The point and counterpoint of academic debate that once occurred over months or years has been compressed to mere hours by social media. Today the Twitterverse exploded with chatter about a new research paper claiming to find holes in a landmark academic paper that’s been cited to justify extreme austerity measures. By mid-afternoon the authors—Harvard economists Carmen Reinhart and Kenneth Rogoff—had e-mailed reporters a quick reply defending their work.
This isn’t over yet. Reinhart and Rogoff will have to give a more substantial reply, and the authors of the critique will undoubtedly reply to the reply.
“Growth in a Time of Debt” (2010) by Reinhart and Rogoff argues that countries’ economic growth slows when government debt levels rise, with a noticeable breaking point at debt equal to or exceeding 90 percent of gross domestic product. It’s been cited repeatedly in the U.S. and elsewhere to justify budget cuts by policymakers and legislators, House Budget Committee Chairman Paul Ryan among them.
So economics journalists went bonkers after Mike Konczal of the Roosevelt Institute in New York reported on a new critique (PDF) by three economists from the University of Massachusetts at Amherst—Thomas Herndon, Michael Ash, and Robert Pollin. What makes the UMass study credible is that Reinhart and Rogoff gave the authors the original data, allowing them to try to replicate the results.
Herndon, Ash, and Pollin said they found three important errors in what they described as a working paper. First, they said, Reinhart-Rogoff inexplicably left out several cases in which countries had high debt and yet solid growth: Australia, New Zealand, and Canada in the years right after World War II. Second, Reinhart-Rogoff summed up their data in an unconventional way that pulled down their calculation for average growth in periods of high debt. And third, according to the UMass authors, there was a simple spreadsheet error that excluded five countries from the analysis.
Liberal economists gloated. Princeton University economist and New York Times columnist Paul Krugman headlined his blog post, “Holy Coding Error, Batman.”
Reinhart and Rogoff had to respond, and they did. “Apologies, we have been deluged,” Reinhart and Rogoff wrote to me in an e-mail shortly before 4 p.m. today. They attached a response that said, “We literally just received this draft comment, and will review it in due course.” They said that “on a cursory look” it seemed to them that the UMass authors also found lower growth when debt levels were higher. They referred journalists to a 2012 paper they wrote for the Journal of Economic Perspectives that they said “largely anticipates and addresses” any concerns about how they summed up their numbers—the second point of the UMass critique. They said their academic writings never asserted that high debt caused slow growth, only that there was a correlation between the two. And they noted that other researchers using different methods have come up with broadly similar conclusions in papers for the Bank for International Settlements, the International Monetary Fund, and the Organisation for Economic Co-operation and Development.
“The weight of the evidence to date—including this latest comment—seems entirely consistent with our original interpretation of the data in our 2010 AER paper,” Reinhart and Rogoff concluded.
I spoke to Josh Bivens, an economist with the Economic Policy Institute in Washington who co-wrote one of the first critiques of the Reinhart-Rogoff paper in 2010. He said he wasn’t surprised by the UMass result: “There’s never a sound theoretical reason why there should be a threshold” at which debt suddenly becomes a serious problem—90 percent in the Reinhart-Rogoff paper.
Bivens also said it’s quite possible that rather than debt causing slow growth, in many cases it’s the other way around: Countries that are growing slowly tend to rack up lots of government debt. He said Reinhart and Rogoff in some of their nonacademic writings have ignored that possibility and asserted—without justification—that high debt does indeed harm growth.
This isn’t an obscure academic debate. As Krugman points out, the Reinhart-Rogoff research is one of the two main threads in the pro-austerity argument, the other being Harvard’s Alberto Alesina on the macroeconomic effects of austerity. With so much at stake, the argument that caught fire in one afternoon is likely to keep burning for months.