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Please begin with an informative title:

The figure above illustrates how a Microsoft Excel coding error and other methodological fails led Harvard economists Reinhart (former Bear Stearns vice president) and Rogoff to grossly mis-state the effects of higher debt/gdp levels causing low growth in a seminal paper by the two. The very study which has led the GOP to claim there's empirical proofthat high debt kills jobs and growth, has been exposed as a poorly-run analysis with mis-coded data. Recall, the Romney camp was trumpeting the R&R study so much that the researchers had to come out and chastise them for politicizing their work and even mis-stating it! Oh how the mighty have fallen.
This is huge...absolutely humongous news. As Joe Biden would say, this is a BFD. Michael Konczal of the Roosevelt Institute has come out with a nice lay-person review of University of Massachussettes professors Herndon Ash and Pollen's recently published paper which has quite significantly debunked the Reinhart-Rogoff 2010 study that claimed that if a country builds up above 90% Debt/GDP, that it causes the economy to contract rapidly. It found that the growth was under-stated by R-R by over two percentage points.

The causative claim made by R-R had been disputed back in 2010 by Progressive economists like Dean Baker, Paul Krugman, and the aforementioned Mike Konczal well before his new review came out.  It never sat right with many economists that there was a causative relationship between having higher debt that caused low growth. Instead, it made more sense that when an economy faces a financial crisis, we have to pile on some debt temporarily to spend out way out of the hole. But the problem was that Reinhart and Rogoff didn't make their data public for a full two years after they had released the study, which made it impossible to verify any of their work.

They finally gave in months ago, and the data was given to Herndon et al, and Konczal was able to get it analyzed and publish the review which "broke" this story and confirmed what many of us had suspected ever since R&R came out with their study -- not only is their conclusion of a sharp drop in growth after a 90% debt/gdp level being reached wrong, but they have not proven any causative link at all, even with the revised figures!

For some background: the gist of this story is that two Harvard academics, Carmen Reinhart and Kenneth Rogoff, wrote what has become the seminal paper justifying austerity policies. The reason it gained prominence is that they analyzed the Debt/GDP ratio of numerous countries and determined, as Krugman points out here with extreme skepticism (he has doubted the study's results from day one), that at the 90% level countries experience a sharp drop in growth and a debt crisis. This immediately led American policymakers to use the study as a reference to say the debt is causing unemployment and low growth.

Also, European policymakers who were already inclined to cut spending to get their way, became further emboldened to continue disastrous austerity against the people in the name of adjusting their debt/gdp level to foster growth, all while insisting their policies had academic approval thanks to the Harvard duo.

It took years for the Troika (ECB, IMF, EC) to finally admit that they underestimated the contractionary effects of austerity.

So, back to the present, we have this UMass study that highlights numerous issues with the Reinhart & Rogoff study, including, shockingly, the revelation that there was an Excel coding error in their data! Other than the coding error, Justin Fox at Harvard Business Review describes the extent to which methodological shadiness such as unusual weighting of country-data as well as selective exclusions of periods for certain countries skewed the results in favor of the narrative Reinhart and Rogoff were pushing (that debt/gdp above 90% causes a marked slowdown growth). Imagine that, the study that gives right-wingers in Europe and the US academic and intellectual cover to justify wildly anti-social policies, has essentially been DEBUNKED!

This story has blown up in academic circles and even the mainstream. R&R have responded to the critique in an incredibly dishonest way ("yea so we got the data wrong but our conclusion is still right" -- wtf?). Dean Baker destroyed their pathetic response in his own analysis.  Krugman is similarly showing very little sympathy for them.

But I wanted to highlight a few quotes and a "wall of shame" of Republicans and pro-austerity sadists who have been citing Reinhart and Rogoff to justify anti-social policies in the United States:

1. Paul Ryan (REPUBLICAN)

“Economists who have studied sovereign debt tell us that letting total debt rise above 90 percent of GDP creates a drag on economic growth and intensifies the risk of a debt-fueled economic crisis.”

— House Budget Committee Chairman and former Republican vice-presidential candidate Paul Ryan.

2. Timothy Geithner (technically DEMOCRAT -- but honorary neo-liberal corporatist Republican in practice)

“It’s an excellent study, although in some ways what you’ve summarized understates the risks.”

— Former US Treasury Secretary Tim Geithner

3. Doug Holtz-Eakin (REPUBLICAN)

“The debt hurts the economy already. The canonical work of Carmen Reinhart and Kenneth Rogoff and its successors carry a clear message: countries that have gross government debt in excess of 90% of Gross Domestic Product (GDP) are in the debt danger zone. Entering the zone means slower economic growth.”

— Doug Holtz-Eakin, Chairman of the American Action Forum.

4. Pete Peterson et al (REPUBLICAN)

And finally, the man behind the major push for austerity in the US behind his front organizations Fix The Debt, and support of Committee for a Responsible Federal Budget and the Pete Peterson Institute:

But you know [Kenneth] Rogoff and [Carmen] Reinhart—I’ve talked to them, and they say [debt crises] are sudden, they’re sharp, they’re very substantial. The risk is simply too big. At some point, if we lurch form crisis to crisis, then confidence will decline on our economy in general.

--- Pete Peterson, Billionaire Sadist

For more on just how influential Pete Peterson has been in trying to bring disastrous European austerity to the United States, check out SourceWatch's wiki on him. It's hard to find a single debt-fear-mongering Republican who hasn't cited and praised Reinhart and Rogoff and Pete Peterson as the Gospel to promote austerity.

So there you have it, a nice little Wall of Shame for the Republicans and neoliberals in the US that have been using Reinhart and Rogoff's debunked study for years to promote austerity and "THE DEBT IS GOING TO KILL OUR CHILDRENZ" and "OMG DEBT IS KILLING JOBS". What are the chances that Republicans will change their tone and come around to the need for a stimulus? As Jared Bernstein writes:

Let’s see what happens next, which could, as Matt Yglesias suggests, be nothing.  It’s not like facts are driving this debate.
A little addendum: AEI and Heritage are two right-wing think-tanks that have used Reinhart and Rogoff's study ad nauseum to support all kinds of anti-debt, anti-stimulus policies.  For example, Vincent Reinhart, who is Carmen Reinhart's husband, is a "fellow" at AEI. And as mentioned earlier, Carmen Reinhart is a former chief and vice president of Bear Stearns. And Rogoff has been openly defended and cited at Heritage and had quite a controversial ride as chief at the IMF.

And of course, AEI and Heritage are corporate funded. I'm not suggesting a conspiracy theory, but it's worth noting these connections between the researchers behind the "canonical study" that justified Austerity and spending cuts and debt-fear-mongering and right-wing think-tanks and corporations.


You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

6:56 AM PT: The "AP" part of the HAP trio from UMass Amherst has penned an op-ed in the FT, skewering Austerity and putting R&R to shame:


It's a must-read -- the case for Austerity is dead, it's time for us to get serious about passing stimulus. We have the support of top academics (not just Krugman, but Summers now HAP and others...) and years of data from Europe that confirm austerity is counterproductive, especially while we have an output gap and a bad labor market.

Extended (Optional)

Originally posted to AusteritySucks on Tue Apr 16, 2013 at 11:36 PM PDT.

Also republished by Money and Public Purpose and Pushing back at the Grand Bargain.

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