The best-selling book, This Time It’s Different (2010) , which warned against a high government debt-to-GDP ratio, relied on an Excel spreadsheet. Problem: one of the cells was wrong.
An article exposing this error has gotten a lot of coverage in the media. Liberals have cheered. At last, relief! They can still remain in the stands, cheering for increased government debt.
Whether this glitch will undermine the book’s overall thesis is problematic. But it will surely force an updated edition. Liberals, who groused before, will from now on say, “Revisions don’t matter.”
The fact that it took three years for someone to spot this error is indicative of the power of the computer to mislead people. Once a computer-generated economic thesis gets picked up by the media, no one checks. Reagan was right: “Trust, but verify.” Three scholars finally checked. The numbers did not add up.
Here is the more important problem. There are no fixed cause-and-effect statistical ratios in economic theory. Ludwig von Mises warned about this for his entire career. There are historical relationships. There is no way of knowing if they will hold in the future. They are not economic laws.
The problem with a rising government-debt-to-GDP ratio is that government is getting bigger proportionally. Free market economists know that this will ratio eventually reverse. Government expansion in relation to the private sector will undermine productivity, i.e., reduce GDP. As to what statistical ratio will prevail when this happens in any nation, no one knows. Excel will not help us to find out.
Glitches happen. Keynesianism is a very big glitch. It has excelled.
Garbage in, garbage out.
This time, it’s still not different. Non-Austrian economists still cling to their historical relationships, as if these were anything other than historical relationships.