Reinhart Rogoff Redux

So put in your earplugs
Put on your eyeshades
You know where to put the cork
--The Who

Regarding the recent uproar over errors in Reinhart and Rogoff's research, RR have aggressively defended their findings. The 'spreadsheet errors' detected by the UMass group do not substantially alter the empirical findings. As this NYT graphic demonstrates, the relationship between economic growth and debt is negative regardless of which analysis is examined.

It is interesting that the media continues to paint RR as fiscal hawks. After reading RR's This time is different, I noted with disappointment that RR's analysis of their own results appeared shallow and avoided the issue of the role of government policy in financial crises. The notion of 'austerity,' which was a logical implication of their findings, went little discussed in the book.

Today, even while defending their work, RR claim that they are not fiscal hawks. In fact, they suggest, "No one should be arguing to stabilize debt, much less bring it down, until growth is more solidly entrenched - if there remains a choice, that is."

This is a stunning statement, really, in light of RR's own research to the contrary. It is suggestive of an institutional mindset that impairs capacity for interpreting one's own findings.

Caroline Baum observes that the recent uproar over the exact threshold where debt compromises growth misses the point. "Too much debt is bad." She explains, "You don't need a doctorate in economics to understand that you can't spend beyond your means forever, or that piling on debt because it's cheap to borrow isn't sound policy."

That we're seriously debating this point demonstrates just how far off the rails from basic economic understanding that we've traveled.