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Financial Planning > College Planning > Student Loan Debt

Reinhart, Rogoff to Krugman: Stop Scapegoating Us

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The usually collegial tone in communications between academics was absent in an open letter Carmen Reinhart and Ken Rogoff sent their fellow economist Paul Krugman over the weekend, decrying what they called his “spectacularly uncivil behavior” in recent articles.

“You have attacked us in very personal terms, virtually nonstop, in your New York Times column and blog posts,” they wrote in a note opening with a polite expression of admiration for the Times columnist’s late-1980s economic research.

Reinhart and Rogoff’s highly influential research became the subject of controversy last month when a team of researchers found that a simple Excel spreadsheet error significantly altered the findings of a highly cited paper of theirs.

The economist duo acknowledged the error, but defended their work, saying the results of the research team critiquing them were consistent with their overall conclusions that countries with high levels of public debt experience lower average economic growth.

In their open letter, published on Reinhart’s website, the economist duo say a barrage of Krugman criticism crossed a line in a recent New York Review of Books article by “adding the accusation we didn’t share our data.”

Reinhart and Rogoff say their debt/GDP database was available on the Web since October 2010, and published on a second website in March 2011, and call the accusation “a sloppy neglect on your part to check the facts before charging us with a serious academic ethical infraction.”

The duo reserve most of their words in defense of the substance of their own and others’ research establishing a link between high debt and slow growth—research they claim “would inconveniently undermine your attempt to make us a scapegoat for austerity.”

In the process, Reinhart and Rogoff include a long-list of links meant to show that their policy views offered in “real time,” as the economic crisis unfolded in 2008 and 2009 give lie to the view that they counseled austerity measures—including even an August 2010 quote from Krugman cheering them on for opposing austerity.

This series of quotes traces Reinhart and Rogoff’s view that loose fiscal policies were needed amid the crisis but that tackling the debt through measures such as the Simpson-Bowles deficit commission proposal was necessary in the longer term.

Turning to the substance of the debt/GDP debate, Reinhart and Rogoff argue that “the advanced economies now have levels of debt that surpass most if not all historic episodes,” and add that debt levels over 90% of GDP are “very rare altogether and even rarer in peacetime.”

Further, the differential in GDP growth between high- and low-debt countries is about 1% a year, and since debt overhang episodes average 23 years, “the cumulative effect over time is significant.”

The duo’s letter takes Krugman to task for his praising “the Italian miracle”—Krugman credited central-bank funding of Italian debt for bringing down interest rates—without noting that GDP nevertheless fell in high-debt Italy by 2% last year and is set for a further 2% decline this year.

They also charge that Krugman’s frequent claim that slow growth causes high debt rather than the other way around is not supported by the recent economic research literature.

They ask Krugman if he really thinks countries like Greece that cannot access international capital markets because of their high debt will not suffer lower growth and higher unemployment as a consequence. And they ask on what basis does Krugman believe the United States will fare well “as peacetime debt hits new records?”

Referencing the title of their bestselling 2009 book, Reinhart and Rogoff conclude with a subtle academic put-down:

“You might be right, and this time might be, after all, different.”

It is possible their letter’s opening, expressing admiration for Krugman’s scholarly work (“back in the late 1980s”), might have been an even subtler put down, implying that Krugman’s last valuable contribution to economic research occurred a quarter of a century ago.

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