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.
." Email him at apareene@salon.com and follow him on Twitter @pareene
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