My take on Reinhart and Rogoff
By David Henderson
In the end, all the corrections advocated by the critics shift the average GDP growth for very-high-debt nations to 2.2 percent, from a negative 0.1 percent in Reinhart and Rogoff’s original work. The finding remains that economic growth is lower in very-high-debt countries (see chart). It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture.
Now it’s true that I didn’t seize on those errors and it’s also true that even if I had, that wouldn’t have made me a leftist. Even if all crows are black, not all black things are crows.
Still, while I agree with Stevenson and Wolfers, that one should not ignore the bigger picture, the mistake in R-R is, itself, pretty big. I think I don’t need to tell readers of this blog that the difference between -0.1 percent growth and +2.2 percent growth, compounded over even five years, is quite substantial.
Like Reinhart and Rogoff, I do worry a lot about the growing federal debt/GDP ratio. And the difference between 3 percent growth and 2.2 percent growth over, say, ten years, is substantial also. But the reality is that the correction of their work by Herndon, Ash, and Pollin is very important.
While I like the Stevenson/Wolfers article for laying out the facts nicely, I think they put too little emphasis on the huge impact the R-R error had on their results.
UPDATE: Correcting Myself.
“mobile” in the comments below and Bob Murphy by e-mail have corrected me. Murphy, as always, says things well and so I will just quote his e-mail:
On your EconLog post abut R&R, the casual reader might think that the Excel mistake changed their results from -0.1 to +2.2. But actually, I have seen a few sources say that the Excel mistake by itself only changed the take-away number by 0.3 percentage points.
The causes of the big shift would be inclusion of data that they didn’t have as of 2010, and changing the weighting of the data they did have. I don’t think these latter two things could be called “mistakes.”
Stevenson and Wolfers worded it as “In the end, all the corrections advocated by the critics…”
I don’t think Stevenson and Wolfers were themselves admitting these things were in fact “corrections,” as in, correcting a “mistake,” I think they were just showing that even if you did everything the critics wanted, you’d still get the qualitative result. Indeed, in their piece they explain why the original R&R weighting might make sense, if you thought about the question a certain way.
Suffice it to say that, were I to start this post from scratch, I would have written it differently. But my big point stands: if a reasonable analysis of data moves the key variable, annual growth of real GDP, from +2.2 to -0.1, that’s a big deal. Like Stevenson and Wolfers, I could have done without the “gotcha” tone of some bloggers. But I do think their big 90% result is substantially weakened.