Carmen Reinhart and Kenneth Rogoff may have made honest mistakes in their influential research on debt. But they aren't telling the full story when they claim not to be picking sides in the debate over austerity.
Rather than neutrally presenting their data on debt and economic growth and letting readers draw their own conclusions, they have gone out of their way to suggest that high debt levels cause slower economic growth, and that governments should therefore avoid taking on more debt, even if it means forgoing desperately needed economic stimulus. And they have not protested as politicians have repeatedly used their research to advance pro-austerity agendas.
In case you're just waking up from a two-day nap, Reinhart and Rogoff, both Harvard economists, have had a miserable couple of days defending one of their research papers, Growth In A Time Of Debt, against a new study from economists at the University of Massachusetts, Amherst, that finds it was filled with errors.
Reinhart and Rogoff's paper argued that countries with debt levels of more than 90 percent of gross domestic product tend to suffer fairly dramatic declines in average economic growth and less-dramatic declines in median growth. The paper has been cited frequently by debt scolds in making the case for austerity and against more economic stimulus in the U.S. and Europe. Rep. Paul Ryan (R-Wis.) cited it directly in his budget proposal for 2013. Their paper could have cost millions of people jobs by preventing economic stimulus that could have boosted growth and employment, and the critique suggests that some of its more dramatic findings were a big mistake.
Reinhart and Rogoff have issued two detailed rebuttals to the critique of their paper, one obviously assembled with some haste and the second a little better thought-out, delivered at 2:00 a.m. on Wednesday.
In their second rebuttal, they copped to one of the most glaring errors, a mistake they made in creating an Excel formula that altered their results on average economic growth. They basically let stand another charge, that they had left out some data on growth in New Zealand that had an even more dramatic impact on their average-growth findings.
But they firmly rejected the argument that they were fudging the data to arrive at a conclusion that suited their ends. And in each of their rebuttals they expressed shock, shock that anybody could have taken their research as an argument in favor of austerity. Reinhart wrote in the second rebuttal:
Looking to the reaction to this comment in blogosphere, we note that this is not the first time our academic work is seen pandering to a political view. What is quite remarkable is that this claim has spanned polar opposites! This time, we are charged with misconstruing analysis to support austerity. Only a few months ago, our findings on slow recoveries from financial crises was accused as providing a rationale for the deep recession and weak economy the Obama administration has faced since 2007.
Maybe the reason their work is seen as pandering to a political view is that they have publicly come out in favor of at least one very important political view. In a July 2011 piece for Bloomberg View called "Too Much Debt Means the Economy Can’t Grow," they argued directly against further economic stimulus, warning that "we think it would be folly to take comfort in today’s low borrowing costs, much less to interpret them as an 'all clear' signal for a further explosion of debt."
Reinhart's personal associations may be another reason her research is seen as having a political tint. She was recently a senior fellow at the Peterson Institute for International Economics, founded by Peter G. Peterson, who has spent hundreds of millions of dollars in the past two decades warning about the horrors of the federal government's finances, particularly safety nets like Social Security and Medicare.
Reinhart and Rogoff have also continued their studies on debt and growth with Reinhart's husband, Vincent Reinhart, an economist at the American Enterprise Institute, a conservative think tank. In fact, they cite their research with Mr. Reinhart in both of their rebuttals.
As Paul Krugman points out, Reinhart and Rogoff are trying to have it both ways. After years of watching their paper be used to drum up the notion that high debt causes slow growth and should be avoided at all costs, and occasionally encouraging that view themselves, they suddenly claim to be neutral observers.
Like their Excel spreadsheet, it doesn't add up.