Economists from the University of Massachusetts appear to have debunked a Harvard paper that right-wing politicians have used to push economic austerity policies. The challengers explain where the Harvard economists went wrong in an interview with The Real News Network.
In 2010, Carmen Reinhart and Kenneth Rogoff claimed to show that economic growth stops and sometimes reverses when public debt reaches a level equal to about 90 percent of GDP. Their paper profoundly shaped public policy. The authors appeared before the Senate Budget Committee and the study was a centerpiece in Congressman Paul Ryan’s “Path to Prosperity” budget plan for 2013.
Massachusetts professors Thomas Herndon, Michael Ash and Robert Pollin criticized Reinhart and Rogoff’s findings in a study of their own. In an attempt to duplicate R&R’s results, they discovered what Reinhart and Rogoff are calling a coding error that omitted several countries from an Excel spreadsheet of historical data used in the calculations. Another found the Harvard calculations selectively excluded data that would have produced different results had they been included. The correct results, calculated by the Massachusetts team, canceled out Reinhart and Rogoff’s conclusion.
What the Massachusetts professors determined was that growth was only modestly diminished when countries approached the 90 percent public debt-to-GDP ratio, and that debt is just one of many factors involved in determining whether an economy grows or shrinks.
“There is no cliff,” Michael Ash told The Real News Network. “That there is no precipitous drop in growth is the most important message of our replication.”
Nobel Prize-winning economist Paul Krugman confirmed Reinhart and Rogoff were mistaken.