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I thought somebody would have posted about this here already, but I don't see anything, so here goes.


Most of you must know about the paper titled "Growth in a Time of Debt" by Carmen Reinhart and Ken Rogoff, published in Jan 2010. A main conclusion of this work is that when government debt goes over 90% of GDP, growth slows down significantly (on average growth goes negative at this point, according to the paper). This Reinhart-Rogoff paper has been a main pillar of austerity advocates, since it shows that really bad things are likely to happen once debt-to-GDP goes over 90%.


Well, it turns out that there are serious problems with the paper, including basic errors in the Excel spreadsheet that Reinhart and Rogoff used for their calculations. The problems were discovered mainly by Thomas Herndon, a graduate student at the University of Massachusetts, who was trying to replicate the Reinhart-Rogoff results. Recent austerity measures all across Europe may have been based at least partly on flawed research!


Some related links:


Critique of Reinhart-Rogoff by Herndon, Ash and Pollin: http://www.peri.umass.edu/236/hash/31e2ff374b6377b2ddec04deaa6388b1/publication/566/


A summary by Mike Konczal: http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems


Response from Reinhart and Rogoff claiming that their conclusion still holds: http://blogs.wsj.com/economics/2013/04/16/reinhart-rogoff-response-to-critique/


A response to the response from James Kwak: http://baselinescenario.com/2013/04/18/are-reinhart-and-rogoff-right-anyway/

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A UMass econometrician named Arinjadrit Dube looked at the timing of changes in debt/income and rate of changes in GDP growth: http://www.nextnewdeal.net/rortybomb/guest-post-reinhartrogoff-and-growth-time-debt

Thanks, Rabbit.


To summarize, Dube's paper shows that high debt-to-GDP is much better correlated with past low GDP growth than future low GDP growth, indicating that low growth likely causes high debt rather than the other way around, right? The Reinhart-Rogoff result is looking shakier and shakier...

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A Mental Model:


Pessimistic Meta-Induction from the History of Science - Because even the most seemingly bulletproof scientific theories of times past eventually proved wrong, we must assume that today's theories will someday prove wrong as well.


This mental reference may help keep the skeptical eye open.




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