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):
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.