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This Time is Slightly Different?

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.


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Posted in Economics.

3 Responses

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  1. Rich says

    This isn’t entirely a fair summary of the issues. I have to point out this is much more than just a spreadsheet error – the larger controversy is a statistics issue (whether to account for multiple episodes in one country as a single data point or not), and whether high debt is causally related to low growth. There is a good post at, plus the two prior posts. It seems the economics jury is still out, despite MSM having already concluded RR is bunk. But there is some agreement in the economics community that high debt is correlated with low growth, even if not a cause.

  2. Rigorous says

    See WSJ for Reinhart’s response. The Guardian is a left wing rag. Can we do some critical thinking here? What could be another reason for “austerity” being imposed. Could it be that someone else has to pay for the profligacy? And those someones don’t want to do it anylonger?

    And, of course “austerity” failed. They didn’t do any labor or pension reforms.

  3. SurlyTrader says

    Ask your politician to hand a $10,000 check to every citizen in your country. I am all for it. Instead, your politician will hand the checks to your banks and then force austerity on your country which will make your GDP/Debt worse. If you want my true opinion, you can email me personally. For the most part I post interesting news and let you dissect it. Otherwise I will have a bunch of individuals saying that I forced them to do something that hurt them financially.

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