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Ash Graduate Pollin UMass Economics UMass Where the Economists Got It Right

Media buzz over Reinhart-Rogoff Critique continues

Thomas Herndon
Thomas Herndon

On April 15, UMass Amherst Economics Department Graduate Student Thomas Herndon and Professors Michael Ash and Robert Pollin published a working paper titled, Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff. In the paper the authors examine Reinhart and Rogoff’s research on the relationship between public debt and GDP growth for advanced economies in the post-World War II period. Reinhart and Rogoff argue that the rate of economic growth for these countries has consistently declined precipitously once the level of government debt exceeds 90 percent of the country’s GDP. In recent years, Reinhart and Rogoff’s results have been highly influential as support for austerity policies in both Europe and the United States.

Herndon, Ash and Pollin find that a series of data errors and unsupportable statistical techniques led to an inaccurate representation of the actual relationship between public debt levels and GDP growth. They find that when properly calculated, average GDP growth for advanced economies at public debt-to-GDP ratios over 90 percent is not dramatically different than when debt-to-GDP ratios are lower.

Almost immediately the Herndon, Ash, Pollin findings went viral with lots of social media buzz on Twitter and Facebook. The story has continued to garner extensive national and international coverage. Below is a list of media coverage since June 2013, including the Mother Jones cover story for September/October.

In January 2010, as the global economy was slowly beginning to claw its way out of the depths of the Great Recession, the Harvard economists Carmen Reinhart and Ken Rogoff published a short paper with a grim message: Too much debt kills economic growth. They had compiled a comprehensive database of debt episodes throughout the 20th century, and their data told an unmistakable story: Time and again, countries that rack up high debt levels have gone on to suffer years—sometimes decades—of stagnation.

As economics studies go, it was nothing short of a bombshell. As its conclusions were invoked from Washington to Brussels, tackling the recession suddenly became less important than tackling deficits. For the next three years, stimulus was out, austerity was in, and the protests of critics were all but buried amid the headlong rush to slash spending.

But then, on April 15 of this year, a trio of researchers at the University of Massachusetts published a paper that took a fresh look at Reinhart and Rogoff’s study. It turned out there was a problem: R&R had presented data from a list of 20 countries that filled lines 30 through 49 on a spreadsheet. But the formula that calculated the results relied on lines 30 through 44. Oops.

On its own, the spreadsheet error had only a modest effect on the paper’s conclusions, but the UMass team had other, weightier criticisms that taken together called R&R’s conclusions into serious question. Still, under ordinary circumstances the whole thing would have been little more than a dry academic debate.

But these were far from ordinary circumstances. Like a well-aimed snowball that sets off an avalanche, the UMass paper changed everything.

Washington Post Wonkblog, 9/19/13
Everything you need to know about the deficit

Quartz.com, 6/12/13
Economists looked even closer at Reinhart and Rogoff’s data—and the results might surprise you

Boston Globe Magazine, 6/9/13
A Greek tragedy?

Sydney Morning Herald, 6/8/13
Economists don boxing gloves and start swinging

New Straits Times, 6/7/13
When a study goes ‘rogue’

The Globe And Mail, 6/5/13
Rogoff-Reinhart put cart before the horse

Financial Advisor, 6/4/13
Krugman Criticized For Attacking Harvard Economists On Flawed Data

TruthDig.com, 5/31/13
Not ‘A Shred of Evidence’ to Support Reinhart and Rogoff

Dollars & Sense, May-June 2013
Greece and the Crisis of Europe: Which Way Out?

 

 

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Ash Dube Graduate Pollin UMass Where the Economists Got It Right

Slow growth means higher debt: Dube’s research reversing Reinhart-Rogoff cited

Arindrajit Dube
Arindrajit Dube

After UMass economics graduate student Thomas Herndon and professors Robert Pollin and Michael Ash blew the lid off of data errors in Carmen Reinhart and Kenneth Rogoff’s “Growth in a Time of Debt,” professor Arindrajit Dube determined that high public debt was more likely after a period of slow economic growth than before a period of slow growth. This indicates that slow growth is the driver of increasing debt, not that high debt diminishes growth. Dylan Matthews of The Washington Post’s “Wonkblog” recently cited Dube’s research (additionally he made a short mention of Herndon, Pollin and Ash):

Everything you need to know about the deficit – The Washington Post
9/19/13

And indeed, analyses after Reinhart and Rogoff’s confirmed that the causal arrow went from slow growth to high debt, not the other way around. Arindrajit Dube, an economist at UMass Amherst, found that high debt loads are better correlated with slow growth before the debt gets that large as opposed to after, indicating that it’s the slow growth causing the debt and not the other way around:

The left chart correlates debt-to-GDP ratios of a given year to the GDP growth rates of the next three years. If debt is causing slow growth, there should be a strong relationship. But except at the very low end, there isn’t. Meanwhile, the right chart correlates debt-to-GDP ratios of a given year to GDP growth rates of the previous three years. There’s a very strong relationship, indicating that slow growth causes high debt and not the other way around.

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Folbre

Folbre: Stay-at-home spouse work contributes to family well-being but not GDP

Nancy Folbre
Nancy Folbre

In this Economix blog post, UMass Amherst professor emeritus Nancy Folbre discusses the lack of measured value of housework in our economic indicators. A stay-at-home spouse’s work is not counted towards GDP, but, at equal income levels, a single-income household where the other spouse performs 20 hours of housework per week is better off than a dual-income household where there is no stay-at-home spouse. (New York Times, 9/9/13)

Valuing Houses but Not Housewives
by Nancy Folbre

“Home ownership allows people to invest in an asset they own, enjoying the services of that asset rather than paying rent to somebody else. That’s why imputed rent is calculated as a component of personal income in national income accounts – an important exception to the rule that only monetary transactions are included.

A stay-at-home spouse who specializes in unpaid work also increases household living standards, by reducing the need to purchase services like child care, housekeeping, gardening and meals away from home. Imputations of the value of this work are included in some experimental national income accounts but are largely ignored in discussions of public policy, with some perverse consequences.

[…]

The same double standard is applied to married housewives, who are typically described as “not working,” although on average they spend more than 40 hours a week in activities that someone else could be paid to perform. Of course, lots of people do unpaid work, not just stay-at-home spouses. And when married women engage in paid employment, they don’t reduce their hours of unpaid work enough to compensate, working longer hours overall.

Still, a comparison of the unpaid work hours provided by married women with children under 18 when they work full-time for pay and when they are not employed shows that the latter – the “housewives” – provide more than 20 hours extra a week of unpaid work.

So there is a real difference in living standards between a family in which both parents are working, each earning disposable income of $25,000 per year, and one in which one parent earns disposable income of $50,000 a year and the other stays home providing those extra 20 hours of household services.

Yet the rules governing access to benefits like the earned income tax credit are based on money income, regardless of the number of adults working for pay or the level of unpaid family work.”