Cross-posted from Kate Mackenzie at FTAlphaville.
Carmen Reinhart and Ken Rogoff wrote a letter to Paul Krugman.
He responded, and so did some others. (DeLong for Krugman; Hamilton for R&R.)
On it goes.
And why not? Austerity is an important subject, the empirical data or lack of it deserves a great deal of attention. Economists calling each other names, probably less so. But it’s so entertaining…
It’s also difficult to avoid because a lot of Reinhart and Rogoff’s letter concerns the rather personal business of arguing about how their data was selected, how their findings were interpreted, and, particularly emotive, how much of the interpretation was their own doing.
Here’s a couple of good points:
… you never seem to mention our other line of work that has surely been far more influential when it comes to responding to the financial crisis. Specifically, our 2009 book (released before our growth and debt work) showed that recoveries from deep systemic financial crises are long, slow and painful. This was not the common wisdom at all before us, as you yourself have acknowledged on more than one occasion. Over the course of the crisis, and certainly by 2010, policymakers around the world were using our research, alongside their assessments, to help justify sustained macroeconomic easing of both monetary and fiscal policy fronts.
And this:
The Herndon, Ash and Pollin paper, using a different methodology, reinforces our core result that high levels of debt are associated with lower growth. This fact has been hidden in the tabloid media and blogosphere discourse, but this point is made plain by even a cursory look at the full set of results reported in the very paper they critique. More importantly, the result was prominently featured in our 2012Journal of Economic Perspectives paper with Vincent Reinhart on Debt Overhangs, which they do not cite. The main point of our 2012 paper is that while the difference in annual GDP growth between high and lower debt cases is about one percent a year, debt overhang episodes last on average 23 years. Thus, the cumulative effect on income levels over time is significant.
They also take aim at Krugman’s own assertions of causality, that debt leads to slow growth rather than the reverse. Krugman responds that their highlighting of the 90 per cent debt-to-GDP threshold was still irresponsible, and that any protests they made at misuse of their work were too quiet.
There’s also the claims about whether they made their data available for testing prior to responding to the request from grad student Thomas Herndon. On this, R&R cite the Wayback Machine as showing links to their data made available since 2010.
Joe Weisenthal asked Herndon about it, by email:
Long-story short, Herndon agrees that they did post links to their data sources, but never the spreadsheet, and that it was the spreadsheet that allowed the flaw to be discovered.
Plenty left in this one.
