There’s no question that Reinhart and Rogoff have been excessively pilloried for the mistakes in their influential paper on how high debt/GDP ratios allegedly slow growth. Very few economists get the “honor” of the Colbert treatment (may I never, ever be so honored…). It’s fair to say that they and their benighted paper have become a receptacle for all the frustrations that many people—and more than a few economists (a different group than “people”)—feel about the ill-advised and deeply damaging austerity that’s whacking growth rates around the globe, contributing to the inability of economies to hit escape velocity and finally leave the great recession behind.
As I’ve stressed, that’s not their fault alone by a long shot. Had they never bothered to release their erroneous analysis, the austere policy makers would be pursuing the same path. These policy makers are driven far less by evidence than by ideology (it’s always good to cut government), morality (debt bad, savings good!), and politics (Tea Party, Germans, etc.).
All that said, they and their paper are part of the problem and if they want to do the world a favor they should try to become part of the solution. Unfortunately, that’s not the tack they take in this morning’s NYT, in an oped that essentially says a) OK, we made some mistakes, but we’re still sticking to our story, and b) our story isn’t what everybody thinks it is. To their credit, they make some good points about needed policy at the end of the piece.
Substantively, for all their recalculations and new graphics, their analysis still suffers—will always suffer, given the way they’ve set it up—from a fatal absence of context: why is debt rising and GDP slowing? Their broad averages across centuries and countries mask critical variation that is aggregated into arbitrary categories (debt/GDP <30%, 30-60%, etc.) leading to their unsupportable claims (at least in some of their statements) of a 90% debt/GDP threshold, above which growth slows due to high indebtedness.
As Arin Dube shows (see his first figure here) once you plot all the data, nothing like a threshold appears at 90%, and if anything, he goes on to show, the causality goes the other way (i.e., from slow growth to higher debt/GDP). For them to not even mention Dube’s analysis, which has also gone pretty viral, is a sign they’re more interested in defending themselves than figuring out what’s really going on here.
As for their implicit claim that they never said there’s a debt threshold that should lend support to austere policy makers, the record shows otherwise. The Colbert clip shows highly influential politicians using their work in precisely that way. If that was the wrong way to use it, why didn’t they speak out? This isn’t marginal stuff we’re talking here—it’s international economic policy decisions with portentous consequences in peoples’ lives.
Moreover, as Matt O’Brian shows, R&R “…whisper “correlation” to other economists, but say “causation” to everyone else.” I don’t see how they can square the citations of their comments posted by Matt with their claims in today’s oped that they’ve always viewed causality as flowing both ways. I suspect that is their view, btw–they are smart, experienced economists. But it’s not the impression left by their paper, it’s not the way their paper was used, and most damning, it’s not where they explicitly led policy makers in high-level settings.
The thing to do when you make a mistake like this, given the historical record uncovered by the Colbert clip and others, is to say our paper has serious mistakes, we retract its findings, and we urge policy makers not to make policy decisions based on their interpretations of these findings—interpretations that we do not endorse. Full stop. Then go back to the drawing board and see what you come up with when you approach the problem with a lot more care than the first time out.