Unbelievable. Excel Sheet Error (Among Other Omissions) Is a Driving Force Behind Austerity Economics
In real sciences, when a researcher claims to have made a major discovery, the researcher has to make the data he or she used public and other scientists immediately test it to see if it can be replicated. The results aren't accepted as valid, let alone acted on or relied on, in fields where people could get hurt—like medicine or engineering—until they are tested. And if you withhold the data from your colleagues, you are not a scientist, you are a quack. And then there is economics.
Since 2010, one of the justifications for austerity policies that have destroyed jobs and lives, undermined democracy here and around the world and and let our infrastructure continue to crumble was a study by economists Carmen Reinhart and Kenneth Rogoff, Growth in a Time of Debt . Their thesis? Average economic growth rates collapse catastrophically when public debt exceeds 90% of GDP.
Editorial boards, Rep. Paul Ryan (R-Wis.), economic reporters and other " Very Serious People " clung to this 90% stat while justifying cutting Social Security, Medicare and Medicaid benefits, the job-killing sequester and other unnecessary budget cuts that hurt working families. Yesterday, however, it came to my attention an Excel coding error , debatable methods and exclusions in Reinhart and Rogoff's research just might make that 90% stat moot.
Thanks to Mike Konczal , who publicized a new paper, Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff , by Thomas Herndon, Michael Ash and Robert Pollin of the University of Massachusetts, Amherst, members of the economic community who have been frustrated by their inability to replicate Reinhart and Rogoff's results now know why.
Konczal writes:
They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result.
The economist Dean Baker of the Center for Economic and Policy Research (CEPR), the man whose record of seeing the emperor without his clothes includes spotting the housing bubble years before Very Serious People did, notes that it isn't fair to just pick on Reinhart and Rogoff for promoting austerity policies:
In fairness, there has been other research that makes similar claims, including more recent work by Reinhart and Rogoff [R&R]. But it was the initial R&R papers that created the framework for most of the subsequent policy debate. And [Herndon, Ash and Pollin have] shown that the key finding that debt slows growth was driven overwhelmingly by the exclusion of four years of data from New Zealand.
The big question here is— how could so many Very Serious People make decisions with truly serious and destructive consequences based on such poor data, in the face of decades of contrary economic policy experience stretching back nearly 100 years. How could we have justified economic policymaking in the United States on excluded data from one moment in the economic history of New Zealand? Perhaps the answer has something to do with the power not of bad ideas, but of entrenched financial interests.
It’s a simple matter for Reinhart and Rogoff to correct their mistakes, but unfortunately it will not be so easy to undo the damage they have done by convincing governments around the world to pursue austerity budget policies that have kept unemployment unnecessarily high and permanently lowered the living standards of millions of people.
You can read more about Herndon, Ash and Pollin's findings on the Next New Deal blog and on the CEPR blog .
