Looking for a nine-letter word to sum up the beleaguered state of our current economic woes? Try austerity.
The theory that public spending must be cut in order to reduce debt and therefore create economic growth was made more popular with the publication of an influential 2010 study written by Harvard economists Kenneth Rogoff and Carmen Reinhart, Growth in a Time of Debt. The study has since been used by several political leaders, including House Budget Committee Chairman Paul Ryan, to support fiscally conservative austerity measures.
The only problem is that the report is incorrect, say University of Massachusetts–Amherst doctoral candidate Thomas Herndon, and economic professors Michael Ash and Robert Pollin, who authored their own study, Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff, which was published last month.
In a recent interview with Stephen Colbert, Herndon notes that he looked at Rogoff and Reinhart’s report for his term paper in order to learn the techniques one might use when conducting such an economic study, and was surprised to discover their findings didn’t add up.
“I tried to build the data myself from all the publicly available sources,” Herndon told Colbert, “but I just couldn’t replicate their negative average.”
“We found that these results were based on data errors and unsupportable statistical techniques,” Pollin and Ash, of UMass’ Political Economy Research Institute, write in the Financial Times.
“We are not suggesting that governments should borrow and spend profligately,” the UMass professors continue. “But judicious deficit spending remains the single most effective tool we have to fight against mass unemployment caused by severe recessions. Recent research by Prof Reinhart and Prof Rogoff, along with all related arguments by austerity proponents, does nothing to contradict this fundamental point.”
(Originally appeared in The Valley Advocate.)