The Flawed Origins of Expansionary Austerity

CAMBRIDGE – Several of my Harvard University colleagues have recently been casualties in the crossfire between fiscal “austerians” and fiscal stimulators. The economists Carmen Reinhart and Kenneth Rogoff have received an astounding amount of press attention since it was discovered that they made a spreadsheet error in a 2010 paper that examined the statistical relationship between debt and growth. They quickly conceded their error.

Soon after, the historian Niall Ferguson – also at Harvard – received much flack when, asked to comment on Keynes’ famous phrase, “In the long run we are all dead,” he “suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay.” Ferguson, too, quickly apologized.

But Reinhart and Rogoff’s estimates in 2010 had already been superseded by a 2012 paper that they wrote with Vincent Reinhart, which used a more extensive data set that did not contain the error. And “some of Ferguson’s best friends” are gay, while Keynes actually tried to have children.

Clearly, as the austerians’ barricades have weakened under the continuing onslaught of facts (most notably the recessions in Europe, and now Japan’s conversion to expansion), the stimulators have found the missteps of Reinhart/Rogoff and Ferguson to be convenient weapons. But they are the wrong weapons.