Morning Must-Read: Robert Pollin: Public Debt, GDP Growth, and Austerity

Robert Pollin: Public debt, GDP growth, and austerity:: “In 2010… Carmen Reinhart and Kenneth Rogoff published… “Growth in a Time of Debt”… [which] has been frequently cited by major economic policymakers… Paul Ryan… George Osborne… Olli Rehn…. Herndon… Ash and I showed… that several of the critical findings advanced in the Reinhart-Rogoff paper were wrong….

Now… we examine these questions further…. Reinhart-Rogoff… is best known for its result that… economic growth declines dramatically when a country’s level of public debt exceeds 90% of gross domestic product…. There is no evidence to support this claim…. [Their] results were based on three sets of mistakes: (1) exclusion of some of the available data; (2) coding errors with their working Excel spreadsheet; and (3) inappropriate methods for averaging statistics…. When we performed accurate recalculations… we found that, when countries’ debt-to-GDP ratio exceeds 90%, average growth is 2.2%, not -0.1%….

There were serious problems with Reinhart and Rogoff’s response…. When Reinhart-Rogoff themselves corrected their Excel coding error and included all the data for all countries… the differences in [their preferred measure of] median economic growth rates falls by only 0.4 percentage points between countries whose public debt/GDP ratio was between 60-90% and those where the ratio was over 90%…. Reinhart-Rogoff themselves do not highlight this result in their Errata memo…. We show that when properly recalculated, there is no difference at all in the average GDP growth rates over 1790-2009 for the countries in Reinhart-Rogoff’s dataset in which public debt ranges between 90-120% relative to countries in which public debt/GDP fell between 60-90%…. Policymakers cannot defend austerity measures on the grounds that public debt levels greater than 90% of GDP will consistently produce sharp declines in economic growth.”