Carmen Reinhart and Kenneth Rogoff hit the presses with “This Time is Different: Eight Centuries of Financial Folly” at nearly the perfect time in 2009. With their extensive set of data, they seemed to empirically prove that all of the countries with high levels of debt would experience negative growth going forward just as countries have experienced historically. The problem came when a PhD student pointed out that their excel spreadsheet was miscalculating the results. Just how radically different are the results? Quite a bit:
The more interesting question is just how much damage the eroneous data has hurt certain economies. We have seen strong austerity measures in European countries that were heavily influenced by this and other research. As the Guardian points out:
This is a big deal because politicians around the world have used this finding from R&R to justify austerity measures that have slowed growth and raised unemployment.
In the United States, many politicians have pointed to R&R’s work as justification for deficit reduction even though the economy is far below full employment by any reasonable measure. In Europe, R&R’s work and its derivatives have been used to justify austerity policies that have pushed the unemployment rate over 10% for the eurozone as a whole and above 20% in Greece and Spain. In other words, this is a mistake that has had enormous consequences.