Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

Economic Drones


Did an Excel error cost you your job? This is what people around the world should be asking after researchers at the University of Massachusetts uncovered a serious calculation mistake. The mistake was in an enormously influential paper by Carmen Reinhart and Ken Rogoff, two prominent economists, which purports to show that high levels of government debt lead to slow economic growth.

This paper has been widely cited by political figures around the world who have been pushing the case for cutting back government spending and raising taxes. House Budget Committee Chairman Paul Ryan famously cited Reinhart and Rogoff when he laid out his budget earlier this year. So have many of the politicians now pushing for cuts in Social Security and Medicare.

Reinhart and Rogoff’s work has had an extraordinary impact for an academic paper. This is why the calculation error is so important. When the error is corrected, the relationship between debt levels and economic growth is far less clear.

They are several examples of countries that have enjoyed healthy growth with debt levels far higher than the United States has now or will plausibly experience in the foreseeable future. Furthermore, the biggest falloff in growth rates in the corrected data occurs with debt levels that are way below what the United States has seen for the last three decades.

This means that if anyone wanted to use the corrected Reinhart and Rogoff paper for an argument about reducing debt levels, they should be pushing for much larger spending cuts and tax increases than anyone has put on the table. The corrected Reinhart and Rogoff paper would be telling us to kiss Social Security and Medicare goodbye completely and tighten our belts with some real tax increases.

Of course we are not hearing such calls, because the paper itself was not actually the basis for policy. Rather its finding were being used to provide cover by those who wanted to cut Social Security, Medicare and other programs that enjoy high levels of public support. It would be impossible to garner the political support needed for cuts to these programs on the merits, so the politicians pushing these cuts were happy to use the erroneous findings from Reinhart and Rogoff to advance their agenda.

The Reinhart and Rogoff paper was not used only to argue for cuts to popular social insurance programs, it was also used to argue against government efforts to boost the economy and create jobs. The opponents of these policies argued that efforts to spur the economy would prove to be counterproductive because Reinhart and Rogoff showed us that higher debt levels would mean slower growth.

Their paper was used to imply that any short-term benefit in job creation and increased growth would come with a high long-term cost. The corrected version is far less useful in making this case.

There were good reasons for not accepting the Reinhart and Rogoff results even before this error was uncovered, as many of us had argued. Most importantly there is a serious issue of the direction causation. Countries tend to have high debt levels because their economies are doing poorly.

Japan is the best example of this story. Japan had very low debt levels as its economy boomed in the 1970s and 1980s. Then its stock and housing bubbles collapsed in 1990 and threw the economy into a prolonged period of slow growth. During this period the Japanese government has run large deficits to sustain demand in a context where private sector demand was lacking due to the collapse of the bubbles that had previously supported its growth.

We can say that Japan’s weak growth in the last two decades was caused by large deficits, but this would be like saying that hospitals cause people to be sick. The direction of causation was clear: Japan’s badly troubled economy led it to run large deficits.

Reinhart and Rogoff want to find other Japans to tell us that we have to cut Social Security and other programs that people depend upon. They also want to tell us that we should abandon efforts to boost the economy and create jobs.

The uncovering of this major error in their work gives us a chance to re-examine this issue. We need a vigorous public debate over the course of economic policy. Ever since Franklin Roosevelt and the New Deal we have known how to create jobs and boost employment. We can’t let the mistaken work by Reinhart, Rogoff and others stand in the way.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on The Exchange (Yahoo Finance).


Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


October 24, 2016
John Steppling
The Unwoke: Sleepwalking into the Nightmare
Oscar Ortega
Clinton’s Troubling Silence on the Dakota Access Pipeline
Patrick Cockburn
Aleppo vs. Mosul: Media Biases
John Grant
Humanizing Our Militarized Border
Franklin Lamb
US-led Sanctions Targeting Syria Risk Adjudication as War Crimes
Paul Bentley
There Must Be Some Way Out of Here: the Silence of Dylan
Norman Pollack
Militarism: The Elephant in the Room
Patrick Bosold
Dakota Access Oil Pipeline: Invite CEO to Lunch, Go to Jail
Paul Craig Roberts
Was Russia’s Hesitation in Syria a Strategic Mistake?
Lara Gardner
Why I’m Not Voting
David Swanson
Of All the Opinions I’ve Heard on Syria
Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future
Rob Urie
Name the Dangerous Candidate
Pepe Escobar
The Aleppo / Mosul Riddle
David Rosen
The War on Drugs is a Racket
Sami Siegelbaum
Once More, the Value of the Humanities
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
Neve Gordon
Israel’s Boycott Hypocrisy
Mark Hand
Of Pipelines and Protest Pens: When the Press Loses Its Shield
Victor Wallis
On the Stealing of U.S. Elections
Michael Hudson
The Return of the Repressed Critique of Rentiers: Veblen in the 21st century Rentier Capitalism
Brian Cloughley
Drumbeats of Anti-Russia Confrontation From Washington to London
Howard Lisnoff
Still Licking Our Wounds and Hoping for Change
Brian Gruber
Iraq: There Is No State
Peter Lee
Trump: We Wish the Problem Was Fascism
Stanley L. Cohen
Equality and Justice for All, It Seems, But Palestinians
Steve Early
In Bay Area Refinery Town: Berniecrats & Clintonites Clash Over Rent Control
Kristine Mattis
All Solutions are Inadequate: Why It Doesn’t Matter If Politicians Mention Climate Change
Peter Linebaugh
Ron Suny and the Marxist Commune: a Note
Andre Vltchek
Sudan, Africa and the Mosaic of Horrors
Keith Binkly
The Russians Have Been Hacking Us For Years, Why Is It a Crisis Now?
Jonathan Cook
Adam Curtis: Another Manager of Perceptions
Ted Dace
The Fall
Sheldon Richman
Come and See the Anarchy Inherent in the System
Susana Hurlich
Hurricane Matthew: an Overview of the Damages in Cuba
Dave Lindorff
Screwing With and Screwing the Elderly and Disabled
Chandra Muzaffar
Cuba: Rejecting Sanctions, Sending a Message
Dennis Kucinich
War or Peace?
Joseph Natoli
Seething Anger in the Post-2016 Election Season
Jack Rasmus
Behind The 3rd US Presidential Debate—What’s Coming in 2017