Carmen Reinhart and Kenneth Rogoff are two very, very well-respected Harvard economists. They are the authors of a very well-received account of the financial crisis and its antecedents. In 2010 they released a paper that is among the most influential economic papers of the modern era. The paper argued that countries with a debt-to-GDP ratio above 90 percent average negative GDP growth. (The paper also suggested that correlation is causation, in the direction neoliberal misers prefer.) In other words, this was, for many people, concrete proof — with numbers and a chart — that government debt is bad for the economy and should be reduced even in the midst of a recession and an employment crisis. The authors have briefed leaders and legislators around the world on their finding, and the paper has essentially been used to justify most debt hysteria around the world, since its publication.
But! Whoops, turns out they were wrong, about that one central fact that has been repeated as the gospel truth by purveyors of Tough Talk on debt the world over for the last three years. They screwed up their spreadsheet. Turns out average GDP growth in countries with debt-GDP ratios 90 percent and higher is positive, not negative.
The error was revealed in a new paper by Thomas Herndon, Michael Ash and Robert Pollin of the University of Massachusetts, Amherst, and written about by Mike Konczal. Those authors also noted a couple of counties had years of data excluded — data that would’ve undermined Reinhart and Rogoff’s argument — and criticized the way Reinhart and Rogoff weighted each country’s data in a way that privileges years of high debt and low growth over years of high debt and regular growth.
The reason we are just now getting critical second looks at Reinhart and Rogoff’s findings, when the paper in question came out in 2010, is that the economists just didn’t release their data. Here’s Dean Baker complaining about that fact in 2010. As he wrote: “Mr. Rogoff and Ms. Reinhart have declined to adhere to standard ethics within the economics profession and have refused to share the data on which they base their conclusion with other researchers.”
This is important — it should in fact be a Big Deal — because Reinhart and Rogoff have been the ultimate authorities in the appeals to authority from everyone advocating austerity in the U.S. and across the world for the last few years. Tim Fernholz excerpts Tom Coburn’s account of the address the two gave to 40 senators, and quotes officials and politicians from Europe and the U.S. and from both sides of the American party divide praising Reinhart and Rogoff’s study.
So, austerity’s canceled, right? Haha, no, sorry.
The problem is that debt moralists used the study to justify a political belief, and they will not shed that belief now that the study has been shown to be flawed. The idea that debt is just innately bad, and indicative of a sort of national deficiency of character, will persist. It’s not based on data, it’s based on facile analogies to kitchen table checkbook balancing and “common sense” about how it is always necessary to “live within your means.” We already have plenty of evidence that austerity doesn’t boost economies, and no one cares. No one will care about this.
It is sort of shocking, to me, that respected economists can release a widely cited paper without just putting their damn Excel spreadsheet online for people to check their work, but apparently the economics field operates at a lower level of scrutiny than elementary school arithmetic. Next time you hear someone on TV confidently state that “economists say” that high debt kills economic growth remind yourself that they’re chanting a mystical incantation, not referencing objective data.