How about, just for grin and giggles, we talk some macro-economics?

So in 2010, Carmen Reinhart and Kenneth Rogoff, Harvard economics professors (they’re both at Harvard now; she was at Maryland when she wrote the paper), published a major study. “Growth in a Time of Debt,” about the relationship between debt and economic growth.  To summarize; they argued that whenever a nation’s debt rises above 90% of GDP, it slows economic growth–destroys it, in fact.  This paper proved very influential–was cited all over the place, especially by politicians suggesting that our number economic priority had to be deficit reduction.  Reinhart/Rogoff was laid the the intellectual foundation for European austerity measures.  David Cameron cited it, in Britain.  Paul Ryan did so as well back here in the US of A.  It was a Very Big Deal.

Most other macro-economists disagreed with it, and are on record opposing both the paper and the policies it spawned.  Paul Krugman was prominent among them.  But it took a grad student to completely blow Reinhart/Rogoff out of the water.

Guy named Thomas Herndon.  A grad student at the University of Massachusetts, Herndon was taking a class in Applied Econometrics.  For his term paper, he suggested replicating Reinhart and Rogoff’s findings. This story describes what happened: his profs almost didn’t approve it.  It was too simple, they said.  Just basic math.  For a graduate level class, they suggested he do something more challenging.  But he kept pushing, and they finally let him do it.

And Herndon discovered that Reinhart and Rogoff’s entire thesis depended on a spreadsheet error. That they’d made a simple mistake, probably because they didn’t know how to use Excel.  That economic growth, according to their own statistics, for countries with debt exceeding 90% of GDP, wasn’t negative .1 percent.  It was 2.2 percent, positive.  That they had basically gotten all the math wrong. Because they didn’t know how to use the most popular and user-friendly spreadsheet program in existence. Why had no one caught it before?  Because the initial publication of the most influential paper in macro-economics in my lifetime had not been peer-reviewed.  That the first peer to review it was this kid.  A grad student.

Nightmare.  Some kid caught you.  You’re a university professor, tenured and respected, and you’ve published a lot, many articles, and you write something really significant, something people pay lots of attention to.  And some whippersnapper comes up to you and says, “uh, prof?  Seriously, you can’t use Excel?  Wow. Here, let me show you.  You made this simple math error.  It invalidates your entire argument.”  Marketplace of ideas, indeed.

True story: many years ago, I was a grad student, and I had a paper accepted at an academic conference.  I went, and my dissertation advisor invited me out to dinner with some of his friends.  It was me, another grad student, and five of the most distinguished theatre historians in the world.  Completely terrifying.  We went to this incredibly nice restaurant in New Orleans–I couldn’t have afforded anything on the menu, but the profs kindly offered to get the check–and it immediately became clear that the two grad students were on trial. They were grilling us: I was holding my own.  But I had just gotten the seventh edition (may have been the sixth), of Oscar Brockett’s History of the Theatre.  And there he was, in the flesh, Brock himself, the great Oscar Brockett, right there at the table.  And I’d read the book that night, preparing for the dinner, and caught a mistake.  Not a little mistake either–he’d gotten Shakespeare’s birth year wrong.  I mentioned this, and the look on Brockett’s face was priceless.  As was the ribbing he got from his colleagues at the table.

Could have been worse. He could have had Stephen Colbert making fun of him/them. But it is great for the grad student who catches the big boys.  If you catch a big enough prof in a big enough error, Stephen Colbert will put you on his show.

The Colbert clip with Herndon is great, mostly because Stephen Colbert has so much fun with it.  But I loved this fact: Herndon wondered, initially, if he could have possibly gotten things wrong.  So he had his results peer-reviewed.  He showed ’em to his girlfriend.

It’s certainly possible to feel a bit bad for Reinhart and Rogoff.  But I’ve gotten to feeling a lot less sorry for them since Herndon’s paper was published. Their reaction has been wholly defensive, insisting that their basic conclusions were basically right even when the evidence supporting those conclusions has gone pooft.  Oh, and they admitted that they deliberately left out counter-examples.  Australia, New Zealand and Canada had inconveniently robust growth despite massive debt; R/R excluded them from their data.

The fact is, these two became policy wonk celebs, testifying before the House Budget Committee and the British Parliament and the EU General Council.  Anytime anyone talked about austerity, it was Reinhart/Rogoff they cited, unless they decided to put the guy’s name first, and call it Rogoff/Reinhart.  Now they look like bozos.  Caught by a kid.  (Who now replaces them as policy wonk celeb du jour.  By, among other things, going on Colbert.)

The thing was, as Keynes pointed out in his General Theory, austerity is always going to be puritanically attractive.  When an economy stalls, it’s tempting to see that failure in moral terms.  Our spending was too extravagant, too luxurious; our debt suggests profligacy and imprudence.  We need to cut back.  We need to punish ourselves, tighten our belts.  Look at government, wicked, evil government!  I wouldn’t run my family finances that way!  When I want to buy a new car, by gum, I save up for it!  We’re on a national (look at the moral implications of this language) spending spree.  And we need to stop.

Except none of that’s true.  Everywhere I look, I see a federal government where basic functions are endangered because they’re underfunded.  Say that to people, and they’ll go on a tirade about wasteful government spending.  And sure, there probably is some.  But mostly what needs to happen right now is more spending, stimulative spending. We’re in a Keynes moment, and Keyne’s basic IS/LM model has actually performed superbly in this crisis. R and R published a paper that was deeply and obviously flawed, and they got away with it for three years because it said something policy makers wanted to hear.

So the whole thing would be pretty funny, if it weren’t also serious.  People are suffering out there.  Unemployment is too high and underemployment rampant.  Europe is really struggling.  Austerity has been tried and tested and found wanting.  We know what works and we know what doesn’t work.  Peer review, turns out, works good.  Austerity, not so much.



5 thoughts on “Reinhart/Rogoff.

  1. juliathepoet

    What is saddest to me is how many people who were already poor, throughout Greece and other “austerity ” economies, are truly suffering because of the mistakes made in this “study.” That it took three years to even “fact check” the data, and that they *knowingly left out data* what would have not only disproved their theory, but show how dangerous it can be to an economy.

    I watched a PBS special on Greece, while the austerity votes were being taken, and they were talking about how many medical clinics would close, and that without those clinics, there would be no way for those patients to access other medical services there. (No ER system as a back-up from what the announce said.)

    When they interviewed people who were protesting against austerity and lay offs, one of the protestors said that she was not worried about her job, but that her students and their families were going to lose access to food, medical care, and that her grandmother was also going to lose access to them because of the pension cuts.

    It then cut to a lawmaker explaining the Reinhart/Rogoff data that said austerity was the only way to be responsible and get out of a recession. In questioning that lawmaker, he admitted that people would die, especially petitioners, that more people, (especially young kids) would get sick.

    I use Greece because it is the darling of the austerity group. It is the one that could not be fixed in any other way because they “gave away everything,” and generous social programs could never be compatible with recovery. From looking in to the Canadian, Australian and New Zealand numbers, I don’t see how they could sleep at night even without knowing that they made a math error.

    With the data from those countries were added in, even Greece was not inevitable. Austerity measures made Greece’s economy worse, and the beliefs pushed by the R/R data meant the rest of the world’s bankers pushed Greece into austerity much sooner and deeper than needed. I see the faces of those who lost access to services in Greece, haunting me as I read more about this story. That Reinhart and Rogoff don’t seem to be haunted about the impact their flawed research has had on hundreds of millions of people, that just floors me. It seems that anyone who made an honest mistake, would not still be defending a conclusion that is obviously just plain wrong.

    (I get sick to my stomach hearing people say they knew about the “slight issues” with the study, but “believed in the principles.”)

  2. A. T. Wilson

    Happy Mayday Eric.

    It’s sort of spooky that what around the world is celebrated as International Labor Day, commemorating the Haymarket Martyrs, does not even get a mention in the country where the Haymarket Martyrs were executed.

    Anyway, my favorite living economist is the Norwegian Erik Reinert—his specialties are developmental economics and economic history. I think you’ll find his stuff interesting—he can show you exactly where the neoclassical economists buried the bodies.

    1. admin Post author

      Happy Mayday! I’ve heard of Erik Reinart, but hadn’t read him ’til I got your post. He’s awesome! Thanks for the heads-up.


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