Mark Gongloff — 2 More [UMKC] Grad Students Claim To Find Another Flaw In Reinhart-Rogoff Research

Woo hoo!

First, University of Massachusetts-Amherst grad student Thomas Herndon shot holes in their influential research paper, "Growth In A Time Of Debt," by pointing out several mistakes and omissions the Harvard economists had made. Now, two PhD students at the University of Missouri-Kansas City have a new paper that they say finds another flaw in that same research.

The students argue that Reinhart and Rogoff's paper leaned too heavily on data from one country, Japan, leading to all sorts of bad conclusions about the relationship between government debt and economic growth.

"The argument that high ratios of government debt-to-GDP cause low growth remains plagued by misconceptions, at least for nations which issue their own currency," wrote the UMKC students, Matthew Berg and Brian Hartley. They used the same data that Herndon used, correcting for Reinhart and Rogoff's earlier errors and omissions.

Berg and Hartley argued that, once you adjust for the outsize influence of Japan on the data, there is no evidence that high debt causes slow growth, as Reinhart and Rogoff strongly suggested in their original paper and in subsequent influential op-ed pieces. In fact, there is some evidence that the chain of events may work in the other direction, with slow growth leading to higher debt, Berg and Hartley wrote.

The Huffington Post
2 More [UMKC] Grad Students Claim To Find Another Flaw In Reinhart-Rogoff Research
Mark Gongloff

Randy Wray — The Absolutely Final and Definitive Destruction of Reinhart And Rogoff

Two UMKC students have provided what I think is the most destructive empirical work to date on the simply awful book and articles by Reinhart and Rogoff that purported to find a magical debt ratio beyond which economic growth plummets to negative territory. They are Matthew Berg and Brian Hartley and their piece is at New Economic Perspectives:

Before presenting a quick summary of their findings, let me make two preliminary notes. First they validate what Yeva Nersisyan and I first pointed out three years ago: the crappy empirical research of Reinhart and Rogoff was driven by a small number of outliers, and by confusion of causation and correlation. Yes, some countries–Japan most notably–have high debt ratios and slow growth. R&R aggregated in such a way as to give very high weights to those countries. And those countries had high deficits and thus high accumulated debts because growth was low. Hence, there was never any support for their claim that 90% marks a causal turning point.

Economonitor — Great Leap Forward
The Absolutely Final and Definitive Destruction of Reinhart And Rogoff
L. Randall Wray | Professor of Economics, UMKC

Randy's definitive statement on MMT and the claim that MMT says deficits don't matter. 

But note that no UMKC-affiliated faculty member (and probably no student) has ever said something as silly as “no deficit can be bad”. I do not even know what that could mean. Deficits can be bad. Very bad. Very very bad. A sovereign country that issues its own currency cannot be forced into involuntary default so long as it floats its currency. That is certainly a true statement–accepted by anyone who knows anything about sovereign currencies. Whether it is talmudic I have no idea. If you’ve got the magic porridge pot, you can provide the porridge.

Can too much porridge be bad? You betcha–just read the damned story. Inflation? Yes. Currency depreciation? Probably. Leave too few resources for the private purpose? No doubt. Create a nation of couch potatoes? You’ve got it. Bury everything under a thick layer of suffocating porridge? Read the story.

Where do people like Epstein get this stuff? I have no idea.