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Leading pro-austerity academic paper may have included fatal Excel error

A 2010 paper by Carmen Reinhart and Kenneth Rogoff found that growth falls dramatically as debt increases. Or does it?

Image: Brian A Jackson via Shutterstock

AN ACADEMIC STUDY regularly cited by proponents of austerity as a way of restoring economic growth has been thrown into doubt – because of a computational error in Microsoft Excel.

The 2010 paper by Carmen Reinhart and Kenneth Rogoff, ‘Growth in a Time of Debt‘, gathered historical evidence to conclude that countries with public debt over 90 per cent of GDP had significantly lower rates of economic growth.

The study had been cited by many advocates of cutting government spending – including US congressman Paul Ryan, who has led Republican calls to rein in the budget – as an example that allowing countries to continually borrow eventually hurts their own economic prospects.

Some had argued that the paper had made the wrong conclusion – and that it was actually slow economic growth which caused debt to pile up in the first place.

However, the authors had never released their workings – keeping them under wraps until three other economists requested to see their workings when they found themselves unable to replicate the Reinhart-Rogoff findings.

It has now emerged that the figures used to reach their conclusions may have been erroneous – because of a single coding error in Microsoft Excel.

As the Next New Deal blog summarises, the Excel formula used to calculate the average economic growth in 20 countries, had an error – leading it to exclude the example of Belgium which had a relatively high GDP when its debt had been above 90 per cent.

Their paper has also been criticised for some selective exclusions – the calculations include data for 96 years where countries had debt over 90 per cent of GDP, even though they had 110 years of data to use – and for not weighting the examples of individual countries to account for longer periods of high debt.

Reinhart and Rogoff responded to the criticisms, arguing that their paper had only ever discussed the ‘association’ between debt and slow growth, and not the ‘causality’ of one over the other – but that the results of the new study are not all that different from theirs anyway.

However, Nobel laureate Paul Krugman – a noted critic of austerity policies – said the defence was poor, and fell into the trap of ‘reverse causation’ associating low growth with high debt, and not the other way around.

About the author:

Gavan Reilly

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