The excel depression By Paul Krugman April 19, 2013

In this age of information, math errors can economists with equally good credentials,” lead to disaster. NASA’s Mars Orbiter crashed which was the reality. because engineers forgot to convert to metric For the truth is that Reinhart-Rogoff faced measurements; JPMorgan Chase’s “London substantial criticism from the start, and the Whale” venture went bad in part because controversy grew over time. As soon as the modelers divided by a sum instead of an aver- paper was released, many economists pointed age. So, did an Excel coding error destroy the out that a negative correlation between debt economies of the Western world? and economic performance need not mean that The story so far: At the beginning of 2010, high debt causes low growth. It could just as two Harvard economists, Carmen Reinhart easily be the other way around, with poor eco- and Kenneth Rogoff, circulated a paper, nomic performance leading to high debt. In- “Growth in a Time of Debt,” that purported to deed, that’s obviously the case for Japan, identify a critical “threshold,” a tipping point, which went deep into debt only after its for government indebtedness. Once debt ex- growth collapsed in the early 1990s. ceeds 90 percent of gross domestic product, Over time, another problem emerged: Other they claimed, economic growth drops off researchers, using seemingly comparable data sharply. on debt and growth, couldn’t replicate the Ms. Reinhart and Mr. Rogoff had credibility Reinhart-Rogoff results. They typically found thanks to a widely admired earlier book on the some correlation between high debt and slow history of financial crises, and their timing growth — but nothing that looked like a tip- was impeccable. The paper came out just after ping point at 90 percent or, indeed, any par- Greece went into crisis and played right into ticular level of debt. the desire of many officials to “pivot” from Finally, Ms. Reinhart and Mr. Rogoff allowed stimulus to austerity. As a result, the paper researchers at the University of Massachusetts instantly became famous; it was, and is, surely to look at their original spreadsheet — and the the most influential economic analysis of re- mystery of the irreproducible results was cent years. solved. First, they omitted some data; second, In fact, Reinhart-Rogoff quickly achieved al- they used unusual and highly questionable sta- most sacred status among self-proclaimed tistical procedures; and finally, yes, they made guardians of fiscal responsibility; their tip- an Excel coding error. Correct these oddities ping-point claim was treated not as a disputed and errors, and you get what other researchers hypothesis but as unquestioned fact. For ex- have found: some correlation between high ample, a Washington Post editorial earlier this debt and slow growth, with no indication of year warned against any relaxation on the which is causing which, but no sign at all of deficit front, because we are “dangerously that 90 percent “threshold.” near the 90 percent mark that economists re- In response, Ms. Reinhart and Mr. Rogoff gard as a threat to sustainable economic have acknowledged the coding error, defended growth.” Notice the phrasing: “economists,” their other decisions and claimed that they not “some economists,” let alone “some never asserted that debt necessarily causes economists, vigorously disputed by other slow growth. That’s a bit disingenuous be- cause they repeatedly insinuated that proposi- false pretenses. For three years, the turn to tion even if they avoided saying it outright. austerity has been presented not as a choice But, in any case, what really matters isn’t what but as a necessity. Economic research, auster- they meant to say, it’s how their work was ity advocates insisted, showed that terrible read: Austerity enthusiasts trumpeted that sup- things happen once debt exceeds 90 percent of posed 90 percent tipping point as a proven fact G.D.P. But “economic research” showed no and a reason to slash government spending such thing; a couple of economists made that even in the face of mass unemployment. assertion, while many others disagreed. Policy So the Reinhart-Rogoff fiasco needs to be seen makers abandoned the unemployed and turned in the broader context of austerity mania: the to austerity because they wanted to, not be- obviously intense desire of policy makers, cause they had to. politicians and pundits across the Western So will toppling Reinhart-Rogoff from its world to turn their backs on the unemployed pedestal change anything? I’d like to think so. and instead use the economic crisis as an ex- But I predict that the usual suspects will just cuse to slash social programs. find another dubious piece of economic analy- What the Reinhart-Rogoff affair shows is the sis to canonize, and the depression will go on extent to which austerity has been sold on and on.