Understanding the Reinhart-Rogoff Situation from a Few Weeks Ago...

Given that I purport that this blog has an economic edge to it as well as my predilection for addressing hot topics of the day, it may be surprising that I haven't made any mention of the recent Reinhart-Rogoff mistaken data situation. To sum, Harvard economists Carmen Reinhart and Ken Rogoff wrote a short paper wherein they asserted that debt to GDP ratios of over 90 percent are associated with negative average economic growth. The punchline many derived from that was that there was economic support, in addition to moral support, for economic austerity.

However, it turns out that Messrs. Reinhart and Rogoff misread some of their data in a move that almost everyone seems to believe was a mistake rather than anything more sinister, but which was rather embarassing nonetheless. I am proud to say that it was a grad student from UMass, Amherst (my alma mater) named Thomas Herndon who picked up on the mistake. For anyone who would like a meat and potatoes analysis of just what mistakes were made, as well as a timeline of what happened when, Jodi Beggs has a great set of bullets and graphs here.

The situation is notable for a number of reasons, but for me it is a stark reminder that, despite claims to the contrary, economics is far from the science (even of a dismal nature) it oft purports to be. The problematic paper was not peer reviewed and the author's conclusions were not supported by real data. An even larger problem, which has lived implicitly on the outskirts of the scandal, is that even if the data were correct, and supported the conclusions of the austerity crowd, they still wouldn't have led to any kind of consensus. Those who dislike austerity would have still made counterpoints supported by their own sets of inviolable data, just as those who back austerity would have continued to embrace the paper.

Economics is fascinating and useful. However, there is no one agreed-upon approach to utilizing the tools of the trade, no consensus to which particular tool kit is appropriate in any set of circumstances, and no real proof that anyone really knows what will happen in an economy, nevermind how to fix problems which have already been created. Maybe it would be more valuable for the media, as well as the profession, to spend some time discussing all that rather than a data mistake in a paper which critics wouldn't have supported in any case. However, such truths might be a little too much for the common man (as well as economists justifying their usefulness) to handle...

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