Since 2010, the names of Carmen Reinhart and Kenneth Rogoff have become famous in political and economic circles. These two Harvard economists wrote a paper, “Growth in the Time of Debt” that has been used by everyone from Paul Ryan to Olli Rehn of the European Commission to justify harmful austerity policies. The authors purported to show that once a country’s gross debt to GDP ratio crosses the threshold of 90 percent, economic growth slows dramatically. Debt, in other words, seemed very scary and bad.
Their historical data appeared impressive, as did their credentials. Policymakers and journalists cited the paper to convince the public that instead of focusing on the jobs crisis that was hampering recovery, we should instead focus on deficits. The deficit hawks jumped up and down with excitement.
But something didn’t smell right.
Progressive economists I knew were shocked at what appeared to be the shoddiness of the research and the absurdity of the conclusions. In their paper “A World Upside Down? Deficit Fantasies in the Great Recession,” Thomas Ferguson and Robert Johnson observed that R&R had truncated their sample of British data in a way that skewed their conclusions, eliminating more than a century of data in which British debt loads exploded but economic growth raced ahead (see pages 11–13). The always savvy Marshall Auerback called them out in a blog for New Deal 2.0, which I edited at the time, criticizing the relevance of the cases they had used to justify their conclusions.
But plenty of pundits took their suspect arguments as gospel. The editorial board of the Washington Post declared that “debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.” The economists cited were Reinhart and Rogoff, whom the WP passed off as speaking for the entire field. A new Washington consensus was born, and the public was hammered with the idea that cutting jobs, stripping away vital public services and letting infrastructure crumble was a good way to get the economy going. Most any ordinary person on the street would probably intuit that this made no sense, but there was this Academic Research By Esteemed Persons, so the argument was over.
Enter Thomas Herndon, Michael Ash and Robert Pollin of University of Massachusetts, Amherst, the heroes of this story. Herndon, a 28-year-old graduate student, tried to replicate the Reinhart-Rogoff results as part of a class excercise and couldn’t do it. He asked R&R to send their data spreadsheet, which had never been made public. This allowed him to see how the data was put together, and Herndon could not believe what he found. Looking at the data with his professors, Ash and Pollin, he found a whole host of problems, including selective exclusion of years of high debt and average growth, a problematic method of weighing countries, and this jaw-dropper: a coding error in the Excel spreadsheet that excludes high-debt and average-growth countries. ...
In their newly released paper, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff” Herndon, Ash and Pollin show that “when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogoff. That is, contrary to R&R, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.”
Herndon, Ash, and Pollin have set off a firestorm, with those who long suspected that R&R’s work was crap shouting hallelujah and defenders scrambling to figure out a way to support deficit hysteria despite the body blow to their theory.
Bottom line: The foundation of the entire global push for austerity and debt reduction in the last several years has been based on a screwup in an Excel spreadsheet and poorly constructed data.
Apparently, Reinhart and Rogoff admit their mistake. But what's the response to this on the right? Note this column in Forbes magazine:
In reality, the only lesson to be drawn from this episode is that academic economics, like many social sciences, is grounded in hubris and pseudo-precision. And that the modern urge to demand an academic study to “prove” or justify inherently complex and ambiguous decisions is antithetical to clear thinking.
Get that? The lesson to be drawn from this is that we shouldn't listen to the experts. Instead, apparently, we should just believe whatever we want to believe, without requiring "proof" or even justification.
I take something a little different from this. These are economists, not scientists, but they still have other people, independent researchers, double-checking their work. They are still evidence-based, which means that, when they make a mistake - as everyone does, sometimes - other economists catch it, at least eventually.
Republicans jumped on that first study only because it seemed to back up what they already believed. And yeah, that's human nature. I'd do the same thing, probably, in their shoes (and, clearly, so would the author of that Salon article). However, I'd be willing to change my mind when the evidence indicated that the first study was fatally flawed. Faith-based people won't.
As I say, this shows the necessity of listening to evidence-based experts. They may be wrong, but how else are you going to make "inherently complex and ambiguous decisions"? With your gut? And if they are wrong, they'll eventually discover that. That's how science advances, and that's how economics advances, too (more slowly, because independently-replicable controlled experiments are very hard to do in economics).
Compare this with faith-based politicians. Republicans are still pushing 'trickle-down' economics, still pushing tax cuts for the rich, still pushing deregulation, despite the complete and utter failure of those policies during the Bush administration. Well, when you're faith-based, the evidence doesn't matter. You just know you're right, despite the evidence.
I don't propose that we blindly accept what an expert says about anything, because "experts" are still human. But I do suggest that the consensus of experts is far more likely to be right than my gut feelings. That's especially the case when it comes to scientific issues, since the scientific method has proven itself as the best way to distinguish reality from delusion and wishful-thinking.
But it's also true when it comes to the social sciences. You don't just pick an expert and go with that (since, obviously, you'll just pick someone who agrees with what you want to believe), but you do listen to the consensus. And if you're shown to be wrong, you change your mind.
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PS. My thanks to Jim Harris for the link.
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