Errors found in a study pro austerity

A study published this week by the economist Thomas Herndon from the University of Massachusetts has found a mistake at a study written by the U.S. economists Carmen Reinhart and Kenneth Rogoff in 2010. The original study, called “Growth in a Time of Debt”, supported that high government debt levels (specifically debt that is over 90% of annual economic output) hurt economic growth.

The economist Thomas Hendorn. Ara.cat

The importance of the matter consists in that Reinhert and Rogoff’s study is one of the most cited when european officials stand behind their policy medicine of austerity as a cure for Europe's economic crisis. The European Commission and the European Central Bank have cited the 2010 study to support their argument that spending cuts and tax increases are needed to get out of the current depression.

But recently Hendon’s study reported some basic errors that could invalidate prior conclusions:

1. The first mistake and the most serious is that the 2010 study excludes several years of high debt and high growth in various advanced economies as New Zealand, Australia, Austria, Belgium, Canada or Denmark.

Errors in prior conclusions. The Wall Street Journal

2. The second error is that the study excludes from its analysis the years that followed the Second World War without any explanation. Moreover, during that period the majority of countries had high growth combined with high debt.

3. The way of calculation was not really conventional. It used the average of all the countries to calculate growth and debt. However, it compared different periods of time;  as an illustration, it gave the same importance to 19 years of growth in the United Kingdom than to New Zealand’s debt in only one year.

Tweet