Bad multiplier research leads to policy confusion

New Statesman

The most politically significant moment during Mark Carney's apperance before the Treasury select committee came when the Bank of England governor stated that "fiscal adjustment" (spending cuts and tax rises) "has been a drag on growth".
This might appear to put him at odds with George Osborne who in his speech on the economy earlier this week, derided the "fiscalists" who claimed that the cuts had been more damaging than expected. But the Tory Treasury Twitter account has responded by stating that Carney's comments are "consistent" with Osborne's argument that the OBR's 2010 fiscal multipliers (which measure the effect of cuts and tax rises on growth) were not too optimistic.

This whole mess started with a bogus method for determining multipliers. Started by who knows, but the IMF picked up the method and issued a list of multipliers, a scheudle. Mark Zandi has repeated the bogus multipliers.
let me repeat. The most recent growth surge dominated the macro results over the first few months. It was a macro effect, an aggregate phenomena that is completely missed by the bogus multiplier method. mark Zandi and other Keynesians prognosticators missed the growth surge, because they used the bogus multipliers. So we had the opposite situation than the one predicted. The metho, as used to estimate austerity, had predicted prognosticators would over estimate growth as a result of austerity; and instead most prognosticators got it right.

Once again, let me explain. Researchers cannot take isolated samples from a stream of macro data, then compute an objective function. They have it in reverse. They have to compute the objective function over all the macro data, then separate the isolated events they look at.

Mark and the Zandites got themselves into this mess because they set out to identify their proposed results first, so they start with an incomplete set of episodes from the complete set of smei-orthoronal episodes, losing interconnectiveness in the process. Romer started this idea.  She assumed because gold started arriving in the USA on 1933, that she can use that as an unexpected episode for stimulus studies.  Not so, the arrival of both growth and the arrival of gold in 1933 were definitely corellated to policies that had happened years before in Europe and the USA. According the Romer theory, the recent surge in growth would be caused by investment money returning from emerging markets.  But when that money went to emerging markets, it was a coordination with OECD growth vs emerging market growth.  The two growth variables highly related before the decision to move money is made.