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Monday, May 06, 2013

Of Tides and Werewolves

In a peer reviewed paper a few years back, authors Rain and Rogue (RR) noted that there is a statistically significant correlation between high tide levels and werewolf attacks, and, in fact, werewolf attacks increased dramatically at a tide greater than 2 feet.  While RR never explicitly stated that high tides were responsible for increased werewolf activity, politicians interpreted the paper in this manner and the government has instituted a number of extremely expensive projects to hold back the tide (with no more success than King Canute).  A new paper by Histamine, Ash, and Pollen (HAP) shows that RR had made mistakes in their calculations and that the correlation of tides and werewolves, while still positive, was not a strong as shown in RR's paper.  Many have now expressed their outrage that the erroneous RR calculation was used as an excuse by policy makers to try and control the tide.

I'm joking, of course.

However, there are striking parallels with a recent brouhaha involving a paper by Reinhart and Rogoff which correlated government debt levels with poor economic growth.  In particular, they found that growth cratered as debt approached and exceeded 90% of GDP.  The cratering turned out to be wrong (as noted by Herndon, Ash, and Pollin), but not the direction of correlation.  According to Keynesians, the paper was allegedly used as an excuse to limit government borrowing in both the United States and Europe and prolonged the recession as a result.

However, just as high tides don't cause werewolf activity, high government debt in a government's own fiat currency does not directly cause poor economic growth.  Just as high tides and werewolves are caused by the full moon, large deficits (and the resulting debt) and poor economic conditions are symptoms of the same underlying causes.  In either case the observable symptoms have very limited direct effect on each other.

If you have no idea what I'm talking about (I readily admit this is somewhat obscure though numerous economists and pundits such as Krugman have written about it), and are interested to learn more, you can read about the Reinhart-Rogoff tempest in a teapot here.


Peter said...

Not to worry, I hear the Heritage Foundation will soon be releasing a paper showing that when Keynes did his additions, he forgot to carry the one.

(I made that same joke on a lefist site on the same subject and was immediately told sniffily that Keynes didn't rely on calculations. Fun people.)

Bret said...

LOL, I'll have to remember that one.