More fake data promoting deficit hysteria

Ezra Klein:

You’ve heard about all the problems with Reinhart and Rogoff. But how about the problems with Baker, Bloom and Davis?

On Sunday, Bill McNabb, Chairman and CEO of Vanguard, published an op-ed in the Wall Street Journal arguing that “since 2011 the rise in overall policy uncertainty has created a $261 billion cumulative drag on the economy (the equivalent of more than $800 per person in the country).” This is proof, McNabb says, that “developing a credible, long-term solution to the country’s staggering debt is the biggest collective challenge right now.”

Specifically, the policy uncertainty McNabb is looking at comes from “the debt-ceiling debacle in August 2011, the congressional supercommittee failure in November 2011, and the fiscal-cliff crisis at the end of 2012.” There’s no doubt that these episodes hurt the economy.

But the Vanguard study. McNabb says, is based on the “invaluable work” of Stanford University’s Nicholas Bloom and Scott Baker and the University of Chicago’s Steven Davis. The Bloom, Baker and Davis measure of policy uncertainty gets a lot of attention — but it’s shot through with holes.

Policyuncertainty.com