The Debt-Growth Controversy

The recent controversy over errors in a 2010 paper by the economists Carmen Reinhart and Ken Rogoff is a sad commentary on the politically toxic atmosphere surrounding fiscal policy in the US, Europe, and Japan. The Reinhart/Rogoff paper is just a small part of a large literature that shows high debt levels to be economically risky.

STANFORD – The recent controversy over errors in a 2010 paper by the economists Carmen Reinhart and Kenneth Rogoff is a sad commentary on the demands of the 24/7 news cycle and the politically toxic atmosphere surrounding fiscal policy in the United States, Europe, and Japan. In their paper, “Growth in a Time of Debt,” Reinhart and Rogoff estimated large declines in growth associated with public-debt/GDP ratios above 90%. But it contained coding errors discovered by a University of Massachusetts graduate student. When corrected, the effect is substantially smaller, but nonetheless economically consequential.

The Reinhart/Rogoff paper is just a small part of a voluminous academic literature that shows high debt levels to be economically risky. A more fundamental question is causality: the state of the economy certainly affects the fiscal position, just as taxation, spending, deficits, and debts may affect economic growth.

Research errors in economics are not uncommon, but they are usually caught at an early stage, as happened once to me in a prepublication draft. Sometimes errors are not discovered until later, when they are working papers, as with Reinhart and Rogoff, or after publication, as with Nobel laureate Ken Arrow, who had to correct a mistake in the proof of his famous impossibility theorem.

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