Who’s Afraid of the Big Bad Debt?

The ongoing debate over findings by the economists Carmen Reinhart and Kenneth Rogoff that high public debt weakens economic growth is considered important because it is supposed to have implications for the choice between austerity and fiscal stimulus. In fact, the debate's relevance is limited largely to the US.

CAMBRIDGE – It has been a while since a debate among academic economists attracted so much interest from the mainstream press as has the row between Carmen Reinhart and Kenneth Rogoff, on one side, and Paul Krugman, on the other. In fact, it has even become fodder for television comedy shows.

At issue is an influential 2010 paper by Rogoff and Reinhart that purports to show that high levels of public debt are associated with lower long-term economic growth. A new paper by Thomas Herndon, a graduate student at the University of Massachusetts at Amherst, and two of his professors, Michael Ash and Robert Pollin, questioned this finding, and Krugman made their work famous.

Herndon, Ash, and Pollin argue that the results obtained by Reinhart and Rogoff are based on coding errors and questionable methodological choices. But, after all their quibbles, their paper weakens but does not refute the Reinhart/Rogoff paper’s main result. So why all the fuss?

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