Map of American Craft Brewing

New Yorker Beer MapEarlier this year I wrote about the history of beer in the US. In it I argued that the current boom in craft/micro brewing is merely a return to the original beer culture that existed for the greater part of America’s history.

The New Yorker just put out an interesting map showing the rise of craft breweries of which there are now more than 2,300 in the US. The most surprising finding is that the areas experiencing the biggest growth are in the South and Southwest – outside of the traditional craft brew centers in the New England and the Pacific Coast. Also interesting is that craft brews represent 30% of total beer sales at Costco (hardly a place reputed for craft anything).

But Austerity Perseveres

R&R did not create austerity – discrediting them will not kill it.

If you’ve been reading about the Rogoff and Reinhart incident this week, most everyone outside of the right wing press is claiming that the austerity argument has now been proven false. If only it were that simple. When Paul Krugman (probably the fiercest critic of austerity on this side of the Atlantic) wrote about R&R last week, he closed his column by saying the following:

“So will toppling Reinhart-Rogoff from its pedestal change anything? I’d like to think so. But I predict that the usual suspects will just find another dubious piece of economic analysis to canonize, and the depression will go on and on.”

Essentially, if it wasn’t R&R, proponents of austerity would have found some other paper by some other economist to back their claims. And most folks on the right are admitting that Excel error or not, debt kills economic growth (just a lot less than we thought it would).

Bob Samuelson committed probably one of the most egregious false equivalences in recent years in his column by referring to the fall-out over the paper a “dispute”, in which one side says X and the other says Y – as though X had not already been proven to be factually inaccurate and misleading.

So what now? For once, we seem to have a good set of economic data that millions of people around the world are familiar with. When debt approaches GDP, growth slows down to about 2%. That’s not great, but borrowing money is always painful. Taking a mortgage prevents you from accessing liquid capital in the short-run, but it is often a sound long-term investment.

Peggy Noonan made the mistake in the Wall Street Journal this week of basically making Obama’ argument for him, by claiming that the jobs crisis is much worse than the debt crisis. The Republican Party will likely pivot soon and start blaming the President for not doing enough for jobs, months and years after they blocked any and all legislative efforts to do something about jobs.

This is the Republican game – don’t let facts get in the way of your agenda. Excel errors do not matter. There are scores of other economists who are willing to stand in for R&R and defend the merits of austerity. While it’s true that Herndon’s work at UMass has exposed bad research and briefly given progressives, and Keynesians, and basically everyone other than right wing fiscal conservatives something to cheer about, I’d be surprised if politicians remember this a month from now. I’m a bit surprised that the coverage over an Excel error in an academic paper has lasted a week already.

Austerity Stumbles

It’s not often that an academic paper makes the headlines. Researchers and professors typically write on obscure topics that are read, if they’re lucky, years later, by a handful of graduate students who are working on their own obscure and imminent-to-be-ignored academic works. Ken Rogoff and Carmen Reinhart were superstars in this respect.

The Rogoff-Reinhart paper, entitled “Growth in a Time of Debt”, was the stuff of legend. Policymakers around the world referenced it when making the case for budget cuts and austerity measures, arguing that running budget deficits would cripple economic growth. In particular, they claimed that when debt crosses the threshold of 90% of GDP, national economies would begin to shrink.

The United States has already crossed that threshold (we’re beyond 100% actually), but our economy continues to grow. It’s growing at a flimsy rate and in a way that does not benefit the country as a whole, but grow it does.

Enter UMass Amhert economics grad student, Thomas Herndon, who did what nobody else did (yeah – the paper was not peer reviewed) and looked over the numbers used by Rogoff and Reinhart (check out the interview between Herndon and Stephen Colbert). It seems R&R forgot to include 5 countries (Australia, Austria, Belgium, Canada, and Denmark) in their final analysis. If you include these countries, economic growth crawls along at about 2%, which is to say that they somehow omitted the countries that maintained high growth in spite of high debt. It turns out the R&R committed a simple Excel spreadsheet error (visual approximation below). Unfortunately, this error led to the false conclusions that were used as ammunition to sell austerity measures all over the world! RandR Excel error

This is all very embarrassing for R&R and those who cited their paper, but if you think this means much in term of policy, think again. John Maynard Keynes once wrote:

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

Although I respect Keynes, I think we’d disagree on the extent to which economists and their ideas are pawns of politicians. I’ll tell you why tomorrow.

Mexico – Wealthier Than You Think

MexicoAs an American, it’s easy to think of Mexico as our poor and violent neighbor. And while there may be significant poverty and violence south of the border, it pays to take a step back and think of Mexico in a global context rather than a local one.

Mexico is always in the shadow of its wealthier and more powerful neighbor, in a way that hides how wealthy and powerful it really is. If Mexico were located anywhere else in the world, it would be perceived as a major international power. Adjusted for purchasing power, Mexico has the 11th largest economy in the world. Fareed Zakaria’s blog recently pointed out that although Mexico has a higher adjusted per capita income ($15,300) than Brazil ($11,700), China ($8,500) and India ($3,700), these other countries are always in the international economic limelight. Apparently the bad press has affected domestic sentiments as well – Mexicans see themselves as worse off than residents in these other countries even though Mexicans are significantly wealthier. Also, the Mexican economy continues to grow even as most of the advanced economies of the world has slowed to a standstill.

Mexico is the Scottie Pippen of international geopolitics – not a superpower but definitely a power to be reckoned with, and constantly in the shadow of the superstar teammate. There are of course those who say Pippen was as good as he was because he played with Jordan. The same can be said of Mexico’s wealth and power being aided by a close economic relationship with the US – but that’s a whole other blog post.