This is the sort of question I've been asking, in an esoteric, philosophic vein, in my series Being v. Becoming. (If the metaphysics of substance is supplanted by a process metaphysics of flux, whence the religious notions, e.g., of soul? salvation? etc.? Can humanity simply eschew its religions once they've been foundationally discredited? Or will some remnant survive, even when the illusion is revealed?)
This same sort of drama is playing out now in a clear-cut arena. For years, Conservative economists around the world have taken it as an article of faith that growth stops and, in fact, recedes when the national debt passes 90% of GDP. This has been the justification for austerity policies, including the Republican budget-slashing, welfare-bashing, social security-smashing sequestration mania of the last few years.
Turns out that 90% figure comes exclusively from a 2010 working paper entitled Growth in a Time of Debt by Carmen M. Reinhart and Kenneth S. Rogoff of Harvard University.
One of the initial problems with the paper was that it was never peer reviewed. That did not prevent its becoming the rationale for cutting social programs around the world among true believers. It reified their ideology. Paul Ryan's budget forays cite it as "conclusive empirical evidence." The Washington Post editorial board takes it as dogma.
Recently, Thomas Herndon, a graduate student at U.Mass Amherst, had the assignment of replicating the findings of an important Econ paper for one of his classes. He chose Reinhart/Rogoff. When he couldn't replicate the results, he reached out to R/R, and they emailed him their data spreadsheet.
After reviewing the R/R underlying data, Herndon found several serious problems:
"First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result."This is a pretty big deal, it seems to me. What happens when the foundation of everything you believe about how government should respond in a time of recession is discredited? Do you go back and change/revise everything you've done based on this belief as a rational person might do? Do you increase social spending and thus economic exchange activity? Do you implement Keynesian-style, job-creating policies which put people back to work, say, upgrading infrastructure? Or, do you continue to hold to your discredited austerian view of reducing the economic activity of the government in time of recession because of stubborn political affiliation or ideology?
Paul Krugman, the Princeton Economist and columnist for The New York Times, has been all over this. Here. Here. Here. And everywhere. He's much more authoritative on these matters than I. You should read him on matters such as these. (Of course, he found R/R skeevy for a number of other reasons long before this colossal coding error in Excel came to light.)
It will be interesting to see how the European austerians and the Paul Ryans, Rand Pauls, WaPo editorial boards, Pete Petersons, Erkine Bowleses, Alan Simpsons, Richard Haasses, and Conservative economists in general, etc., adapt.
Economics is one of those not-quite hard, not-quite soft sciences. As a hard science, there are replicable experimental results in many areas. Theses are propounded, proved or discredited, and revised to account for new findings. Unfortunately, it also tends to have aspects of the sorts of social sciences where individual preferences and biases can find confirmation in observations—especially where data is obscured, ignored, selected, or otherwise manipulated.
We saw an instance of this in the recent U.S. election, where ideological polls (polls based on faulty but favorable assumptions) showed the Republican candidate Mitt Romney either winning or within striking distance of President Barack Obama going into election day. More scientific/analytic polls, however, showed Romney to be clearly losing. In that case, the election itself proved to be a slap in the face. Reality prevailed. Obama won by nearly 5 million votes in an Electoral College landslide. It was a huge embarrassment to many professional pollsters.
In this instance, I fear there is no such accountability moment for the true believers in austerity economics. And the world's economy is the worse for it.
Here's Herndon's interview with Stephen Colbert: