It is possible, however unlikely, that the Reinhart-Rogoff 2010 Harvard study on debt and growth — which is often cited to support fiscal austerity — contains a calculation error that undermines its case against a causal link between high debt and low growth.
As Catherine Rampell wrote at the New York Times:
But now, Thomas Herndon, Michael Ash and Robert Pollin of the University of Massachusetts, Amherst, in trying to replicate the Reinhart-Rogoff results, are challenging the conclusions for a different reason. They say they found some simple miscalculations or data exclusions that sharply altered the ultimate results. According to their rerunning of the figures, “the average real G.D.P. growth rate for countries carrying a public debt-to-G.D.P. ratio of over 90 percent is actually 2.2 percent, not –0.1 percent,” they write. In other words, heavy debts were not associated with the malaise that Professors Reinhart and Rogoff — and much of the world’s economic elite — thought that they were.
This doesn’t completely destroy the case, it just complicates the argument. But still, it’s a little jarring.
“Now you tell us this? Now?” Greece is bawling, somewhere.
What other widespread ideas are based on small miscalculations? We expect this with the scientific studies announcing that You Should Drink More Wine Than Ever If You Want To Be Immortal, only to be followed a few weeks later by the inevitable correction that Drinking Any More Than A Teaspoon Of Wine Daily Will Destroy You And Everyone You Love. But economics? Next someone will tell us that trickle-down is a myth popularized by a confused Ronald Reagan, and that there is no Invisible Hand. Er. We will dig up the original draft of the Bill of Rights and discover that the Second Amendment is for bearing arms in “well-regulated militias,” not just kicking firearms around the home willy-nilly.
But there’s precedent for giant ripples from small mistakes.
Remember when we lost that Mars orbiter for failing to convert to metric? Well, replace “Mars orbiter” with “possibly, large swaths of the world economy.” Remember when Columbus was convinced that Ptolemy had the correct numbers for the circumference of the globe, leading him to go dashing off in three ships and bump into the Americas, then insist that he had made it all the way around the world to India, in spite of what the inhabitants had to say about it? You’re off by a few digits, or several orders of magnitude, and suddenly you’ve sailed halfway around the world and bumped into Hispaniola before you can be stopped.
The whole thing reminds me of the Wicked Bible, which accidentally omitted a “Not” from one of the Ten Commandments, totally changing its meaning. (“Thou shalt commit adultery.” “Okay!”)
Details, details, as they say.