The big news around the economics campfire is that new research from University of Massachusetts-Amherst found that the influential paper Growth in a Time of Debt by Carmen Reinhart and Ken Rogoff, which found that high public debt inhibits economic growth, contains glaring errors such as mistakes in their excel coding, selective use of data, and questionable weighting. As Chris Cook of the Financial Times wrote, Reinhart and Rogoff have “had a bad day.” Sort of like that time when you accidentally put salt in your coffee instead of sugar.
Except that it’s not like that time at all, because as soon you tasted the salty coffee, you poured it out, rinsed the mug, and started over. No Big Deal. In Reinhart and Rogoff’s case, their mistake has lead to policy recommendations and austerity measures that have affected millions of people. As Dean Baker writes on the Center for Economic Policy Research, Beat The Press:
“This is a big deal because politicians around the world have used this finding from [Reinhart and Rogiff] R&R to justify austerity measures that have slowed growth and raised unemployment. In the United States many politicians have pointed to R&R’s work as justification for deficit reduction even though the economy is far below full employment by any reasonable measure. In Europe, R&R’s work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10 percent for the euro zone as a whole and above 20 percent in Greece and Spain. In other words, this is a mistake that has had enormous consequences.” Reinhart and Rogoff have responded, and stand by their claim that high debt-to-GDP ratios slow economic growth.
I’d like to give a big congratulations to the economists at the Political Economy Research Institute: Thomas Herndon, Professor Michael Ash, and Professor Robert Pollin, (who I must add received his PhD at the New School for Social Research). At Lady Economist, we believe that the world needs more economists who are willing to hunt down the data necessary to test these claims that have devastating impacts on the global economy, communities, families, and individuals. We can only hope that this controversy raises the profile of the good work being done at heterodox institutions.