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Reinhart-Rogoff Paper Cited by Ryan Faulted for ‘Serious Errors’

A paper by Harvard University economists Carmen Reinhart and Kenneth Rogoff that has been cited by Republican lawmakers to justify eliminating the budget deficit contains “serious errors,” according to a study by a group of University of Massachusetts academics.

The Reinhart-Rogoff paper, “Growth in a Time of Debt,” argued that countries with public debt in excess of 90 percent of gross domestic product suffered measurably slower economic growth.

The new study -- by economists Thomas Herndon, Michael Ash and Robert Pollin -- says that the Harvard economists excluded some data and unconventionally weighted the statistics they included to reach their conclusions.

This led to “serious errors that inaccurately represent the relationship between public debt and growth,” Herndon, Ash and Pollin said in the paper published yesterday.

In an e-mail, Reinhart and Rogoff defended the conclusions of their 2010 paper and said that “on a cursory look” the new study also finds growth slowing in nations with excessive debt. “We literally just received this draft comment, and will review it in due course,” they said.

Ash said in a telephone interview that his paper does show “a modest diminishment of growth” in countries with big debts yet nothing like “the stagnation or decline” seen in the study by Reinhart and Rogoff.

Ryan’s Blueprint

House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, pointed to the work by Reinhart and Rogoff in his 2013 budget, “The Path to Prosperity: A Blueprint for American Renewal.”

“Essentially, the study confirmed that the massive debts of the kind the nation is on track to accumulate are associated with stagflation -- a toxic mix of economic stagnation and rising inflation,” the blueprint said.

Ryan’s 2014 budget, introduced earlier this year and subsequently passed by the Republican-controlled House, eliminates the budget deficit over the next decade.

The Senate has approved its own 2014 budget, and leaders on both sides have rejected the other chamber’s work.

Federal debt amounted to 104 percent of GDP in the fourth quarter of last year, according to calculations by the Federal Reserve Bank of St. Louis on its website. Debt held by the public, which excludes securities issued to the Social Security Trust Fund and other government entities, was equivalent to 73 percent of the economy.

Advanced Economies

The study by the economists from the University of Massachusetts at Amherst looks at a subset of countries considered by Reinhart and Rogoff in their paper -- 20 advanced economies from 1946 to 2009 -- and argues that group is most relevant to the current policy debate in the U.S. and Europe.

After adjusting for what they called the errors in the Reinhart-Rogoff paper, Herndon, Ash and Pollin found that countries with debt more than 90 percent of GDP grew an average 2.2 percent per year. Reinhart and Rogoff said countries in that group saw GDP shrink on average by 0.1 percent.

Herndon, Ash and Pollin attributed the different results to spreadsheet errors, “selective exclusion of available data” and unusual weightings of the statistics by the Harvard economists.

The findings by Reinhart and Rogoff “have served as an intellectual bulwark in support of austerity policies,” the University of Massachusetts academics said. The fact that their results “are wrong should therefore lead us to reassess the austerity agenda.”

To contact the reporters on this story: Rich Miller in Washington at rmiller28@bloomberg.net Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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