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Widely Cited-Debt Study Exposed

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Posted

In 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, "Growth in a Time of Debt." Their "main result is that...median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.

This has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan's Path to Prosperity budget states their study "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth." The Washington Post editorial board takes it as an economic consensus view, stating that "debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth."

In a new paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst successfully replicate the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff and they were willing to share their data spreadhseet. This allowed Herndon et al. to see how how Reinhart and Rogoff's data was constructed.

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.

http://www.businessi...d-rogoff-2013-4

Whoops.

So, truly an error or is this a case of two people trying to make data fit an agenda?

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Posted

austerity is complete bullshit

bttt

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Posted

This is what happens when people with a "run the government like my checkbook" bias get a hold of bad data. Cause it's only crappy data that will prove them right.

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Posted

Conservatives can barely figure out how to use spell check, who is letting them do math?

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Posted

what is an acceptable level of debt vs gdp? how do you want to compare? to whom? when? is it before a war or after?

what about a three tier trading partner alliance? meaning, say you compare US with their associative link to Mex and Can while comparing Eng with its link to Germany and France. what kind of apple(s) and how many do you have that you are comparing to other apples?

if the correction of confirmation bias from the 2nd paper(and we are totally trusting the 2nd is cleansed of an equal bias for a subjective outcome) is that net GDP is 2 points above and not 1 below then what are we talking about here?

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Posted

I mean, who hasn't goofed their estimates by $450 billion or so?

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Posted

not the govt fo sho

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Posted

The answer (in the paper at least) is 120% btw. And I think they remembered to drag their formula all the way down.

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Posted

austerity is basically a religion at this point so tbh this story isn't going to affect its believers

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Posted

There's a time and place for austerity

During times of economic expansion, when policymakers otherwise have no incentive to do so.

Krugman, even for all of his dickishness, will admit this.

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Posted

i'll agree with that

generally "austerity doesn't work" posts are within the context of a recession

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Posted

Conservatives can barely figure out how to use spell check, who is letting them do math?

I complettely disagree.

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