Going viral on Twitter is Mike Konczal’s post on the infamous Reinhart and Rogoff paper – the paper that has been cited over and over again in support of austerity policies across the world. Konczal reveals a recent effort to replicate the Reinhart/Rogoff results by Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst. The conclusion:
They find that three main issues stand out. 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….
…So what do Herndon-Ash-Pollin conclude? They find “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 [Reinhart-Rogoff claim].” Going further into the data, they are unable to find a breakpoint where growth falls quickly and significantly.
The supposedly-obvious causal link between debt and growth is more ephemeral than many would like to believe.