In recent years, policy makers in Europe and the United States have fastened on the notion that reaching a certain heavy burden of debt would threaten future economic health — often to justify austerity budgets that increased unemployment and sapped economic strength in the here and now.But now some economists are challenging the very foundations of that idea, raising questions about whether such a debt threshold even exists and setting off a fierce debate that flared up on Tuesday across the Internet about whether potentially flawed research is at least partly responsible for the slow growth that has bedeviled most advanced industrial countries since the recovery from the financial crisis began in 2009. ...Economix,NYT
Congressional Republicans seized upon the 2010 report from two Harvard economists showing the relationship between debt and growth, a much-lauded report. But -- oops -- turns out economists Reinhart and Rogoff were wrong. Badly wrong, according to the UMass Amherst team.
They say they found some simple miscalculations or data exclusions that sharply altered the ultimate results. According to their rerunning of the figures, “the average real G.D.P. growth rate for countries carrying a public debt-to-G.D.P. ratio of over 90 percent is actually 2.2 percent, not –0.1 percent,” they write. In other words, heavy debts were not associated with the malaise that Professors Reinhart and Rogoff — and much of the world’s economic elite — thought that they were.
The new paper, released this week, has set off a storm within the economics profession, with some commentators even arguing that it undermines the austerity policies that have proved so prevalent in the last few years.
“How much unemployment was caused by Reinhart and Rogoff’s arithmetic mistake?” asked Dean Baker of the left-leaning Center for Economic and Policy Research, for instance. ...Economix,NYT
Paul Krugman, who has a good deal of respect for his Harvard colleagues, addresses the latest findings about their... well, about their math.
I was going to post something sort of kind of defending Reinhart-Rogoff in the wake of the new revelations — not their results, which I never believed, nor their failure to carefully test their results for robustness, but rather their motives. But their response to the new critique is really, really bad.
What Herndon et al did was find that the R-R results on the relationship between debt and growth were partly the result of a coding error, partly the result of some very odd choices about which data to exclude and how to weight the data that remained. The effect of fixing these lapses was to raise the estimated mean growth of highly indebted countries by more than 2 percentage points.
So how do R-R respond? ...Paul Krugman,Economics and Politics
Not well, according to Krugman. As he demonstrates,"they’re basically evading the critique. And that’s a terrible thing when so much is at stake."
And when so much damage was done when the House grabbed onto their faulty conclusions. We're talking jobs and lives. But Krugman is fair: "...This is embarrassing and worse for R[einhart]-R[Rogoff]. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear."