. Here it is:
The cells outlined in dark blue contain the data points that Reinhart and Rogoff used to reach their conclusion that countries with a debt-to-GDP ratio of 90% or higher see average growth of -0.1%. As you can see, they failed to include Denmark, Canada, Belgium, Austria, and Australia. Including those countries—and making a few other adjustments—makes the growth rate 2.2%, according to new research.
The Excel mistake could have been avoided with a few simple tricks.
As an example, here’s a spreadsheet with some figures from Apple’s first quarter earnings this year:
The totals for revenue and expenses are calculated in the spreadsheet by adding up the numbers above those cells, and the value for net income is determined by subtracting total expenses from total revenue. Now, to make sure you typed in the formula for net income correctly, you can double-click on the cell: Not only will Excel reveal the formula, but it will also highlight all of the other cells involved.
That basic technique will save you most of the time. But for complicated spreadsheets—if you have a cell with a formula that involves another cell with a different formula that involves yet another cell,
(Excerpt) Read more at businessinsider.com ...
Business Insider, the MSNBC of finance coverage.
Makes as much sense as blaming pen/pencils for spelling mistakes, fork/spoons for fat, guns for violence, voters for a criminal federal government.
Oh, wait, sorry that last one is the only one which is true.
Thank you. Saved me some typing.
This is an ID10T error.
I use Excel to track my business and double check every cell formula when a change (new client, month, year, whatever) is made.
Computers are stupid - want proof, at least a fridge will keep beer cold, will your computer?
It's up to you to make them smart.
So here’s one from Gizmodo
Thank a Simple Excel Error For Austerity Economics
Kelsey Campbell-Dollaghan
You know the much-ballyhooed theory that high national debt always correlates to crappy economic growth? The one that’s trotted out on a regular basis by politicians arguing for austerity budgets and sequestration? Well, according to new findings, the study that austerity proponents cite more than any other is based on an Excel error. A big one.
The glitchy data comes from a hallmark study on debt, Growth in a Time of Debt, from 2010. Since it was published, it’s become a favorite of people like Paul Ryan, who mentioned it frequently during the Romney campaign. But a new meta-analysis of the study’s original Excel spreadsheet, by three UMASS economists, uncovered several errors, including the selective omission of data, an undiscussed weighting system, and an error in the Excel spreadsheet that excluded five countries. As the Rortybomb blog explains (and to clarify an earlier version of this post), correcting for the omission, weighting, and Excel mistake shows that countries with a debt-to-GDP ratio over 90 percent have an average growth rate of 2.2 percent, not -.1 percent as the original paper concluded. This suggests that while debt and growth are related, the correlation is weaker than previously assumed. “We will redouble our efforts to avoid such errors in the future,” responded the scientists in a Wall Street Journal post today.
Of course, it’s not like politicians were basing their ideas on the paper alone—in reality, these kinds of studies are used to post-rationalize prior beliefs about the economy. More importantly, Paul Krugman points out that there are plenty of instances where countries boomed during high debt periods, as well as plenty of examples of countries slogging through depressions with tons of debt. In other words, it’s a more complex issue than simple causation.
You can’t really blame Excel for the error—the data should’ve been reviewed back when the paper was published. Still, there are plenty of other examples of mistakes like this leading to major inaccuracies. The moral of the story? Double check your sources before making decisions that affect the global economy.
Reinhart-Rogoff Acknowledge Mistake in 2010 Paper Cited by Ryan
The Rogoff-Reinhart line is sound, and their underlying work masterful. While “corrections” of some data reverses their findings, this is almost always the case in economics. If you cherry-pick the data to be corrected, you can reverse the findings of many studies.
There are some real problems with using “official” data on deficits and debts, as these are developed under different definitions of deficits and debts across countries and across time.
For example, the U.S. counts Treasury debt held by the Federal Reserve as a part of the public debt (and it counts remittances from the Fed to the Treasury as part of income). This reflects the legal distinction of the Fed from the government; but, my goodness, is this legal distincton real?
Accountants concern themselves with these kinds of things when considering corporate treatment of “off-balance sheet” items, and we need to do the same with respect to accounting for the deficits and debts. This is not to question the legitimacy of any of the definitions of deficits and debts that are out there, but we need to re-state official statistics on a consistent basis to conduct a study that spans centuries of time and practically the entire world of countries.
This is the correct answer and analysis, Pontiac. All debt isn’t the same. So to categorically state that 90% debt to GDP ratios lead to negative or slowed growth is nonsense on it’s face.
The trouble with GDP calculatons is that government spending, as a result of that debt, is included in the GDP print. This then pumps up GDP. But not all debt is the same.
Governments can invest in any number of “good” or “bad” schemes. At best you’ll find a correlation, not causation. You have to analyze the spending that the debt is used for.
This is an attempt to shoot the messenger.
The globalist cabal doesn’t like the fact that Reinhardt and Rogoff blew the whistle on the mess that is unfolding, so they pulled out all stops to discredit one little factoid in a book full of facts.
The national debt is a lie anyway. Besides it is far greater than 90% of GDP.
Well you really have to go a bit further.
The analysis shows that the countries in question had these debt loads only about 5 years. These short periods of high debt to GDP ratios can only happen when the reasons for the debt are temporary.
The reasons for our debt and that of the European democracies are institutionalized social welfare entitlements that can only go away at the cost of painful social upheaval that can topple governments.
The political class know this and this is why that these high debt to GDP ratios are not going away anytime soon and most likely will not go away until the world economy collapses under the weight of this debt.
Well you really have to go a bit further.
The analysis shows that the countries in question had these debt loads only about 5 years. These short periods of high debt to GDP ratios can only happen when the reasons for the debt are temporary.
The reasons for our debt and that of the European democracies are institutionalized social welfare entitlements that can only go away at the cost of painful social upheaval that can topple governments.
The political class know this and this is why that these high debt to GDP ratios are not going away anytime soon and most likely will not go away until the world economy collapses under the weight of this debt.
I can index, Imbedded If statement, & Sumproduct yah to death. Logical decisions via math!
Right. And you cannot turn the individual economic decisions of hundreds of millions of people into formulas that actually mean anything anyway. One of the great mistakes of the current gang of economists running things is that they believe their equations will predict our behavior.
“How to create a cell with a flashing color background?”
EASY! You losely plug in the monitor, or blink a real lot. Have a similar suggestion to have the whole spreadsheet slowly fade to dark.
Haven’t had to do a flashing cell yet, so I stole this off the web: http://excel.tips.net/T002134_Flashing_Cells.html
Good luck!
The example given is in fact one of the most common Excel errors, which is adding a row before or after a range formula. The OFFSET approach avoids this error, and has a fail safe in that if row 29 is deleted, that would cause the formula to given as error.
It's also worth noting that SUM() can include text and blank cells without giving an error, while using the + symbol would give ad error for the same cells. I think AVERAGE() works the same way as SUM() and disregards text and blanks. If so, having the range start in row 29 and go to an inserted blank row before the the formula is another safety mechanism. The rows can even be hidden for appearance's sake.
Another way to avoid this problem can be array formulas, but they're beyond the experience of probably 99.9% of Excel users, and don't apply in this example.
How a student took on eminent economists on debt issue - and won
(Reuters) - When Thomas Herndon, a student at the University of Massachusetts Amherst’s doctoral program in economics, spotted possible errors made by two eminent Harvard economists in an influential research paper, he called his girlfriend over for a second look.
As they pored over the spreadsheets Herndon had requested from Harvard’s Carmen Reinhart and Kenneth Rogoff, which formed the basis for a widely quoted 2010 study, they spotted what they believed were glaring errors.
“I almost didn’t believe my eyes when I saw just the basic spreadsheet error,” said Herndon, 28. “I was like, am I just looking at this wrong? There has to be some other explanation. So I asked my girlfriend, ‘Am I seeing this wrong?’”
His girlfriend, Kyla Walters, replied: “I don’t think so, Thomas.”
In the world of economic luminaries, it doesn’t get much bigger than Reinhart and Rogoff, whose work has had enormous influence in one of the biggest economic policy debates of the age.
Both have served at the International Monetary Fund. Reinhart was a chief economist at investment bank Bear Stearns in the 1980s, while Rogoff worked at the Federal Reserve, passing through Yale and MIT before landing at Harvard.
Their study, which found economic growth slows dramatically when a government’s debt exceeds 90 percent of a country’s annual economic output, has been cited by policymakers around the world as justification for slashing spending.
Former U.S. vice presidential candidate Paul Ryan, a Republican congressman from Wisconsin, is one influential politician who has cited the report to justify a budget slashing agenda.
Using the two professors’ data, Herndon found that instead of a dramatic fall in growth, the decline was much milder, slowing to about 2.2 percent, instead of the slump to minus 0.1 percent that Reinhart and Rogoff predicted.
Things tend to move at a glacial pace in the world of academic research papers, but within 24 hours Herndon and his two teachers, who co-authored the report, Michael Ash and Robert Pollin, found themselves swept up in a global debate.
Herndon’s paper began life as a replication exercise for a term paper in a graduate econometrics class. He expected to replicate Reinhart and Rogoff’s results, then challenge the idea that high public debt caused growth to slow.
But he never got that far. Repeated failures to replicate the results roused his interest. Pollin and Ash encouraged him to pursue it after he convinced them he was onto something.
“At first, I didn’t believe him. I thought, ‘OK he’s a student, he’s got to be wrong. These are eminent economists and he’s a graduate student,’” Pollin said. “So we pushed him and pushed him and pushed him, and after about a month of pushing him I said, ‘Goddamn it, he’s right.’”
Herndon approached Reinhart and Rogoff earlier this year for the spreadsheets they used in their paper. The two professors provided them at the start of April, unlocking the mysteries of the data that had stumped Herndon.
Herndon said only 15 of the 20 countries in the report had been used in the average. He also said Reinhart and Rogoff used only one year of data for New Zealand, 1951, when growth was minus 7.6 percent, significantly skewing the results.
Reinhart and Rogoff have admitted to a “coding error” in the spreadsheet that meant some countries were omitted from their calculations. But the economists denied they selectively omitted data or that they used a questionable methodology.
For Ash, the findings mean the claim that high public debt causes growth to stall no longer holds water.
“Their central thesis has been substantially weakened,” he said.
Reinhart and Rogoff, however, say their conclusion that there is a correlation between high debt and slow growth still holds.
“It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful,” they said in a joint statement. “We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work.”
Now that Herndon has ably crossed swords with some of the most eminent figures in his field, he is thinking about expanding his work into a Ph.D. thesis.
(Reporting By Edward Krudy; Editing by Stacey Joyce)
http://www.reuters.com/article/2013/04/18/us-global-economy-debt-herndon-idUSBRE93H0CV20130418
A bigger problem than economists is all the MBAs that use Excel to do great damage in the world. It's hard to quantify and put into a Excel things like quality of service and customer experience. Excel leads to laying off good workers and replacing them with third worlders grabbed off a dirt road. Some MBA at Walmart is using Excel to report increasing store worker productivity, meanwhile their shelves go unstocked and their sales and customer loyalty is going downhill. Excel does not handle putting people into cell H537 very well.
Ahhhh. The IMF, brainchild of Harry Dexter White, confirmed communist scumbag, in cahoots with another even more egregious communist scumbag, Alger Hiss.
Liberals are primarily responsible for the vast majority of the systemic ills in our economy and the world today via their actions taken in the entire span of the 20th century from the beginning to the end of it. Roosevelt, Wilson, and Roosevelt primed the pump for disaster, and their acolytes like John Mayard Keynes and nearly every Democrat and liberal Republican elected to office have compounded and exacerbated what those people started.
Nope. Traditionally, governments went into debt as a result of war.
We're talking pre-1800, of course.
Spain went bankrupt several times. Probably other nations did too.
During the Middle Ages, the most common cause of peace breaking out was one or both sides being unable to borrow enough money to keep fighting.
Since 1800, and particularly 1950, you are quite right.
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