Is Austerity a Mistake?

A new paper from researchers at the University of Massachusetts, Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo ff, has set the wonk world ablaze by debunking a 2010 study from Carmen Reinhart and Kenneth Rogoff, Growth In a Time of Debt. Reinhart and Rogoff claimed to have found a “main result is that…median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.” According to Michael Konczal,

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan’s Path to Prosperity budget states their study “found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth.” The Washington Post editorial board takes it as an economic consensus view, stating that “debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.”

However, when their results were replicated by Thomas Herndon, Michael Ash and Robert Pollin, they discovered a trifecta of mistakes and biases that essentially invalidated the study – whimsical weighting of national economies, selective exclusion of data that didn’t support their premise, and a coding error on the original Excel spreadsheet that failed to include five countries in the overall average.

ESCANDALO! Liberal economists who had expressed serious misgivings about the study since it was released quickly jumped into the fray, from Matt Yglesias’s thorough series of critiques to Paul Krugman’s history lesson on the tumultuous love affair that number-crunchers must have with their harsh mistress, Excel. However, as exciting as it is to watch guys in glasses argue over coding and spreadsheet columns, Jonathan Chait reminds us that the Rogoff and Reinhart paper was A) the starting point for the Bowles-Simpson Commission and B) the intellectual justification for a massive, devastating rise in unemployment here, and in Europe.

However, if any politician who used the flawed Rogoff and Reinhart study as a justification for embracing austerity measures changes their position now that it has been proven to be junk science, I will mail $5.00 to your home tomorrow.*

*First come, first serve until I run out of $5 bills. So, basically one person.