Matias Vernengo — Not even the IMF believes in Reinhart and Rogoff debt limits

When you've lost even the IMF on austerity, you've lost it all — excepting the diehards, of course.

Naked Keynesianism
Not even the IMF believes in Reinhart and Rogoff debt limits
Matias Vernengo | Associate Professor of Economics, University of Utah

Brian Romanchuk — Lessons from Piketty and Reinhart & Rogoff

People were quick to draw parallels between the data problems of Thomas Piketty and those faced by Reinhart and Rogoff. I think there are a few lessons that can be drawn from these episodes, even though the problems with Piketty’s data appear much less serious. Since the details of the wealth distribution is not a priority research topic for me, I will not comment on the details of Piketty's alleged errors. Instead my observations here are more about methodology.

Bond Economics
Lessons from Piketty and Reinhart & Rogoff
Brian Romanchuk

Mark Thoma — Growth and Sovereign Debt: What Causes What?

Reinhart and Rogoff are back in the news lately as a standard of comparison for data errors (is what Piketty did as bad...?).

But they wouldn't have been forgotten in any case. This research reexamines the Reinhart and Rogoff findings, and concludes that high public debt does not cause low growth. It's the other way around, low growth brings about high debt:...

Even if a negative correlation between debt and growth seems undisputed, this does not imply that debt is harmful for growth, since correlation does not always imply causation. In fact, Reinhart and Rogoff (2010b) have emphasised the possible bi-directional causality between debt and growth. They argue that high debt may lead to higher taxes and/or lower government expenditure, which is harmful for economic growth, while on the other hand periods of low growth may lead to high deficits and accumulation of debt. Nevertheless, these hypotheses are not backed by a quantitative analysis to establish the relative size and significance of each direction. To decompose the correlation into cause and effect, we apply Vector Autoregressive (VAR) models. Our main result is that debt does not seem to have any significant impact on growth.

Economist's View
Growth and Sovereign Debt: What Causes What?
Mark Thoma | Professor of Economics, University of Oregon

Randy Wray — New IMF Paper Shows Yet Again that Reinhart and Rogoff Results Are Erroneous

I’m pretty sure that the Reinhart and Rogoff “study” is the worst empirical research ever undertaken.... Their work was ideologically-driven: they wanted to stoke the deficit hysteria used as a justification for austerity....

A new IMF paper, “Debt and Growth: Is There a Magic Threshold?” by Andrea Pescatori, Damiano Sandri, and John Simon ... does a pretty good job of laying out the issues without the ideological bias of R&R. The authors use a data set that is less questionable, focusing on IMF member nations with data back to 1875. To take account of the possibility of reverse causation (slow growth leads to higher debt ratios), they look at longer periods of correlation. In other words, they see if high debt ratios (say, above 90%) remain associated with slow growth for years into the future. In addition, they distinguish between trajectories (does a country with a high debt ratio have a rising or falling debt ratio) to see if that makes a difference for the correlation. They also do some adjustments for “outliers” that affect averages (note that the R&R results depended strongly on outliers as well as math errors they made in their calculations).

What they find is that there is no “magic threshold” for the public debt ratio beyond which growth suffers. So far as their study goes, I think what they’ve done is a model for honest empirical work. Here is a quick summary of the main findings:

Economonitor — Great Leap Forward

New IMF Paper Shows Yet Again that Reinhart and Rogoff Results Are Erroneous
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

Bill Mitchell — More worn out ideological prattle from R&R

They're baaack!

Bill Mitchell – billy blog
More worn out ideological prattle from R&R
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Markus Eberhardt and Andrea F Presbitero — Public debt and economic growth: There is no ‘tipping point’

The idea that there is a common tipping point in the relationship between public debt and economic growth is still widespread. However, this is likely due to a misinterpretation of the existing evidence. Once we allow for the relationship between debt and growth to be country-specific, there is limited evidence supporting the presence of a within-countries debt threshold.

Vox.eu
Public debt and economic growth: There is no ‘tipping point’
Markus Eberhardt and Andrea F Presbitero

Another nail in the coffin of Reinhart & Rogoff.

Kevin Drum — It's the Austerity, Stupid: How We Were Sold an Economy-Killing Lie Once again, the Beltway fell for cherry-picked data—and you paid the price.

IT WAS THE EXCEL ERROR HEARD ROUND THE WORLD.

Mother Jones  September/October 2013 Issue
It's the Austerity, Stupid: How We Were Sold an Economy-Killing Lie
Once again, the Beltway fell for cherry-picked data—and you paid the price.
Kevin Drum
(h/t Charles Hayden)

Norbert Häring — The ECB sticks to the discredited 90%-debt-threshold-story with pathetic new evidence

If you read the May Monthly Bulletin of the European Central Bank, you could be forgiven for thinking that the ECB has simply missed the widely publicized April debate around the mistakes Carmen Reinhart and Ken Rogoff made in the data analysis which formed the basis for the 90%-debt-level-threshold story.

Real-World Economics Review Blog
The ECB sticks to the discredited 90%-debt-threshold-story with pathetic new evidence
Norbert Häring

Mark Gongloff — Reinhart And Rogoff's Pro-Austerity Research Now Even More Thoroughly Debunked By Studies

In a post at Quartz, University of Michigan economics professor Miles Kimball and University of Michigan undergraduate student Yichuan Wang write that they have crunched Reinhart and Rogoff's data and found "not even a shred of evidence" that high debt levels lead to slower economic growth.

And a new paper by University of Massachusetts professor Arindrajit Dube finds evidence that Reinhart and Rogoff had the relationship between growth and debt backwards: Slow growth appears to cause higher debt, if anything.

The Huffington Post
Reinhart And Rogoff's Pro-Austerity Research Now Even More Thoroughly Debunked By Studies
Mark Gongloff

An undergrad? Ouch.

Ralph Musgrave — Carmen Reinhart is clueless on fiat

In this letter to Paul Krugman, Reinhart asks, “What is the foundation for your certainty that as peacetime debt hits new records in coming years, the United States will be able to engage in forceful countercyclical fiscal policy if hit by a large unexpected shock?” (Letter to Krugman)

What Reinhart clearly doesn’t understand is that “debt” is completely irrelevant: that is, a monetarily sovereign country, regardless of what amount of national debt it happens to have, always has the option of simply printing money and spending it (and/or cutting taxes) – as pointed out by Keynes and Milton Friedman.

As to “unexpected shocks”, Reinhart is not clear on what those might be. But in the paragraphs just prior to the above quote she rambles on (as you’d expect) about what happens when foreign creditors cease wanting to buy or hold a country’s debt.

Well to repeat, if the US government finds that no one wants to lend it dollars, it can just print them! Doh! As long as it doesn't print so many as to cause excess inflation, the US government do whatever amount of "countercyclical fiscal policy" it wants.

Ralph Musgrave
Carmen Reinhart is clueless on fiat

Merijn Knibbe — Another note on Reinhart and Rogoff (and Reinhart): Great Stagnations do exist. Like great expansions.

The discussion about the Reinhart (and Reinhart) and Rogoff (RRR) articles is flaring up again: they (in fact: probably Carmen Reinhart – the style is much more evenhanded, understanding and mature than what I’ve read of Rogoff) have finally written a coherent, systematic defence. Look here. It is important to discuss this because of the importance of their main finding:

monetary economies have been inherently unstable during (at least) the last 200 years, because of endogenous forces related to, among other things, money and debt.

This clearly shows that the ’General Equilibrium’ characteristics of modern economies, assumed by main stream economists and a cornerstone of the main economic models, are not general at all. Debts and credit are totally endogenous to our economies and they are dangerous – surely when the main creditors and money creators, the banks, are unbridled. Alas, the whole discussion does not focus on such emergent properties of monetary economies but on the relation between growth and (public) debt. And RRR do not do a good job when it comes to this relation.Real-World Economics Review Blog

Another note on Reinhart and Rogoff (and Reinhart): Great Stagnations do exist. Like great expansions.
Merijn Knibbe

Robert Waldmann — The Letter to Paul Krugman

Robert Waldmann fisks R & R's letter to PK.

First off, RW:

"Yes their debts are not denominated in a currency of their own.  The pattern is clear – borrowing in Euros is risky as is borrowing in dollars for countries other than the USA.  Following DeGrauwe (and I’m sure countless others) Krugman has repeatedly stressed the difference between debts in a currency the debtor can print at will and debts in other currencies.  Let’s see if R&R ever mention the fact that debts in the eurozone are denominated in Euros."

Robert's Stochastic thoughts
The Letter to Paul Krugman
Robert Waldmann

At Angry Bear, What Reinhart and Rogoff should do now

Reinhart and Rogoff could and should have said “Paul Ryan, you know nothing of our work” (obligatory Annie Hall reference).  They did not.  They still can.  I think they should.  His claims have no basis in the evidence and all reality based people should say so.

David Rosnick — Reinhart and Rogoff Trip Over Data While Attacking Krugman

Ouch.

CEPR
Reinhart and Rogoff Trip Over Data While Attacking Krugman
David Rosnick

Carmen Reinhart — Letter to Paul Krugman

The saga continues.

Carmen M. Reinhart
Letter to Paul Krugman
Carmen Reinhart | Minos A. Zombanakis Professor of the International Financial System, John F. Kennedy School of Government, Harvard University

Michael Stephens — This Time Is Indifferent

Yet, revealingly, there are some deficit hawks who are treating the rapid shrinking of the deficit as bad news — and not for the Keynesian reason that this indicates the government is failing to do its part in supporting the economy, as Bernanke stressed in his remarks yesterday, but because the disappearing deficit is easing congressional pressure to pass “entitlement reform” (which, as we’ll see below, does belong in scare quotes)....

For the fauxsterian, the question of whether austerity can be expansionary, or whether economic growth falls off a cliff when countries’ public debt ratios surpass 90 percent of GDP, is really all beside the point. Deficit and debt hysteria have simply been a useful tool for pushing specific legislative changes that may or may or may not be related to the budget balance — changes that might be difficult to pass outside an atmosphere of imminent crisis.

A recent Washington Post column by Steven Pearlstein, “The Case for Austerity Isn’t Dead Yet,” more or less endorses this line. The problem with fiscal stimulus, the column tells us, is that it works: it boosts short-term economic growth, thus easing the pressure to pass “structural reform.”

Multiplier Effect
This Time Is Indifferent
Michael Stephens

Mark Gongloff — Bernanke Tells Congress Fighting Unemployment Is A Better Cure For Government Debt Than Austerity

"The loss of output and earnings associated with high unemployment ... reduces government revenues and increases spending on income-support programs, thereby leading to larger budget deficits and higher levels of public debt than would otherwise occur," Bernanke said....

Bernanke's comments draw comparison to a year-old paper, "Fiscal Policy In A Depressed Economy," by Berkeley economist Brad DeLong and Harvard's Larry Summers. The paper has received new attention lately.

A sort of antidote to the research of Harvard economists Carmen Reinhart and Kenneth Rogoff, which helped convince Congress to deliver austerity in the first place, the DeLong-Summers paper suggests that extra government stimulus spending in the short term could actually lower government debt levels in the long run.
But even after the Reinhart-Rogoff view has been discredited, the DeLong-Summers-Bernanke view can't seem to get any traction in Congress. 

The Huffington Post
Bernanke Tells Congress Fighting Unemployment Is A Better Cure For Government Debt Than Austerity
Mark Gongloff

Sina (Xinhua) English — High public debt raises fiscal crisis risk: IMF official

More R-R out of the IMF today.

Carlo Cottarelli, Director of IMF's Fiscal Affairs Department, ... said the ratio of public debt to gross domestic product (GDP) has surpassed 90 percent in some advanced economies, and high debt would hamper economic growth.

Wake him up.

Sina (Xinhua) English
High public debt raises fiscal crisis risk: IMF official

Paul Krugman — How the Case for Austerity Has Crumbled

In normal times, an arithmetic mistake in an economics paper would be a complete nonevent as far as the wider world was concerned. But in April 2013, the discovery of such a mistake—actually, a coding error in a spreadsheet, coupled with several other flaws in the analysis—not only became the talk of the economics profession, but made headlines. Looking back, we might even conclude that it changed the course of policy.

The New York Review of Books
How the Case for Austerity Has Crumbled
Paul Krugman | Professor of Economics, Princeton University

Dani Rodrik — What Use Are Economists?

Dani Rodrik is a heterodox neoclassical economist, who thinks that orthodox neoclassical economists are inconsistent but that it is necessary to use mainstream models to be in the game. Better than being orthodox but still part of the problem rather than the solution. But his post is worth a read anyway, since his heterodox ideas would improve the profession if listened to.

Project Syndicate
What Use Are Economists?

Dani Rodrick's weblog

What is wrong (and right) in economics?

Dani Rodrik | Dani Rodrik is Professor of International Political Economy at Harvard University’s Kennedy School of Government

Randy Wray — By Jove, He’s Got It: Krugman (Finally) Adopts MMT (And so does Summers)

Victory lap.

Economonitor — Great Leap Forward
By Jove, He’s Got It: Krugman (Finally) Adopts MMT (And so does Summers)
L. Randall Wray | Professor of Economics, UMKC