Do These Corrections Validate Harvard Austerity Findings?
Earlier in April news broke that two Harvard University economists, Carmen M. Reinhart and Kenneth Rogoff, published findings on the impact of government debt mired with excel errors. UMass academics did their own study, and found that the data published by Reinhart and Rogoff contained excel faults which omitted certain countries from their findings. The findings of the Harvard economists were used in House Representative Paul Ryan’s (R-Wis.) Path to Prosperity budget proposal, in addition to being widely cited in the debate on austerity.
However, the two have remedied their work, incorporating countries including Spain and New Zealand into their findings as well as correcting Excel coding errors. Moreover, they remain defiant towards doubters, specifically the UMass researchers, claiming that their work ignores key findings pertaining to post World War II growth. Accusations previously mounted that by omitting the selected countries from their study, they added weight to their data. In a time where austerity is a hotly contentious issue, specifically in Europe, Reinhart and Rogoff’s paper stoked the fire.
Austerity in Europe has been widely unpopular in some countries, others though, such as Estonia, have claimed great success through the measures. Estonian President Toomas Hendrik Ilves got in a bit of a feud with Princeton economist and New York Times columnist Paul Krugman, tweeting harsh responses to Krugman’s op-ed claiming Estonian austerity was not as good as advertised.
Estonia’s growth-to-debt ratio seem to play into the argument Reinhart and Rogoff set forth in their paper, though. While the small country’s debt has remained steady during austerity measures, it finally saw 7.5 percent GDP growth in 2011, and successfully joined the euro. However this is not likely to settle the debate on the validity of austerity measures, as detractors point to Greece as a country where economic contraction is being exacerbated by unwarranted belt tightening.
At a time when the US and European countries alike are searching for the appropriate policy to tackle deficits and growth, Reinhart and Rogoff’s paper becomes quite relevant. Their findings remain the same, even post correction, claiming that governments with a greater than 90 percent debt to GDP ratio are apt to experience difficulties in growth. In the US, where debt to GDP exceeds
100 percent still, researchers are trying to figure out what that means for the future unemployment picture. If the Harvard report’s predictions hold true, the US could experience a 1 percent drop in growth as a result of such debt ― a statistic with bleak ramifications for those still without jobs.
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