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Austerity Debunked? Math Is Dead Wrong In Major Study Cited By Deficit Hawks

Economy Memo Pad

Austerity Debunked? Math Is Dead Wrong In Major Study Cited By Deficit Hawks


In 2010, economists Carmen Reinhart and Kenneth Rogoff released a seminal paper titled “Growth in a Time of Debt,” which had a significant impact on policy in Washington and elsewhere. Their paper’s most important finding was that “median growth rates for countries with public debt over 90 percent of gross domestic product (GDP) are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.”  Indeed, they found that countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate.

For politicians and pundits hoping to discredit public spending, the implications of their paper were all too clear. Taken as an econometric justification for austerity, the Reinhart-Rogoff finding has been one of the most cited stats in the public debate during the Great Recession. Paul Ryan’s “Path to Prosperity” budget notes that 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 has quoted it as the sign of an economic consensus, 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.”

Are their findings truly conclusive? Some critics have argued that the causation is backwards, meaning that slower growth leads to higher debt-to-GDP ratios. Josh Bivens and John Irons made this case at the Economic Policy Institute. But their argument assumes that the data used by Reinhart and Rogoff are correct. From the beginning, however, others have complained that Reinhart and Rogoff weren’t releasing the data behind their results (e.g. Dean Baker). Without the data, it was impossible to test their results by replicating them.

In a new paper, “Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff,”  economists Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts successfully tested the results. After trying to replicate the Reinhart-Rogoff results and failing, they reached out to Reinhart and Rogoff, who were willing to share their data spreadsheet. This allowed the UMass economists to see how how Reinhart and Rogoff’s data were constructed.

Three significant issues in the data stood out: First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries whose data they used. Third, an apparent coding error in their calculations excludes high-debt and average-growth countries. All three create a bias in favor of their result — and without them, the Reinhart-Rogoff study’s controversial result collapses.

Let’s investigate further:

Selective Exclusions. Reinhart-Rogoff use 1946-2009 as their period of measurement, with the main difference among countries being the starting year. In their data set, there are 110 years of data available for countries that have a debt/GDP over 90 percent, but they only use 96 of those years. The paper didn’t disclose which years they excluded — or why.

The UMass researchers reveal that the study excludes Australia (1946-1950), New Zealand (1946-1949), and Canada (1946-1950). Since these countries have high-debt and solid growth, the consequences of excluding them are clear. Canada had debt-to-GDP over 90 percent during this period — and 3 percent growth. New Zealand had a debt/GDP over 90 percent from 1946-1951. If you use New Zealand’s average growth rate across all those years, it is 2.58 percent; if you only use the last year, as Reinhart-Rogoff does, the Kiwi growth rate is -7.6 percent. That’s a big difference, especially considering how they weigh the countries.

Unconventional Weighting. Reinhart-Rogoff divides country years into debt-to-GDP buckets. They then take the average real growth for each country within the buckets. So the growth rates during the 19 years that England is above 90 percent debt-to-GDP are averaged into a single number. Those country numbers are then averaged, equally by country, to calculate the average real GDP growth weight.

If that is difficult to understand, here’s an example: England has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has only one year in the sample above 90 percent debt-to-GDP, with a negative growth rate of -7.6. In their final calculation, Reinhart and Rogoff give these two numbers, 2.4 and -7.6 percent, equal weight, as they average the countries equally — even though they have 19 times as many data points for England.

In their original paper, Reinhart and Rogoff don’t discuss or justify this methodology.

Coding Error. As the UMass economists note: “A coding error [in the Reinhart-Rogoff spreadsheet) entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis. [Reinhart-Rogoff] averaged cells in lines 30 to 44 instead of lines 30 to 49…This spreadsheet error…is responsible for a -0.3 percentage-point error in RR’s published average real GDP growth in the highest public debt/GDP category.” Belgium, in particular, has 26 years with debt-to-GDP above 90 percent, with an average growth rate of 2.6 percent (though this is only counted as one total point due to the weighting above).

Here is the Excel spreadsheet, with blue-box marking for formulas missing some data:

This error was essential to get the results published by Reinhart and Rogoff — and goes a long way toward explaining why other economists have been unable to replicate their results. If this error turns out to be an actual mistake made by Reinhart-Rogoff, all we can hope is that future historians will record that one of the core empirical points providing the intellectual foundation for the global move to austerity during this era was based on someone accidentally not updating a row formula in Excel.

So what do the UMass economists conclude in their critique of the Reinhart and Rogoff study? They find that “the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim].”  That finding depends on including all the years, weighting by number of years, and avoiding that Excel error.  Going further into the data, they are unable to find a breaking point where growth falls quickly and significantly.

The lesson to economists here may be to release all data online, so it can be properly vetted. But beyond that, looking through the data and how much it can collapse because of this or that assumption, it becomes quite clear that there’s no magic number out there. The national debt needs to be thought of as a response to the contingent circumstances we find ourselves in — with mass unemployment, a Federal Reserve desperately trying to gain traction at the lowest possible interest rates, and a gap between what we could be producing and what we are producing.

The past may guide us, however — and what the past says is that right now, what would help is a larger deficit.

Mike Konczal is a Fellow at the Roosevelt Institute.

Cross-posted from the Roosevelt Institute’s Next New Deal blog

The Roosevelt Institute is a nonprofit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.


  1. charleo1 April 16, 2013

    Republicans decided, as a political ploy, they were going to oppose.
    They were going to oppose, not because, they thought it was what the
    Country needed, But because, they thought it was what the Republican
    Party needed. It was, from the beginning, a search for a plausible sounding
    foundation. Which if presented with sufficient passion, and alarm. If some
    thing, some report, be it half true, or complete lie. If it plants that seed of
    doubt in the mind of the common man. We have our case for complete
    obstruction! We need nothing else.

  2. docb April 16, 2013

    PERi @ UMass is reputable and well respected.. Obviously, the other two were just trying to support an unsubstantiated claim of the right….Which goes to the claim that the repubs believed only their paid for polls and data and lost all but the gerrymandered races in 2012.

    More proof of their obdurate miscalculation and the fact that the republicans are mistrusted and out of touch to the tune of 70+%… Nothing like believing your own press.. makes fools out of the whole group!

  3. Dominick Vila April 17, 2013

    Deploying an austerity program before the economy has fully recovered guarantees a return to the Great Recession we just left behind. Neither austerity, nor President Obama’s chained CPI proposal will do anything positive to solve our fiscal problems. In fact, investment is likely to produce higher revenues and reduce our dependence on borrowed money than laying people off and furloughs.

    1. CPAinNewYork April 17, 2013

      True, but layoffs and furloughs increase companies’ net profit, so that’s what the Republicans will favor. Once again, the party of the rich demonstrates its callous disregard for the public welfare. Just look at its opposition to gun control.

  4. Jim Lou April 17, 2013

    As has previously been stated, Statistics is just that.

  5. stcroixcarp April 17, 2013

    How surprising is this story. Computer analysis capable of error, who would have thought? But remember our weather forecasts are based on computer models.

  6. Independent1 April 17, 2013

    This revelation is just one more example showing that the only way the GOP can make any of its political or social agendas appear to work is by lying, cheating and distorting the facts. I defy any of the GOP loving posters on The National Memo to identify one, just one GOP agenda item that has not been proven by history to be a failure. And let me debunk some of them before you even try to claim they work:

    1) Trickle-down economics: an absolute failure. George Bush gave the rich the biggest tax break they’d seen in over a decade and the economy and job creation were together the most dismal since the Big Depression. The only thing the wealthy do with added money from tax cuts is use the money to buy more yachts from countries outside America, throw more parties, build bigger houses/buy new houses – anything to feed their greed.

    2) Cutting Taxes and the budget in combo will spur the economy. George tried that too in the early 2000s and the economy sputtered the whole time he was in office until financial rules were relaxed in his 2nd term and the economy ran amok because of fraudulent lending transactions.

    3) Tax increases will dumb down the economy because it takes money from the fairytale job creators, the wealthy: Clinton raised taxes in 1993 and the next 8 years arguably saw the most robust American economy in its history.

    So let’s here about all those GOP political agendas that have really been proven to work during all the recessions and disasters that the party has created (those include the Big Depression in the early 1930s and the Great Recession in 2007-2009). Even Eisenhower who is probably the GOP’s best president since Teddy Roosevelt, governed with such a tight monetary fist that there were 3 recessions during his 8 years (most of any recent president) which lasted for almost 3 of those 8 years.

  7. Lovefacts April 17, 2013

    Why are people surprised by this. The Republicans won’t believe the truth because it goes against their core beliefs, just as they refuse to accept global warming. As with the latter, they hunt for “experts” to justify or support their positions.

  8. CPAinNewYork April 17, 2013

    I’m not surprised that Ryan would pull a sleazy trick like this. I wonder how much he paid those “researchers” to put out their flawed product.

  9. grannyk8 April 17, 2013

    So great is Ryan’s ego that he expects the facts to support whatever comes out of his mouth; he is unable to be wrong.

  10. jointerjohn April 17, 2013

    Any of you recall the character Cliff Clavin from the old television series “Cheers”? He would grasp any topic that came up in the bar and highjack it into a lecture of totally fabricated arguments. I believe he makes a fine icon for today’s right-wing.

    As the former White House Correspondent Irving R. Levine once said, “statistics are like bikinis, what they reveal is very interesting, but it what they conceal that is truly critical.”

    1. Allan Richardson April 17, 2013

      And Samuel Clemens (Mark Twain), “There are lies, there are damned lies, and there are statistics.” After which he “proved” with statistics that the Mississippi river jutted hundreds of miles into the Gulf “like a fishing pole” in the Cretaceous era, and that millions of years in the future, “New Orleans and St. Louis” will be adjacent!

    2. plc97477 April 17, 2013

      Great quote.

  11. Allan Richardson April 17, 2013

    Another factor, not mentioned, is the TIME lag between taking action (austerity or stimulus) and the result (whether boom, plateau or recession). They COULD try matching up the debt figures to SUBSEQUENT years of growth/recession numbers, but the time lag is NOT ALWAYS THE SAME. They also fail to include “non-economic” events, and many of these countries had JUST ENDED THE BIG WAR when their numbers start. Countries where the war was actually fought had to rebuild all or part of their economy from scratch, while those who sent troops and equipment abroad were already in a boom (such as USA and Canada).

    But “trickle down” definitely does not work, except possibly when industrial technology is being invented, NOT imported, for the first time, and the biggest historical era in which that happened, unlikely to repeat (unless the $5.00 robot servant is developed), was the 19th century in North America and, to a lesser extent, Great Britain and Europe. And in those cases, it took decades of labor struggle, alcohol-fueled boom in both legal and illegal “investments”, and a crash and Great Depression before enough trickled down to the poor (mostly white) to make them middle class.

    Bottom line is, if our economic policies are not Keynesian, they are DICKENSIAN.

  12. exdemo55 April 17, 2013

    All this talk of “spending cuts” in sequestration is forgetting one important point: These aren’t true spending cuts. They are reductions in the rate at which government spending is continuing to grow, said Heritage President-elect Jim DeMint on “The Kudlow Report.”

    While President Obama runs around warning everyone of economic devastation, it’s the President’s policies that are truly harmful to the economy, DeMint said. “He’s tried to discredit capitalism over the last four years, and now he’s trying to make a case that the only way to grow the economy is to continue to grow spending.”

    Heritage recommends an approach to budgeting that would set the country back on a prosperous track.

    “We want to see the country on a 10-year path to a balanced budget that creates some financial stability,” DeMint said. “We need some pro-growth policies like good, simple tax reform and entitlement reform to give some certainty out over the next 10 years.”

    1. jointerjohn April 17, 2013

      The demonstrated truth is the investor class does not want “financial stability” at all. They, their banker friends, and the mega-corps thrive off volatility. They can’t get rapidly richer from steady markets and true broad-based growth. Financial stability is what the working class needs, but not the type Heritage advocates.

      The economic devastation that President Obama and I want to avoid is the type that Heritage advocates in which the United States becomes another Mexico or Brazil, where those at the top live royally and everyone who punches the clock dips their water from a ditch.

      Former Congressman DeMint just doesn’t like the truth that regulated capitalism is the President’s brand, the kind that is in play in the most desirable places to live in the entire world. He also knows full well that the President was saddled with the results of the economic failure of his favorite approach and no matter how many ways you cut it, we can’t climb out of a recession with reduced spending. History proves it and Europe is demonstrating it right now.

      Two distinct definitions of “financial stability” are in play here. One in which the unrestrained ability for a few to amass unlimited wealth represents that stability, against those of us who believe that outrageous personal wealth surrounded by a starving population is no wealth at all.

      If I am rich while all my neighbors are destitute, and I have to erect high fences around my wealth and employ guards to keep it, am I wealthy? I say no. If I can do well while my neighbors have decent jobs, health care and pensions……………..then I am a wealthy man in the true sense of the term.

    2. RobertCHastings April 19, 2013

      “Jim DeMint” and “Heritage Foundation” are not exactly phrases that inspire confidence. Your whole line of unreason is simply what is laid out in the article above, and proof that NOTHING Republicans propose will get us out of the current economic mess.

  13. JDavidS April 17, 2013

    Just apply the “Ryan Test”… If that half-witted asshole Paul Ryan is in agreement with it, it has to be wrong.

    1. plc97477 April 17, 2013

      That test should simplify a lot of things.

  14. adriancrutch April 17, 2013


  15. Pamby50 April 17, 2013

    As Bill Clinton said at the Democratic National Convention, it’s the math stupid!!! It just never added up. We should send the republican back to grade school for simple math. Let’s see if they could pass.

  16. howa4x April 17, 2013

    This article acts like the republicans care about truth, which most of us know is true. Remember the yellow Cake enrichment and the tubes that got us into war with Iraq, or how about the Laffer curve. This stated that if you shower the super rich with tax cuts they will employ people. Funny, unemployment during Reagan was at 10%, and the rich took the money and hide it in off shore accounts like Romney did. Republicans caused the largest financial meltdown since the great depression with their economic polices,so why would anyone trust anything they say about it.

  17. onedonewong April 18, 2013

    Barak and his minions have levied a debt load of $150,000 on every newborn and he’s not done adding more debt. All of this spending hasn’t added 1 new job in almost 5 years.

    AS Germany has shown when they reduce the size and duration of their unemployment benefits low and behold people went back to work and in that country workers “pay” for their UI benefits.

    The same would hold true in this country force anyone drawing UI benefits past 26 weeks to do community service. They can paint pick up litter empty bed pans etc to earn their benefit…watch how fast they drop off the rolls

    1. RobertCHastings April 19, 2013

      Which would result in what FDR did during the 1930’s to get us out of the Great Depression with agencies like the WPA and the CCC. They created jobs with GOVERNMENT money, not private money. And your claim that not a single new job has been created in the past five years is nothing but a bald-faced lie. However, when the jobs the jobs ARE NOT THERE or the current workforce does not have the skills to fill the jobs that ARE there, then you can cut benefits all you want and the people who do not have the skills will be briefly employed (if they are hired) but quickly unemployed, again.

      1. whatmeworry April 19, 2013

        Ahhh Bobby have you ever studied Economics?? FDR’s action caused the depression to last far longer than it should of. Britain started the same time we did and was out by 1938, it wasn’t until 1948 before we finally exited the depression.
        As for your jobs comment there are FEWER American’s working today than at anytime during W’s 2nd term. But hey your a messiah worshipper so facts mean NOTHING

        1. RobertCHastings April 20, 2013

          And who is your messiah? Your a Republican, so facts mean nothing to you,especially proven facts. The Great Depression affected, primarily, the US, although Europe felt some effects because we were a trading partner. Roosevelt was unable to pursue the policy he would have chosen because he faced(as does Obama) a conservative Congress, twho felt,as you apparently do, that recessions respond to withdrawal rather than engagement. You say tomaytoes, I say tomahtoes. The fact that our recovery was delayed past Europe’s has nothing to do with what you think it did, especially since Europe entered the war much sooner than we did. Our eventual entry into WWII accelerated our recovery from the Great Depression BECAUSE of the huge influx of government resources into the economy. Full employment is an awesome engine for generating jobs and revenue.
          The Great Recession, which we are still in, affected the entire world because of the interconnectedness that did not obtain in the 1930’s. GB at the time of the Great Depression was still a major economic, political, and military power, and could easily recover from a minor economic bump for them. Interesting that you apparently really believe fewer Americans are working today than at any time since 2005, especially since over the last six months of W’s last term something in the neighborhood of 2 million lost their jobs, and the first two months of Obama’s presidency saw the loss ofanother 1.5 million (at least). Our economy continued to hemorrhage jobs until mid 2010 because of the
          right’s unshakable belief in the Bush tax cuts combined with reduced spending (althoug the reduced spending did NOT occur during the W years). Based upon FACTS, most of what you claim has no basis. However, if you want to avoid the facts and listen to Fox and Glen Beck, what you say makes a lot of sense, since they represent your moral compass.


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