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.
>>There’s no question that Reinhart and Rogoff have been excessively pilloried>>
They have been pilloried, but not excessively.
OK, but did you see how Colbert spanked them?! They won’t be able to sit down for weeks. Have a heart, dude…
OTOH, do you see how many people are getting slammed by a policy agenda they’ve helped build…so I take your point.
Hell, no. The pissy, whining response in the NYT tells me they need a bunch more pillorying. It only becomes excessive AFTER they no longer feel it is appropriate to posture as victims (and after they stop getting open invitations to colonize prime OpEd space).
And R&R (as well as fellow useful idiot Mankiw) seem completely uninterested in talking about anything other than the spreadsheet error, which was the least of their malfeasance. Their whole approach to data exclusion, weighting, etc. looks like it was used to plot points long after the curve was drawn.
If they were upset that their work was being misinterpreted, they should have said so long before now. Even if their article was literally true, but they allowed false conclusions to be drawn from it without correcting the misinterpretation, fits the Merriam-Webster definition of “deceive:”
Deceive: “to cause to accept as true or valid what is false or invalid.”
The fact that they did not speak up tells you that they were not unhappy with the conclusions and that they are only sorry that they got caught. (Besides, they are obviously not going to be named to Romney’s Council of Economic Advisors.)
And you have to remember that recession and job losses in the US show up at the short end of the stick in the third world as increased infant mortality rates and other deadly outcomes.
Engineers have responsibilities for lives that use what they build and economists may not have such a direct connection to life and death issues, but they are just as real and require just as high a level of responsibility.
Their op-ed, while a bit dissembling, did try to address the issues raised. Most economics papers/theories have one or two fatal flaws, which is obvious here. Their sin was seeing the 90% threshold cited again and again and not forcefully correcting policy makers on the direction of causation.
For me, It did raise an interesting thought experiment: What if the Obama administration had focused efforts on mortgage write-downs? So much of the economic hangover seems to be related to people winding down bad debt, and the biggest portion of that is their mortgage.
Easy to say, ‘We should have done that.’ But an interesting thought.
That sort of thing was suggested by some folks, but ignored or dismissed by Very Serious Persons because of the “moral hazard” of helping people who made bad financial decisions.
That only applied to ordinary people, of course. Somehow there was no risk of moral hazard when bailing out banksters.
-“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.”
Curious indeed. Almost as if Pete Peterson was right there in the room the room the whole time. As you have already pointed out “they are smart, experienced economists.”
The bottom line is that they have no liability to the victims for the damage caused and neither does Pete Peterson. Heads I win, again, tails you lose, again. Good thing we have a representative democracy to protect against these kind of “market failures” isn’t it?
What bothers me is not the paper because there are tons of papers put out all the time, but that they never amended this paper or even put up a note on the website about what including the omitted years did to their results. They say, as a way of avoiding blame, that they included the omitted data in a 2012 paper. That paper covers data from about 1800 to now. There’s no way to tell the data was omitted from the 2010 paper that’s cited so much. There’s no way to tell the data in the 2012 paper is any different. So they either failed to do the revision work or chose not to or in some other way fell down on the job as honest scholars. In other words, what bothers me is the integrity issue. They should have said, “We should have updated the 2010 paper on our website. We included the revised data in the 2012 paper but failed to revise the earlier work. We’re sorry.” That would have been fine.
Of course they never said high debt CAUSES slow growth. They just hinted it, implied it, suggested it… and when everyone started to believe it, they said nothing.
This is exactly the rhetorical trick used by Bush/Cheney to get us into the Iraq war.
Of course they won’t go the retraction/reconsider route. That would be both embarrassing and professionally damaging. It’s not their responsibility if their academic musings were used inappropriately by policy-makers. In a similar vein, I recall Tom Lehrer singing ‘”Once the rockets go up, who cares where they come down? That’s not my department”, says Wernher von Braun!’