The ripple felt through the economics community continues from the now infamous study by Carmen Reinhart and Ken Rogoff, ?Growth in a Time of Debt?. After fluent scrutiny over confirmation that their study was riddled with errors, Reinhart and Rogoff still claim that even after calculating and adjusting for these errors, their thesis is still proven true. Although the two economists try to avoid being viewed as political, conservative politicians have claimed that Reinhart and Rogoff’s study has influenced their views on economic policies in pursuit of austerity based on their hypothesis that when countries see debt-to-GDP going above 90%, growth slows dramatically.
Economists have always been skeptical of the correlation/causality on this study. University of Massachusetts-Amherst grad student, Thomas Herndon, recently found numerous errors in the research including data omissions that counter the intended results of the study and simple Excel spreadsheet mistakes. Reinhart and Rogoff used a faulty dataset to exacerbate the growth drop off for countries with debt-to-GDP higher than 90%.
Reinhart and Rogoff have distanced themselves from the austerity that their research encouraged. In their efforts they have claimed to have never advocated austerity. In a New York Times Times op-ed, Reinhart and Rogoff argue that ?austerity is not the only answer” to the problem of debt and growth. They advocate that a mix of austerity, repression, and inflation is ideal for economic relief and recovery.
A snippet from the op-ed reads, ?Borrowing to finance productive infrastructure raises long-run potential growth, ultimately pulling debt ratios lower. We have argued this consistently since the outset of the crisis.?
As their paper was used as a political tool by conservatives to advocate for austerity, Reinhart and Rogoff remained restrained from suggesting that their research was being misconstrued to campaign for an ideal which they did not consider accurate or warranted. But in a new response, Reinhart and Rogoff admit they did make an Excel blunder, and they admitted that the consequences of their errors erroneously affected the economic policies that ensued.
Reinhart and Rogoff still contend that growth is slower as debt gets higher, and that median, rather than mean, growth rates are consistent with their original projections, even with the Excel change.
You can read the full text of their response at ?Business Insider.
Edited by CB