You probably have missed it, but there is a major furor within the economics profession concerning the findings of an academic paper written by Carmen Reinhart and Kenneth Rogoff in 2010. The profession issues a torrent of papers annually, most of which remain scarcely read and massively under-appreciated. Probably deservedly so since the sole objective of most is to meet the check-box requirement of publication that dominates academia. This desperation to publish to build reputation and to demonstrate mastery of the subject to a determinedly self-referential peer group is one of the causes of the rapid decline within economics: it encourages ever more fragmentation of the subject into ever less relevant sub-disciplines, and has resulted in a near total elimination of a common understanding – or common memory – of its development.

It has also produced sloppiness.

The R-R paper has now become a cause-celebre of such sloppiness.

This would not normally be worthy of passing along to a broader audience – who cares what academic economists write after all? – were it not for the particular topic that R-R covered.

Recall that R-R wrote a very popular and useful book, published in 2009, called “This Time Is Different”, which was a long history of financial crises and the reverberation that such crises tend to have. The book is loaded with good data and reinforced  the longstanding view that recoveries from recessions whose source is a financial crisis is always longer and more arduous than is recovery from a more ‘normal’ recession. It is a terrific book worth reading by anyone trying to get their arms around how we arrived where we are today.

So the R-R paper published a year later was naturally going to attract a lot of attention.

Which it did. Especially from the ranks of austerity advocates who seized on one of the paper’s major findings: notably that economies where the ratio of government debt to GDP rises above 90% appear to underperform radically. To be precise, R-R found that economies with debt ratios below that magic 90% mark tend to grow in the 3% – 4% range annually, whereas those with ratios above that mark see growth slump to a minuscule 0.1%. That’s a big difference. One that captured everyone’s attention.

Almost immediately R-R’s reputation as gurus and specialists in our crisis rocketed upward. They became near omnipresent in the financial press and other media, and their work was used to advance the cause of austerity everywhere.

There is one small problem.

R-R made a mistake. Not a small mistake. A very significant mistake.

Correct that mistake, as Robert Pollin, Michael Ash, and Thomas Herndon now have, we learn that the awful 0.1% GDP growth of countries above the magic 90% ratio is actually a more robust, if not stellar, 2.2%.

In other words the R-R conclusion, a bedrock of austerity policy in recent times, melts into thin air.

Whoops.

More than whoops: oh dear!

Ordinary people around the world have lost their jobs due to austerity policies being crammed down the throats of various economies in no small part due to the R-R paper. Regular folks have had their lives ruined. Those innocent people have the right to wonder about the skill and the ethics of any profession that wields such power and has such authority, and yet has so little control over its various representatives.

The economics profession has just arrived at a crucial ethical point.

Its theoretical underpinnings are a mess. There is no point in beating that particular dead horse any longer. The myriad obvious, deep, and yet totally accepted flaws in modern – and much past – theory are a shameful testament to the increasing separation of economics from the real world. But the subject’s influence still grows. Its better known advocates garner reputations and reward unrelated to the actual efficacy of the advice they give. They infest policy making agencies the world over.

Were the correction of R-R to have taken place in a more arcane backwater of academia it would be a subject for little comment. But this is economics. This is far from arcane. Livelihoods are at stake. It is reasonable, therefore, for society to expect more than simple correction.

It isn’t just the error that ought raise the hackles of those affected by policies relying on R-R, but it is the way in which the error stood. My speculation is that R-R allowed the error to stand because the result was to their liking. They saw the magic line appear, it confirmed their pre-existing commitment or predilection for austerity, and thus they saw no need to check their calculation. They rushed out their paper in the afterglow of the acclaim of their book, and were swept up in the glaring light of celebrity. They sought fame not rigor.

This is a clear example of the pervasive nature of political worldview muddying what appears on the surface as academic work. I have no complaint about that because I think it is unavoidable, but it ought to be explicit. Social science is a lot more social than it is science. And it is holistic in that economics is irretrievably intertwined with politics, psychology, and sociology etc. no matter what the much-splintered halls of academia would have us all believe to the contrary. To study one is to get involved in them all. So all pure economics is incomplete and is tainted with ideology whether we like it or not. But error is error. And error allowed to stand because it reinforced an ideological predisposition is a weed difficult to eradicate.

Yes, the workings of ordinary academic challenge and response have worked. And error has been revealed. A paper has been debunked.

But, and I have to keep saying this, economics is no ordinary discipline. It pontificates and influences policy. It preaches certain social structures. It gives great intellectual credence to political action. It has, therefore, outsized power. Every single year its theories are absorbed by countless students. They learn its tools. They learn its doctrines. They adopt its messaging.

It had better damn well be right if is taught without revealing its different traditions.

It is not at all proper, ethical, or appropriate that errors, even when corrected, are without further consequences. Does anyone reading this truly believe that R-R will suffer similar economic consequences to those suffered by the victims of austerity policies built upon R-R’s error? Of course not.

That, in short, is the ethical challenge economists, particularly academic economists. Refuse to grapple with.

And it is no good resorting to the old argument that the establishment and enforcement of some form of ethical standard would   cloud academic freedom. Of course it would. That’s the entire point of incentives: to constrain and limit options.

For a subject that preaches the efficacy and effectiveness of incentives, economics is singularly unwilling to accept the creation of incentives for itself.

We now have a live experiment: what consequences will R-R suffer? Demotion? Loss of income? Loss of employment? Loss of reputation? What exactly will happen to discipline them? I wish none of those things on anyone. But this is economics. This is a subject that daily spreads the gospel of incentives. Of the fear that limits and modifies behavior. Of the cleansing effect of market forces that correct errors and allow us to arrive at ‘optimal’ solutions. The market, economics teaches, is the ultimate corrective mechanism. It does not suffer fools.

So why does economics?

Now that Margaret Thatcher is being lifted to iconic status alongside Ronald Reagan in the right wing community, and with the news that Reagan would pummel Obama in a head to head election, I thought a few facts are in order. So here goes:

Reagan would have cut or privatized Social Security. No. Not at all. This is what he said in 1984:

“Social Security, let’s lay it to rest once in for all … Social Security has nothing to do with the deficit. Social Security is totally funded by the payroll tax levied on employer and employee. If you reduce the outgo of Social Security, that money would not go into the general fund to reduce the deficit. It would go into the Social Security trust fund. So Social Security has nothing to do with balancing the budget or erasing or lowering the deficit.”

Ok. So he was definitely opposed to gun control. Not exactly. Governor Reagan of California supported and advocated the Mulford Act, which was a gun control law introduced by conservative Republicans in reaction to Black Panther groups policing parts of Oakland. Among other things, Reagan told the press that he saw:

 “no reason why on the street today a citizen should be carrying loaded weapons.” 

But he was a rabid tax cutter, right? Not exactly. True he cut income taxes by over 20% in 1981. The result was a ballooning deficit: the largest in US peacetime history. Reagan became addicted to deficit spending, but was convinced to raise revenues also to avert fiscal calamity. He subsequently went on a binge of closing tax loopholes to mitigate the fiscal damage his tax cutting had created. Indeed the 1982 Tax Equity and Fiscal Responsibility Act was the largest tax increase in four decades, and by the time he was done Reagan had clawed back around half his original tax cut.

Hmmm. How about immigration. He cracked down on that, right? Well, I’m glad you asked. The 1986 immigration reform law did indeed crack down on undocumented workers and set aside money for border security, but it also allowed a route to citizenship and gave amnesty to anyone who had entered the US before 1982. Yes. Amnesty. Try that out on latter day Republicans.

Well he didn’t like trade unions, so that makes him a conservative idol. Not so fast. Reagan was the only US president ever to be a union member. So committed to the actors union was he that he served as its president six times. He fought hard for worker rights. His legacy as a union leader lives on to this day in the form of ongoing pension and health benefit agreements in the entertainment industry. So he fought for things that modern Republicans want to get rid of. He also supported, very vocally, the role of unions in the struggle to throw off Soviet control in Eastern Europe.

Ouch. This is tough. Well he stood tall against our enemies. He would never have gone and talked to them the way liberals like to do. Oh dear. Remember Reykjavík? Remember all that Cold war diplomacy? All that outreach to Gorbachev? They became such buddies that when Reagan died in 2004, Gorbachev was visibly shaken and lauded Reagan as a great leader whose willingness to talk was crucial in ending the Cold War.

So Reagan was a liberal?

Well, no. He used all the usual right wing signals to get elected. He made up stories about welfare queens, and his election campaigns included overt appeals to red state racism.

He was no liberal. But he also wasn’t the person we read about in today’s right wing media accounts and speeches either. He was a die hard conservative with enough sense to reach across party lines and do deals when he needed to. He worked with Democrats even while he proselytized right wing radicalism. His rhetoric was extreme, but his actions more practical. His legacy has been betrayed by those who followed him. They bought the rhetoric and seek to act on it without regard for the practical.

The current version of Republicanism is tinged with Reagan-speak and Reagan worship, but it does not reflect Reagan reality.

Then again it lives in another world anyway. Why should it tell the truth about one of its heroes?

Margaret Thatcher died today. I have no love for the lady. None. But there are two things I need to say:

One, she was the reason I left the UK. Her diagnosis of what ailed the UK back ion the 1970’s was, I still think, in error. Her persistent anti-social rhetoric laid the groundwork, as did Reagan’s here, for the more extreme conservatism that has followed. She epitomized the reaction amongst her kind to the excesses of the 1960’s and all the change it brought to her beloved, but fusty, Britain. That she changed the UK is beyond doubt. Perhaps she needed to indulge in anti-social talk to get results. But her legacy is more the rise of extremist right wing politics than it is of any lasting prosperity.

Second, that legacy leaves her without a home in our contemporary political landscape. She was not extreme enough – hard though that is to believe – to fit into modern right wing America. She supported, quite strongly, socialized medicine. This was probably more from cynical political calculus than from any benign thinking, but nonetheless support it she did. She also was an early and quite vocal voice in warning about climate change. She, unlike her extreme successors, actually believed in science and its messages. She spoke eloquently of the need to deal with climate change even if it represented a cost to us today. Why? So that we pass along a healthy environment to the future. Neither of these positions would be acceptable to today’s Republican party. So she shares her exile with Reagan himself. He would be too left wing for the Tea Party too. After all the budget deals he struck with Congress included tax increases. We all know how that flies today.

So the Iron Lady’s death is a moment to remind ourselves of how far to the right our political discourse has drifted since the 1980’s. She and Reagan began that drift. They provided the venomous rhetoric that was picked up and amplified by later conservatives. And they remain revered by the right even if they would no longer fit in to the right’s ranks.

For us beleaguered liberals it is a moment to reflect on the long path back, and to ponder how much we have all lost courtesy of Maggie Thatcher.

Oh. One last thing.

I read that John Boehner regards Thatcher as the greatest peacetime prime minister in British history. Really? There are more than a few better candidates. Boehner isn’t a student of British history, so I can forgive him. Well, no I can’t. He doesn’t even believe in the same stuff as Thatcher. If he did, he would be a fan of Obamacare. Maybe he is. Secretly. That would be interesting.