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Home Publications Blogs Beat the Press Reinhart and Rogoff Are Not Being Straight

Reinhart and Rogoff Are Not Being Straight

Friday, 26 April 2013 04:32

Carmen Reinhart and Ken Rogoff, used their second NYT column in a week, to complain about how they are being treated. Their complaint deserves tears from crocodiles everywhere. They try to present themselves as ivory tower economists who cannot possibly be blamed for the ways in which their work has been used to justify public policy, specifically as a rationale to cut government programs and raise taxes, measures that lead to unemployment in a downturn.

This portrayal is disingenuous in the extreme. Reinhart and Rogoff surely are aware of how their work has been used. They have also encouraged this use in public writings and talks. While it is unfortunate that they have "received hate-filled, even threatening, e-mail messages," as one who works in the lower-paid corners of policy debates, let me say, welcome to the club.

This column is careful to halfway walk back the main claim of their famous paper, telling us:

"Our view has always been that causality [between high debt levels and slow growth] runs in both directions, and that there is no rule that applies across all times and places."

It is good to hear the reference to causation from slow growth to high debt and that "no rule applies across all times and places." However it is worth noting that Reinhart and Rogoff never felt the need to use their access to the NYT's opinion pages to correct all the politicians who used their paper to argue the exact opposite: that their paper implied that countries with high debt levels could anticipate long periods of slow growth.

In addition to misleading the public about the role their work has played in policy debates, they also are not quite straight about two strictly factual points. The first sentence begins by referring to the publication of their article in May of 2010. This might lead readers to believe that this is when their claims about high debt slowing growth first began to affect public debate on stimulus and deficits. 

This is not right as I know since my first e-mail requesting their data was written in January of 2010. In fact, their work first made a splash in international debates when they put out a version of this article as a National Bureau of Economic Research working paper in January, 2010. Their findings were already widely known by the time the paper was published in May, 2010.

The other point on which they mislead readers is the claim:

"Our 2010 paper found that, over the long term, growth is about 1 percentage point lower when debt is 90 percent or more of gross domestic product. The University of Massachusetts researchers do not overturn this fundamental finding, which several researchers have elaborated upon."

Actually, their 2010 paper found that growth was 2.9 percentage points lower in countries with debt to GDP ratios above 90 percent than in the group with debt to GDP ratios in the 60-90 percent range as we can see in this nice chart from Robert Samuelson's column yesterday.

Debt/GDP Annual economic growth, 1945-2009

UMass economists
0-30% 4.1% 4.2%

30-60 2.8 3.1

60-90 2.8 3.2

90+ -0.1 2.2

Source: Robert Samuelson.

People in policy debates would rightly view the prospect of annual growth slowing by 2.9 percentage points as being a very serious matter. That would imply a country with a debt rising above the 90 percent threshold would have an economy that is one-third smaller after a decade as a result of its high debt level. That is a very serious decline in living standards. If this sort of falloff in growth was a predictable result of letting the debt to GDP ratio rise about the 90 percent threshold, then policymakers would certainly be justified in taking strong measures to reduce deficits.

On the other hand, the 1.0 percentage point falloff they find in their corrected data would not come close to prompting the same reaction, especially since "causality runs in both directions." The falloff they find in their corrected data is not even close to being statistically significant.

Furthermore, in their corrected data, the sharpest falloff in growth occurs at much lower debt-to-GDP ratios. If Reinhart and Rogoff were making policy recommendations based on what their data actually show they would be telling countries to maintain very low debt levels, in the range of 15-20 percent of GDP. Since they have never highlighted this point, one might reasonably question the extent to which their policy recommendations relate to their research.

One final point deserves mention in this discussion. Debt is one side of a balance sheet. Countries have assets. The United States government owns tens of trillions of dollars of land, mineral rights, fishing rights, broadcast frequencies and other assets that could in principle be sold. In most cases there are good reasons not to sell these assets. However if we really believed that high debt levels horribly hobbled growth, then it would likely be worth selling off some of these assets.

Suppose we believed the original Reinhart-Rogoff 2.9 percentage point growth falloff number. If our debt-to-GDP ratio were at 100 percent of GDP, we could sell off $3.2 trillion in assets to bring the debt-to-GDP ratio down to a safe 80 percent level. This would lead to a growth dividend of more than $28 trillion over the next decade. In other words, we would be able to pocket more than 8 times the market value of these assets in the form of added growth, and that is just over the first decade.

To my knowledge no one in public debate, including Reinhart and Rogoff, have advocated this sort of massive asset sale. Yet the payoff of more than 8 to 1, has to swamp the benefits from almost any other public policy imaginable. This seems pretty compelling evidence that no one really believes that high debt levels actually lead to slow growth.

In other words, this is a fig leaf. Reinhart and Rogoff's work is a cover for political actors who do not want to take steps to boost the economy and lower the unemployment rate and who want to cut programs like Social Security and Medicare. It is not part of a honest policy debate.

Comments (31)Add Comment
They also call liberal economists dumb
written by JaaaaayCeeeee, April 26, 2013 5:41
For some reason, Reinhart-Rogoff get 2 op-eds in nytimes today, and one scolds liberal economists as mistakenly contending that lengthy downturns are simply the business cycle (not extended by their bad policy).

They scold liberal economists (Ben Bernanke?) for thinking economic growth is the best way to recover, as ignoring the risks of higher public debt, which is bunk.

They also maintain that painful transfers from savers to entitlements comes from too much debt, that they fixed their analysis by adding in New Zealand (what about Canada and Australia?), and generally pretzel themselves to say any country with high debt/GDP must ignore Keynes.
written by JSeydl, April 26, 2013 6:15
It'd be really funny to see what sort of hate mail Dean gets from the conservative base.
Disinformation campaign
written by bakho, April 26, 2013 6:45
We are witnessing a disinformation campaign against social spending that is funded by wealthy special interests. Collaborators are rewarded with fortune and 15 minutes of fame. Fighting well funded disinformation is like fighting the Hydra. It is important to focus on the important message, "High Unemployment is BAD for our economy". Disinformation campaigns succeed in part by distracting the conversation away from the truth.
Oh Dear...
written by Richard, April 26, 2013 7:06
Poor poor put upon R&R. Methinks they need to stop digging and just be embarrassed by making such egregious errors in the use of Excel.

Either that or admit they are in th tank for pete Peterson et al.
written by liberal, April 26, 2013 7:44
bakho wrote,
Collaborators are rewarded with fortune and 15 minutes of fame.

Some economists really need to do a study of the incentives faced by...economists. Though it's clear what the conclusion would be: whoring for the rich and powerful.
Hate-filled messages
written by Jay Schiavone, April 26, 2013 7:57
The Times has finally opened comments for the latest opinion piece. So far the response has been very measured and respectful. I encourage everyone to hustle over there and drop a note of concern (or encouragement) while it is still possible to do so.
Life after death
written by nassim Sabba, April 26, 2013 8:23
"causality runs in both directions."

Yes, a car crash can kill by standers, or the death of bystanders can cause a car crash.

In other words, "We have no idea what the hell we are talking about!"

So, don't blame us if cars were not required to stop at intersection any longer. Sorry if some were killed by car crashes, we didn't expect then as there were no dead bystanders before-hand. Regrettably, now there are.

written by This is me being generous, April 26, 2013 8:54
R&R can't admit they are incompetent. So of course they must attempt to cover their incompetence with yet even more incompetence. The lack of intellectual integrity is stunning, and their inability (something from which we all suffer) to see their own weak-spot is illuminating.

Supposed leaders in the field not only mislead but then fail to admit that they do, and they want good pay for their errors. In this way, R&R are not that different from the many CEOs who received a princely sum for successfully bringing their company to complete ruin (Bain Capital made a profession out of this)

Their injury to the public trust in the economics profession will be felt for quite a time. And now Harvard is going to suffer as well, unless they do some followup on what is really an academic fiasco. This debacle shows how fatally flawed the adoption of the corporate model by academia has been: science gets co-opted by politics all the time [even biology and chemistry and so on, economics isn't so special in this way]. Using that model, we see that intellectual progress and creativity is impeded (via placement of incentives), which leads to innovation being stifled, and to just plain inefficient or useless ideas being adopted, from education to public health. If there's a structural weakness to our economy, it is most definitely originating in the weakness/corruption of our current corporate governance structure.
Poor, poor R-R
written by TK421, April 26, 2013 9:07
"they have 'received hate-filled, even threatening, e-mail messages,'"

Wow, that's so much worse than losing your job thanks to government austerity and being forced to burn through your savings before living out of your car. Those poor economists!
written by Union Member, April 26, 2013 9:11
It's a shame, but lies are time travelers. From this perspective, R and R haven't made an error. It's why Pete Peterson's agents focus on young people's perceptions of Social Security and the public interest, the public good and why R and R go to the paper of the broken record (twice) to take a no-fault responsibility for the harm they've done. In otherwords, to take credit for it.
Where the power is
written by Jennifer, April 26, 2013 9:13
It's telling that R and R get two NYT columns-but the takedown
and most important critiques were online in much smaller outlets.
Emperor Rogoff has no clothes.
written by Ralph Musgrave, April 26, 2013 9:23

Long before the recent defrocking of Rogoff, I read several papers of his and thought they were garbage. The verbal abuse being directed at Rogoff probably comes to some extent from people like me who have been gunning for him for a long time.
Who writes the R&R articles?
written by Anna, April 26, 2013 9:26
I cannot help wondering if they are drafting their own lame responses or allowing their well known friends to help out. I can't see what they will accomplish, professionally, by spinning their mistakes/questionable analysis. So they seem to be concerned with the politics more than the economics.
written by Union Member, April 26, 2013 9:43
Dean writes with a clarity that is soO uncommon in these matters and in journalism as a whole. This post is a perfect example. It's the cleanest water on the internet. There should be a Pulitzer for it.
written by ComradeAnon , April 26, 2013 9:53
This is me being generous: If Greg Mankiw is still Chairman and Professor of Economics at Harvard University then absolutely no damage can be done from this.
written by AlanInAz, April 26, 2013 9:57
I wonder how much R_R have benefited financially from the fame they now disown. Speaker fees must have been raised these last two years.
written by Chris Engel, April 26, 2013 10:02
These two little shits are tenured and don't have to worry about any macroeconomic instability, because their future perpetual income streams are backed by Harvard's institutional stature and enormous endowment.

Kudos to Dr. Baker for continuing to press them for their dishonesty and absolutely insufficient apology.
hilarious misdirection....
written by pete, April 26, 2013 10:28
This is so funny. 40 years of nonausterity and activist monetary polich have produced huge returns to capital and stagnant returns to labor. Inflation and massive government spending have fattened the fat cats. These corporatists and their union allies are not against government spending. That is nonsense. The country has grown so wealthy that many many folks are provided for with 10-20X global GDP in housing/medical/SSI/extended unemployment, etc. This is classic reverse psychology...invent a phony fight, pick a side (austerity), and make the other side (the liberals) clamour for more stuff to be skimmed. My my my. Pretty soon the U.S. will resemble a 3rd world country.

written by Kat, April 26, 2013 10:31
Their injury to the public trust in the economics profession will be felt for quite a time. And now Harvard is going to suffer as well, unless they do some followup on what is really an academic fiasco.

The mass unemployment I could take, but when I hear that the reputation of economists and Harvard will suffer, well then-- it's time to take off the gloves.
But if we use history as our guide, I wouldn't worry too much.
Don't listen to what I actually say!!
written by jumpinjezebel, April 26, 2013 1:06
Johnny Isakson, a Republican from Georgia and always a gentleman, stood up to ask his question: “Do we need to act this year? Is it better to act quickly?”

“Absolutely,” Rogoff said. “Not acting moves the risk closer,” he explained, because every year of not acting adds another year of debt accumulation. “You have very few levers at this point,” he warned us.


Senator and former governor Mike Johanns, a Republican from Nebraska, asked, “Is there a point at which the debt market rebels?”

“I don’t want to be fire and brimstone,” Rogoff said. “No one knows when this will happen. ” Yet, he added, “It takes more than two years to turn the ship around … Once you’ve waited too long, it’s hard to take radical steps.”
written by Robert Waldmann, April 26, 2013 1:14
As you note with the 30% comment, one can't estimate the effect of debt of 100% compared to 90% by looking at the average of country years including debt levels up to 200%. One way to estimate this effect is to regress on debt/gdp rounded down to 90% and a variable which is 0 if debt/gdp is less than 90% and debt/gdp -90% if debt/gdp is greater than 90% -- this does not impose a jump at 90% by assumption. Also the minimum effort to deal with the direction of causation is to include lagged real GDP growth rates in the regression (the barest bare minimum is to include one lagged real GDP growth rate).

Doing it semi hemi demi seriously that way, I find no evidence at all that debt ratios above 90% are worse than a debt ratio of 90% in the R-R 20 countries post WWII data set.


There that was my one allowed link. I insist on the obvious a bit.

Space concerns (really our patience concerns) prevented you from mentioning the fact that the step at 90% was imposed by assumption. Even the original result and even assuming causation is only from debt to growth does not imply anything special happens at 90% -- if the dramatic effect on growth occured at a ratio of 110 % say the result could be the same. Part of the error is treating a step to an open ended interval like a step to a new limited interval -- the average debt ratio over 90% is much higher than the average debt ratio in the interval 60 to 90% since there are observations of ratios around 200%
written by Glen, April 26, 2013 1:15
More bull from R&R. If their view was/is that "causality [between high debt levels and slow growth] runs in both directions, and that there is no rule that applies across all times and places", then their ability to write an abstract is as poor as their excel skills. From the abstract; "First, the relationship
between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90
percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls
considerably more"

Seem pretty much in one direction only.
It's not the crime,it's the cover-up
written by wkj, April 26, 2013 1:51
“Faced with the choice between changing one’s mind and proving there is no need to do so, most people get busy on the proof.”
? John Kenneth Galbraith
Keynes's quote
written by Alex Blaze, April 26, 2013 2:09
"Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally."

Apropos here. Clearly the mainstream media hasn't taken R-R off their rolodexes, and even after the controversy is over and the "controversy increases viewers" justification has passed, we'll still be scolded by these two on how we just don't understand their brilliant 2014 paper proves that the deficit is unsustainable at 95% or something.

If they had been right from the start, though, who would have heard of them?
Not only will Harvard decline to sanction them...
written by Blue Meme, April 26, 2013 4:02
But the chair of their department, Greg Mankiw, who is cut from the same cloth, has offered up a rather pathetic defense, titled, appropriately enough, "Mistakes". (As in, aligning with them is a...)


R&R and Mankiw are apparently un-shame-able, though we ought to keep trying anyway. That brings us one level (up?) to the Times. Why, indeed, do they give so much rope to these auto-asphyxiating economists? Will Dean or Brad DeLong or Jared Bernstein (or Thomas Herndon) be offered equivalent column-inches?
Rogoff Changes His Tune
written by Frank Moraes, April 26, 2013 4:12
Rogoff in June 2012: "In a series of academic papers with Carmen Reinhart... we find that very high debt levels of 90% of GDP are a long-term secular drag on economic growth that often lasts for two decades or more."

H/T: Matt Yglesias
total debt/gdp
written by rapier, April 26, 2013 4:44
There is little use separating out government debt from total debt in all sectors. Well the reason R&R did it is because that is what everyone talks about. Everyone assumes the role of government debt is somehow different for the economy, just because.

The economics profession for the most part doesn't really address total debt (credit) at all. Despite the fact that the rate of credit growth is a strong determinant of GDP change for reasons glaringly obvious. Credit growth grows bank deposits, ie. systematic liquidity.

If one is going to study government debt/GDP one first must study total debt/GDP. Then perhaps corporate debt/GDP or financial debt/GDP or household debt/GDP to offer some basis of comparison if there is one.

What one will surely find is that one dollars growth of credit has provided a smaller and smaller GDP growth result. Now here is where study should really focus.
So what does Harvard University have to say?
written by Perplexed, April 26, 2013 6:42
Or are they just proud to be the home of the best economics money can buy?
written by Julio Huato, April 26, 2013 10:22
To be fair, they also wrote: "Resolving these debt burdens usually involves a transfer, often painful, from savers to borrowers."

I don't feel their pain, but absolutely. Since, as a rule, substantial net savers are we now call the 1% and substantial net borrowers are the 99%, then -- sure -- let wealth be redistributed in favor of the 99%!

Sooner, better.
A Feature Not a Bug
written by Eli Rabett, April 27, 2013 5:40
It is a feature that Reinhart and Rogoff will now have to wonder about the reception they will meet on the street. Although their work has brought suffering to many, they clearly regard it as a game. The game may have just deservedly gotten serious for them
Kudos to Bob Pollin!
written by TVeblen, April 27, 2013 9:37
As a fellow New School econ PhD, I tip my hat to Bob Pollin and his grad student in Bob's Applied Economerics class. After I got R&R's book, I noticed that the 'metrics are pretty thin (mostly tables and graphs). Anyhow, Pollin is a careful guy and I understand he made his student go back and re-do the 'metrics several times. This is how David Gordon taught us to do econometrics at the New School (I think Bob may have been his TA). Gordon never took short cuts and got us to learn both mainstream and alternative econometric modeling. R&R are probably friggin stunned that a New School and Amherest grad kicked their econometric butts. But given the sloppiness of Harvard "big names" (see Martin Feldstein and Soc. Security paper circa 1973-4) this is not surprising. Way to go Bob!!

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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.