Economists at the University of Massachusetts Amherst are calling one of the most influential examples of the empirical research behind the push for austerity as a way to bring down the debt into question. On Monday, UM-Amherst’s Political Economy Research Institute came out a report finding “serious errors” in a study cited by both Republicans and Democrats alike to justify aggressive debt-reduction programs.
The 2010 report [PDF] cited by pro-austerity legislators like Paul Ryan, nicknamed the Reinhart-Rogoff report after its authors Carmen Reinhart and Kenneth Rogoff, allegedly finds that a nation’s economy tends to shrink once its debt burden exceeds 90% of its GDP. As of late 2012, the United States’ national debt was over 100% of its GDP.
However, when UM-Amherst’s Thomas Herndon, Michael Ash and Robert Pollin attempted to replicate Reinhart and Rogoff’s findings, they say they found “coding errors, selective exclusion of available data, and unconventional weighting of summary statistics,” all leading to “serious errors.”
If Herndon, Ash and Pollin are correct, then the empirical case for privileging short-term debt reduction over economic stimulus may be far weaker than Washington policymakers have suggested. The overwhelming consensus in Washington holds that America’s national debt is a problem which must be addressed immediately. President Obama and congressional Republicans appear to disagree regarding the correct path to that goal—but not regarding its urgency.Reinhart-Rogoff has been heavily cited by everyone from Ryan, to North Dakota’s former Democratic Sen. Kent Conrad as evidence of the urgency of debt reduction.
“Ryan, conservative activists, deficit hawks, the Washington Post editorial board, and the DC establishment waved around the Reinhardt/Rogoff study as definitive proof that debt reduction can’t wait,” wrote MaddowBlog’s Steve Benen on Tuesday.
The errors allegedly found in the Reinhart-Rogoff study, summarized here by the Roosevelt Institute’s Mike Konczal, including an Excel spreadsheet error which yielded faulty calculations. But while the accusation of a coding error is getting the most press attention, writes Koncal, the selective exclusion of evidence from post-World War II Australia, New Zealand and Canada is “particularly troublesome, as that is driving the negative results.”
In a response to their critics, Reinhart and Rogoff insisted they are “very careful in all our papers to speak of ‘association’ and not ‘causality,’” and note that “Herndon Ash and Pollen also find lower growth when debt is over 90%.”
“This genuinely ought to settle the debate,” replied Slate’s Matthew Yglesias. “Nothing Reinhart and Rogoff present, under any interpretation or any methodology offers any reason to believe that a high debt:GDP ratio causes slow growth.”
Others have been even more heated in their repudiation of Reinhart and Rogoff. Dean Baker’s column on the subject for the Guardian poses the question, “How much unemployment did Reinhart and Rogoff’s arithmetic mistakes cause?” in its headline.
But while the Reinhart-Rogoff paper provided some empirical grounding for the pro-austerity cause, it is unlikely that it changed the course of history.
Some of the biggest proponents of austerity have significant political and financial incentives to do so—however, the fact remains Reinhart-Rogoff was a crucial prop in making the case for immediate debt reduction to the press and the public.