For the the past four days, the insulated world of economics has been thoroughly captivated by an otherwise stuffy-sounding 26-page paper titled "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff." In it, a 28 year-old University of Massachusetts grad student named Thomas Herndon, along with two of his teachers, identify several errors in an much-discussed 2010 paper (called "Growth in Time of Debt") written by two Harvard economists, Carmen Reinhart and Kenneth Rogoff, about the relationship between high levels of government debt and slow economic growth. (More on that below.) The errors range from dense, like the manner in which Reinhart and Rogoff weighted certain data, to egregious, like a simple Excel error that excluded five countries from a crucial calculation.
After Herndon's paper was published on Monday morning, the fallout was immediate. Characterizing the reaction, the Roosevelt Institute's Mike Konczal wrote, "All I can hope is that future historians note 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 Excel." Within hours, Reinhart and Rogoff issued a (very) rushed response to media outlets, and followed up the next day with a letter that acknowledged the Excel error but, in the next breath, challenged Herndon's claim that their paper's errors unravel its conclusion.
What is this controversial conclusion, anyway? You may have heard it before: that, when a country's debt matches or exceeds 90 percent of its gross domestic product, economic growth slows down. The Roosevelt Institute called it "one of the most cited stats in the public debate during the Great Recession." But it's been repeatedly challenged for suggesting that high debt loads cause growth to slow down, which sets the stage for cuts to government spending. (Both authors have publicly supported this interpretation.) Writing in 2010, Princeton economist Paul Krugman admitted bafflement: "I still don’t know what, if anything, the [Reinhart-Rogoff] data tell us about the growth effects of debt."
There's also some debate about this statistic's influence among policymakers. "It was the intellectual basis for the Bowles-Simpson report," wrote New York's Jonathan Chait while responding to the news. "It was cited frequently by centrist editorials, news stories (which often read like editorials), Thomas Friedman, Joe Scarborough, and pretty much everybody in Congress." But The Daily Beast's Megan McArdle, with whom Chait frequently tangles, played down the 90% statistic's authority, arguing that "there is a roughly 0% chance that US economic policy would be detectably different if Reinhart and Rogoff had never been published."
The stakes are pretty high here, which is why Herndon's paper made such a splash. "In the world of economic luminaries," noted a recent Reuters profile of Thomas Herndon, "it doesn't get much bigger than Reinhart and Rogoff, whose work has had enormous influence in one of the biggest economic policy debates of the age." And this isn't first time one of the Harvard authors has parried critics. In 2002, Kenneth Rogoff sparred with the economist Joseph Stiglitz over the role of the International Monetary Fund, where Rogoff was installed as a research director. (A sample passage of Rogoff's letter to Stiglitz: "I'd suggest you should pull this book off the shelves until this slander is corrected.")
Reinhart and Rogoff aren't backing down anytime soon. "We do not ... believe this regrettable slip affects in any significant way the central message of the paper," the pair said in a letter published on Wednesday.