Kenneth S. Rogoff. Photo Credit: International Monetary Fund via Wikimedia Commons
What is so dismal about the science of economics is how easily it can be distorted in the process of being pressed in to a political cause. Exhibit one: the fracas that has flared up in the past couple of days among economists over a paper published in 2010 by Harvard economists Carmen Reinhart and Kenneth Rogoff.
“Growth in a Time of Debt” concluded that a developed country’s growth rate slows measurably once its public debt exceeds 90% of GDP (the tipping point for emerging economies is 60%). That conclusion has been taken up by politicians from E.U. Economic and Monetary Affairs Commissioner Olli Rehn to former Republican U.S. Vice-Presidential candidate Paul Ryan as an intellectual support for austerity policies (in Europe) or fiscal consolidation (in the euphemistic U.S.).
A new critique of Reinhart and Rogoff by Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst says the Harvard pair got it wrong: they were selective with their data, made some uncommon assumptions in their statistical analysis and screwed up an Excel spreadsheet formula in their calculations. The Roosevelt Institute’s Mike Konczal breaks down the details. Business Insider’s Rob Wile has Reinhart and Rogoff’s rebuttal. Marginal Revolution’s Tyler Cowen has some thoughts, including some cheeky ones on reading economic papers.
In short, the controversy boils down to: there are questions of substance surrounding the methodology of the original study, but they are questions of legitimate academic debate, not sharp academic practice; the spreadsheet error, though an error and now acknowledged as such by Reinhart and Rogoff, was not material to the outcome. The statistical assumptions were more critical (knowing how the macroeconomic sausage is made always matters, regardless, as Justin Fox of the Harvard Business Review notes, of how unappetizing that process may be.)
The broad thrust of Reinhart and Rogoff’s conclusion — that countries with high debt tend to have low growth — remains intact. The direction of the causality and the 90% tipping point look less solid. However, the intellectual underpinning of austerity measures has not, as some of their critics have rushed to assert, been pulled from under them.
That has little to do with how flawed “Growth in a Time of Debt” is or is not, and more to do with the fact that while it was oft-cited by politicians, it was never as influential on policymakers as it is suddenly being held up to have been. In calling Reinhart and Rogoff’s findings “an intellectual bulwark in support of austerity politics,” Herndon, Ash, and Pollin are over-egging the pudding.
The study in question is far from the only one making the high debt/low growth case. Nor is this the first time “Growth in a Time of Debt” has been critiqued. Nor have its authors themselves been particularly ardent advocates of austerity politics, however much their study has been deployed in that cause. But once their work had slipped through the wonkish membrane that separates academic research from political debate, there was a grim inevitability to its fate — especially as those making the arguments for austerity politics didn’t care to look at how the macroeconomic sausage was made in the first place.
Update: Reinhart and Rogoff published a formal errata on May 5, 2024 making calculation corrections but leaving their basic conclusion unchanged.
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