It’s been two weeks since economists at the University of Massachusetts Amherst said they had discovered “serious errors” in one of the studies most often cited by conservative deficit hawks and austerity advocates. But while that study has taken a serious hit to its reputation, the call for spending cuts has not abated.
The 2010 Reinhart-Rogoff report, named after its authors Carmen Reinhart and Kenneth Rogoff, found that countries with large debt burdens tend to have slower economic growth—and that a nation’s economy tends to shrink when its debt burden exceeds 90% of GDP. But according to researchers at UM-Amherst’s Political Economy Research Institute, Reinhart and Rogoff’s findings were marred by problems from “selective exclusion of available data” to an Excel spreadsheet error.
While that might sound like academic inside baseball, the ensuing fracas has received a great deal of mainstream press coverage, in part because prominent political figures have so often cited Reinhart and Rogoff’s findings as proof of the need to cut spending and shrink America’s debt. The report was even influential internationally, and has been cited by European Commissioner Olli Rehn as justification for the European Union’s austerity policies.
But while media figures and politicians treated the Reinhart-Rogoff report like a centerpiece of the empirical case for austerity, its fall from grace is unlikely to have a major effect on the politics of fiscal consolidation.
“It hasn’t changed a lot,” Salim Furth, an economist at the conservative Heritage Foundation, told msnbc.com. “The people using language like ‘debunked’ are people who already didn’t believe Reinhart-Rogoff to begin with.”
Meanwhile, proponents of deficit reduction, spending cuts, and entitlement reform have continued to make their case by marshaling other studies and arguments. As recently as this Sunday, the Washington Post published an op-ed from Fix the Debt’s Erskine Bowles and Alan Simpson, promoting yet another of the duo’s proposed deficit reduction plans.
“Nothing has been done to make our entitlement programs sustainable for future generations, make our tax code more globally competitive and pro-growth, or put our debt on a downward path,” write Simpson and Bowles.
‘IT HASN’T CHANGED A LOT’
Similarly, less than a week after the release of the UMass Amherst paper, the Washington Post’s editorial board reiterated its support for an “aggressive response” to the country’s “long-term fiscal predicament” and insisted that its “reliance on the Reinhart-Rogoff hypothesis to justify ‘austerity’ ” had been “rather overstated in some quarters.”
In Europe, some of the enthusiasm for austerity may have dimmed, but that possible shift in elite sentiment has yet to bear fruit, and seems to have little to do with the stateside Reinhart-Rogoff debate. On Sunday, the Greek parliament approved the latest of its austerity reforms, opening the door to mass public sector layoffs.
Furth continues to support cutting government spending in the United States. Europe’s economic woes, he said, have more to do with tax hikes than spending cuts.
“Given the state of capital markets and the political conversation in the United States, the way that debt would be hurting growth right now…is by making people fear future taxes,” he said. Cutting spending and reforming entitlements, he argued, would give people “the rational belief that taxes are going to stay where the are.”
In other words, the damage done to Reinhart-Rogoff’s public image has left conservative proponents of shrinking government spending unfazed. That’s because Reinhart and Rogoff are far from the only economists to claim that a nation’s debt-to-GDP ratio is connected to its rate of economic growth. Even the UMass Amherst study showed that correlation; it just suggested that the correlation was weaker than Reinhart and Rogoff claimed, and that the 90% debt-to-GDP “tipping point” was an illusion.
That tipping point “was always a stretch, and is now quite clearly inconsistent with the balance of evidence,” wrote economists Betsey Stevenson and Justin Wolfers on Sunday. “Unfortunately, it’s the sort of sound bite that the media and our politicians sound irresistible.”
More tendentious is the claim that high debt causes slow growth instead of just being correlated with it. While this is a central rationale for cutting spending, there is no firm consensus regarding whether it is true. Even Furth, while citing other studies which seek to establish the causal link exists, cautioned, “there’s almost no kind of empirical finding in this kind of macroeconomics that couldn’t one day be overturned.”