April 16, 2013
Obama announces Social Security cuts
President Barack Obama (Andrew Harrer/Bloomberg)

The march of America’s deficit hawks has continued apace in 2013. Getting a Democratic president to propose reducing Social Security benefits was just their latest victory after the idiotic policy that was the sequester. But on the heels of news that the International Monetary Fund is cutting global growth forecasts, in no small part because of austerity, an important new paper suggests that a key historical study long cited by austerity backers as evidence for prioritizing debt reduction has serious problems.

If you’ve followed the debt debate even casually in recent years, there’s a good chance you’ve heard a politician or pundit say that America’s national debt is either nearing or has already passed a tipping point: a 90 percent debt-to-GDP ratio, beyond which countries frequently suffer from slow economic growth. The number comes from a study done by economists Carmen Reinhardt and Kenneth Rogoff, which looked at “data on forty-four countries spanning about two hundred years.” Their findings have been cited by Rep. Paul Ryan as well as numerous policymakers, media outlets and pundits.

But three economics professors at the University of Massachusetts at Amherst have been allowed to look at Reinhardt and Rogoff’s original data, and their findings are troubling, to say the least. The Roosevelt Institute’s Mike Konczal summarizes: “First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don’t get their controversial result.” That “coding error,” by the way, is an incorrect entry in an electronic spreadsheet; as Konczal puts it, this means “that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in [Microsoft] Excel.”

What does the data actually show? “When properly calculated,” the authors write, “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.”  As Matt Yglesias notes, there were already major theoretical problems with Reinhart and Rogoff’s paper — and anyway, as Matthew O’Brien points out, America is a pretty special case — but these empirical issues would ideally lead debt hawks to reassess their fears, and hopefully let President Obama and other policymakers focus on what should be their top priority: getting Americans back to work.

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