Economics Based on Error

For years governments have been following several disastrous economic theories. The worst of these is neoliberalism, but the other two have helped contribute to the current financial crises abd nmake it worse.The first was the idea that a corporation's primary responsibility is to profit for its shareholders, regardless the cost. This has led to deregulation and to a culture of corruption and exploitation that is rampant world-wide. The second is the idea that government austerity in times of recession is the way to go when it actually puts an increased drag on economies, lengthening the problem and making the situation worse for more people.

Recently a grad student exposed errors in a highly influential paper on austerityand debtload for countries related to economic growth. This paper has been the centre of the austerity movement.

The following is an interview from CBC's As It Happens with the student in which he explains what he discovered.

AUSTERITY STUDENT	Duration: 00:07:47
In Economics, "Growth in a Time of Debt' is a famous work used to support the case for austerity measures. But now questions are being raised about the paper's research.

In January 2010, Harvard Professors Carmen Reinhart and Ken Rogoff presented the paper in Atlanta. And in that study, the two economists argue that a country's economic growth slows dramatically when debt rises above 90% of GDP.

Well, some US and European pro-austerity politicians have used that conclusion to back introducing cuts -- rather than injecting more borrowed money into an economy. But now holes have been found in the paper's research. Not by a pre-eminent economist… well he's not yet… But by a grad student working on a routine assignment.

Thomas Herndon is said student, and we reached him at the University of Massuchusetts Amherst, in Amherst.  Listen