Blame ideologues, not economists, for failed ‘austerity’ policies
Whether they intended to or not, Harvard economists Carmen Reinhart and Kenneth Rogoff provided much of the intellectual muscle behind the austerity movement that has dominated recent economic policy making in Europe — and motivated efforts by conservative Republicans to cut US government spending in slow economic times. Their research into government debt in dozens of countries indicated that, time and again, governments that ran up debt equaling 90 percent or more of their gross domestic product ended up sacrificing a significant amount of economic growth. They also published a bestselling book with the ironic title “This Time Is Different” — a commentary on how, time and again, leaders look on as speculative bubbles lead to banking crises that in turn lead to rising levels of government debt.
But however influential their work has been, it was flawed. In the course of researching a paper, University of Massachusetts economics graduate student Thomas Herndon asked Reinhart and Rogoff for a copy of their data set. When they obliged, he found that they had made a Microsoft Excel error that distorted their results. Corrected computations showed, by some accounts, that carrying very high debts — of over 90 percent of gross domestic product — wasn’t quite as ruinous as the two Harvard economists had computed.
Discovering the error has made Herndon a celebrity of sorts; he’s now appeared on “The Colbert Report” and been embraced as a hero by austerity opponents. Reinhart and Rogoff, meanwhile, have come in for a certain amount of scorn. But the anger should be directed more at policy makers who seized on the two economists’ conclusions to advance their own agendas, without even paying attention to what the researchers themselves were advocating.
Errors happen in statistical research, which is precisely why it’s vital to have people like Herndon trying to replicate published results. And in a column in The New York Times, Reinhart and Rogoff argued that their research should never have been read as an endorsement of the budget cuts that have been enacted in countries around the world. They noted that they’ve long argued against withdrawing fiscal stimulus too quickly, and for writing down the debts of countries like Greece and Portugal.
But if Reinhart and Rogoff are seeking to explain themselves, few politicians who used their original findings as an argument for fiscal castor oil are doing the same. That’s partly because much of what the austerity movement has advocated was never firmly grounded in their research, or anyone else’s. In fact, it’s always been easy to envision a package of short-term stimulus measures and long-term budget cuts that satisfies Reinhart and Rogoff’s policy concerns without aggravating current economic woes. But certain policy makers, for reasons that have more to do with small-government ideology than data of any sort, chose to push for budget cuts at almost any cost. They’re the ones who have explaining to do.