Controversial economists Carmen Reinhart and Kenneth Rogoff have a response to their critics in today’s New York Times that ought to persuade nobody. The crucial move in this op-ed, as in other defenses of their “Growth in a Time of Debt” piece, is to obscure what it was that was allegedly interesting and allegedly important about the paper. The question, recall, was about the relationship between indebtedness (measured as the ratio of debt to GDP) and economic growth (measured as a change in GDP). The raw fact that there’s a statistical correlation between debt:GDP being high and GDP growth being low is trivial and offers no policy guidance. Countries with a high ratio of sheep to people generally have low populations, but that doesn’t mean that killing sheep leads to population growth. Right?
What was interesting about their paper was the apparent finding that a “tipping point” exists at the 90 percent ratio after which growth slows. That was (allegedly) important because it’s different from the existence of a mere statistical correlation and seems to suggest that there’s something out there—what I’ve been calling macroeconomic dark matter—that causes indebted countries to grow slowly even in the absence of high interest rates.
It’s this tipping point theory that’s been debunked, and nothing in their response restores it.
In fact, instead of rescuing the tipping point theory, they disavow it. “Nowhere did we assert that 90 percent was a magic threshold that transforms outcomes, as conservative politicians have suggested,” they write. They say that “[o]ur view has always been that causality runs in both directions, and that there is no rule that applies across all times and places” and that their “consistent advice has been to avoid withdrawing fiscal stimulus too quickly.”
So now we all agree and we can all be friends. But the fact is that this isn’t just some sad case of conservative politicians running around mischaracterizing a sober-minded study and then liberals overreacting in response. Ken Rogoff was writing op-eds drawing strong policy conclusions from this paper. He was delivering congressional testimony drawing strong policy conclusions from this paper. And it’s not as if he’s some political naif who stumbled down from the ivory tower into a partisan controversy he could never have predicted. He was research director at the International Monetary Fund and he knows how the game is played. He’s signed up as a paid speaker for the Washington Speakers Bureau. His “fees vary based on event location” but they promise that in exchange for your money “Kenneth Rogoff reaches beyond the theoretical and delivers quantitative proof from his frequently cited research and best-selling book to explain why our financial history continues to repeat itself-and just where the US and global economies are heading.”
But of course their is no quantitative proof. In a sense there never was, but the University of Massachusetts counter-paper helped expose how little quantitative proof was there. Now under attack Reinhart & Rogoff are retreating to much softer, much milder, much more defensible claims. And good for them. But that shows how much credit their critics deserve.