CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Nonsense in the Reinhart-Rogoff Rescue Effort

Nonsense in the Reinhart-Rogoff Rescue Effort

Monday, 27 May 2013 10:41

The mainstream of the economics profession continue to try to rescue Carmen Reinhart and Ken Rogoff (R&R) from the consequences of their famous Excel spreadsheet error. The latest is Michael Heller, who has pronounced Paul Krugman the loser in his exchanges with R&R because he conceded that countries with debt-to-GDP ratios that exceed 90 percent of GDP have slower growth.

This is the sort of piece that should really have the general public thinking about defunding economics programs everywhere. The fact that countries with higher debt-to-GDP ratios have slower growth than countries with lower debt-to-GDP ratios was never at issue. The corrected spreadsheet shows this to be true across the board at every debt level. There is no importance to 90 percent.

The 90 percent cliff came about because of the Excel spreadsheet error, it does not otherwise exist in the data. Heller's claim that R&R never said anything about a 90 percent cliff is an effort to re-write history. This number was embedded in the Bowles-Simpson report that came to be the guidepost for debate on the deficit in Washington policy circles. It also has been used by top officials in the European Union and elsewhere as a basis for austerity.

Using the corrected data the closest thing resembling a cliff can be found in the range of debt-to-GDP ratios of 20 percent of GDP. There would be no reason that 90 percent would ever appear in a discussion of debt in the corrected R&R debt-to-GDP data.

Also, as Krugman and others have repeatedly pointed out, the correlations in R&R tell us nothing about causation. There are lots of sick people at hospitals. Would we not have sick people if we shut our hospitals?

The efforts to examine causation have found the direction is overwhelmingly from slow growth to debt, not the other way around. And of course there is the issue that debt is only half of a balance sheet. If there really was a sharp growth penalty due to crossing some debt-to-GDP barrier then the logical policy response would be to sell some asset(s) to get back below the magic bar. That would surely beat a decade of high unemployment due to austerity. Unfortunately, balance sheets are apparently too difficult a concept for most economists.

Anyhow, if Heller can read Krugman's latest column and declare R&R the winner, he must also believe that George Foreman defeated Muhammed Ali back in Rumble in the Jungle back in 1975. Such is the state of the economics profession.


Comments (26)Add Comment
the economists rumble in the jungle
written by watermelonpunch, May 27, 2013 11:45
The sick people & hospitals thing is a very good metaphor.

But let's face it... most of these austerity supporters see no problem with throwing the baby out with the bath water. In fact, I think what they really want is to drown the baby in the bathwater.
written by JAMES, May 27, 2013 12:16
Are you saying another person is trying to re-write history?

Sounds too familiar - the highest positions you have, the more you want to revise...WMD, no, it was not for WMD but for democracy.

Mr. Heller is an educator - educating who? Michael G. Heller, author of Capitalism, Institutions, and Economic Development, has taught Southeast Asian and Latin American political economy in the UK, Argentina, and Australia.

Today mark our tribute to folks who paid the ULTIMATE sacrifice for OTHERS. And WMD was one if not the only reason that precious lifes have lost and families ruined.

We Salute Our Service Members.
It's the Moral Hazard, Stupid
written by Last Mover, May 27, 2013 12:32
Rumor is out that Michael Heller has also discovered fire departments cause more fires in the same way debt causes less growth.

People are obviously more careless with fire since they know the fire department will put it out anyway, the same way people are careless with more government spending since they don't have to pay for that either.

All that's left is to find a way to pin this on Krugman as one more nail in the coffin of the raging radical Keynesian socialist ideologue who actually thinks fires can burn out of control and cause massive damage without fire departments, sort of like a Great Recession that never ends.
R&R Very Carefully Do Not Claim Any Causation Now
written by Paul Mathis, May 27, 2013 2:00
While they recklessly continue to throw around correlations of debt and growth, they are very precise never to claim now that higher debt causes growth reduction.

Of course if they ever did make such a causation claim, they would have to explain how it works and that, obviously, they cannot do. Nor have they ever attempted any such explanation because it would fly in the face of Keynesian theory that reduced demand causes reduced growth.

R&R may be stupid but they are not fools.
"Spreadsheet error"?
written by aj oliver, May 27, 2013 2:43
The analysis so far indicates that is was deliberate academic fraud. There also were clearly cherry-picked data points, and other very suspicious omissions such as the protracted refusal to provide the raw data.
Why cannot we call it fraud? (And demand R&R's termination. You know DAMN well that they would do that if the roles were reversed.)
Economic sciences?
written by Conelrad, May 27, 2013 4:16
Establishment of the "Nobel" prize in "economic sciences" was part and parcel of the Cold War. Thankfully, that era is over.

Given all that's been happening over the past 45 years (culminating in the failure of the huge majority of economists to foresee the Great Recession), the least that needs doing is de-linking "economic" and "sciences."
Krugman Admits To What Manipulated Data Says, So He Lost?
written by PJR, May 27, 2013 4:45
Nice of Heller to point out that R-R fully intended to convey causality by manipulating their data: "Well … a high school graduate would see straight away that in these historical data sets the ‘threshold’ is intended as a guide to potential cause-or-effect . . . ." Correct, the categorization of debt/gdp was meant to convey causality.
written by Edward, May 27, 2013 9:36
R&R should not have called Dr. Krugman uncivil in their public forum. To do so merely increases the animosity of the debate at a time when ego needs to be set aside, bias needs to be controlled, and everyone needs to prepare for compromise. We've got a very sick patient in Japan in terms of finance, another sick EU with schizophrenic currency union without fiscal union, and a US that has a gridlocked political system. If anything goes wrong, the whole shebang could spiral into crisis, and we'll need all the macroeconomic talent at the table we can get.
written by Robert Waldmann, May 27, 2013 10:29
I just note that after the first simplest crudest stab at looking at causality (including 1 year's rGDP growth rate in the regreion) there remains no evidence (at all) in the R&R 20 OECD countries post WWII data set that debt/GDP over 90% is worse than debt/GDP = 90%


Adds little to Dube's non parametric estimates but I like to toot my own tiny little horn.
written by Christiaan, May 28, 2013 6:06
"The 90 percent cliff came about because of the Excel spreadsheet error, it does not otherwise exist in the data."

Actually, this is not correct. The cliff came from the very disputable weighting scheme, that gave one grossly outlying year of NZ a very high weight. The spreadsheet error had only a very small effect. But you are correct that the cliff does not exist in the data, it was purely a result of the flawed analysis. A minor point (for your comments), because it does not change your arguments. (But not a minor point for R&R, because it seriously affects their conclusions.)
written by kharris, May 28, 2013 7:15
"There is no importance to 90 percent."

That's true, but would also have been true if the data error had not happened. The "90%" level was established arbitrarily and reflected all debt ratios above 90%. Constructed that way, the test did not establish that 90% was a critical level, or that there was a critical level at all. The test merely showed that at some point above 90%, bad things happen - not that 90% was that point, not that there was any particular critical level. The test they constructed was not powerful enough to detect a critical level, if one exists.
written by Grumpa, May 28, 2013 7:32
R&R say PK is uncivil, but where is the civility in supporting the economic devastation of hundreds of millions of innocents?
written by extracivil, May 28, 2013 8:29
the easiest way out for R & R to come out in spades would be for them to offer testimony on senate floor to correct misimpressions
written by Jonathan, May 28, 2013 9:23
"The 90 percent cliff came about because of the Excel spreadsheet error, it does not otherwise exist in the data. "

This sentence contains a comma fault! That is, the comma should be a semi-colon. Obviously, your whole argument is therefore invalid (-:).
Uh, kharris, history revisionist?
written by David, May 28, 2013 12:04
kharris: from what you've written, you should go read Brad DeLong's article (especially the quotes from Reinhart and Rogoff on the 90% cliff, all in the public record). http://delong.typepad.com/sdj/...ation.html. To be blunt, you're wrong. They did strongly suggest a cliff at/near 90%. And it isn't there. But they muddy the waters by changing the target.

The did claim a magical dropoff in productivity near the 90% mark and made quite a big deal of it. They even testified to Congress on the matter, so extracivil is right, the right thing to do would to be go clear the foggy heads in Congress on this matter.
written by kharris, May 28, 2013 12:17

Having read the DeLong post you link to and a number of others he has offered during this debate, I can respond to you in one of two ways. One is to say, as you did, "you're wrong". I suspect that is the right answer, but from what you've written, I can't be sure. You're free to make your point, but what you wrote doesn't address what I wrote in any way that I can see. I think you've simply misunderstood what I wrote.
Fiscal Austerity, also known as Procyclical Economic Policy
written by tyler, May 28, 2013 12:32
Since 2007, national governments have slashed spending and raised taxes in the face of a deeply depressed economy. This is a large part of the reason Europe is back in recession.
written by tom bergerson, May 28, 2013 2:02
Defund economics programs everywhere. Good idea. And just as warming causes higher levels of CO2, not the other way around, you have asserted that slowing causes debt growth, not the other way around. Fair enough. But it is a long way from there to any assertion that Paul Krugman is right about anything. Paul Krugman asserts that he has invented the perpetual motion machine (debt doesnt matter [channeling his inner Dick Cheney], therefore just print as much as you need and all will be well). I really do not believe he has. Do you?
Keynesian are wrong......again
written by Bobloblaw, May 28, 2013 6:41
Problem for the keynesians is the fact the US economy has not only withstood the payroll tax increase and the sequester but has accelerated. The entire two decades since 1992 have debunked the elitist keynesians. In the 1990s the USA reduced federal spending in real terms by nearly 20%, yet growth blossomed. Since 2001, federal spending reached unprecedented heights in peacetime as measured as a % of GDP. Yet growth and employment stalled.
Left misstates Rogoff.
written by Bobloblaw, May 28, 2013 7:06
Btw the U Mass students who "debunked" Rogoff said themselves there is a relationship between debt and growth. Just that it isn't as negative as Rogoff stated. The left is completely misstating the results of the U Mass study.
Germany overheating?
written by Brick, May 28, 2013 8:37
I don't quite understand why R-R just keep on digging. Their open letter seems just desperate and partly false. They are against stimulus in Germany because they fear overheating? http://gqjftw.blogspot.de/2013...ating.html

Seriously, German GDP contracted in the last quater of 2012 and basically did not grow much in Q1 2013. Where is that overheating supposed to come from?
R-R Personally Profited From There Mistake
written by Aaron Allred, May 28, 2013 10:24
The R-R paper clearly suggested causality with 90% being the major threshold. Their mathematically incorrect paper directly affected policy decisions impacting hundreds of millions of people. Moreover they personally financially profited from the attention their paper generated. They owe the world an apology. It appears they want the glory but at no risk to themselves.
Austerity....you got to be kidding me.....
written by William, May 28, 2013 11:42
"decade of high unemployment due to austerity"

You had me until you threw that falsehood in there...now it just another pro...anti-Krugmen ideological claptrap....
written by watermelonpunch, May 29, 2013 12:02
@ Bobloblaw : Bubbles?
written by Matt Michaud, May 29, 2013 10:44
"There are lots of sick people at hospitals. Would we not have sick people if we shut our hospitals?" Seriously?
Oh, thank you for that vivid explanation in logic.
You can always make a cause/effect argument as you just did with this type of issue no matter what. I could reverse it and ask you the same question. "Is the economy really improving b/c of stimulus, or despite stimulus...blah blah blah"
Every TESTABLE example of high debt leads to financial difficulty/insolvency at a later date.
-this is testable and proven at the Household level.
-this is testable and proven at the Business level.
-this is testable and proven at a local/state/provincial level.
How can you prove this? Go out and take out credit for a 110% or so of your annual income and see what happens...everyone knows. (Yes i know you could do this for capital and it could be a good investment etc etc, but that's not what we're doing)

Krugman claims this doesn't apply to national governments some how. He says you can't prove its true, because the large economies are too complex to be limited to such simple notions of monetary law that apply to households, business and governemnts w/ a limited money supply.
This goes against every logical notion in any other field.
For example,take meteorology: If i put hot air in a small balloon in a lab, and it goes up, then I put hot air in a small balloon in my back yard and it goes up, then I put hot air in a large balloon and it goes up, the working hypothesis MUST be that hot air released into the complex atmosphere without any controls WILL GO UP. This will only be changed and nullified with comcrete evidence to the contrary; not by claiming "we should assume the exact opposite because the atmosphere itself is just too complex for such simple tests, and umm, I'm so smart, I'm the only one who really understands it; and even though there's no evidence that the law of hot air is exactly the opposite of what it appears, I have a nobel prize in meteorology; so you should listen to me."
So, Japan sure decided to follow Krugmans advice head-long. How's that working out?
Europe has literally beeen a lap-dog for economists for Krugman for like 20 years now; but Krugman blames "austerity" that isn't even austerity, and has been in effect for lie a year. Everyone, including Europe, inclusing Krugman; need to blame Krugman.
written by Reid Nelson, May 30, 2013 9:22
Clearly too complex for you.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.