“This Time is Different” comes under fire from Amherst professors | what does it mean for austerity?
It is not unusual to have economists debate how to manage inflation, growth, and employment. The solutions vary from extreme Keynes supported by Government spending, to extreme austerity and we have seen all of those especially since 2008.
A guiding light of clarity that appeared in 2010 was the Reindhart/ Rogoff book entitled ‘This Time is Different”. The title implied with irony that in fact it is never different, and that it went on to empirically prove that over 800years of data it is proven that countries with excess debt suffer low or negative growth. I have quoted the book here on numerous occasions after the crisis.
Well, 3 years later some Professors at University of Massachusetts Amherst (Herndon, Ash and Pollin – HAP) managed to acquire the original spreadsheet used by the authors and were the first to do so after much coaxing. This is potentially as damning in the economist community as the Lance Armstrong debacle was in the cycling community. The result is devastating, and still the full implications will need to be analyzed and reviewed by experts.
Bottom line they have three conclusions:
- Spreadsheet coding error; since acknowledged by Reinhart Rogoff, that certain critical averages (@AVG) missed some cells in their range. While acknowledged by Rogoff and shrugged off as not meaningful, spreadsheet errors are devastating to credibility.
- Unconventional weighting of summary statistics; this one is more subjective and strenuously rebuffed by Rogoff.
- Selective use of date; some countries were excluded in certain data sets. Again and strenuously rebuffed by Rogoff.
Two of the Amherst professors write in the Financial Times today with the heading “Austerity after Reinhart and Rogoff” A main policy plank is riddled with faults, write Robert Pollin and Michael Ash”.
The central issue here is that the countries and defenders and implementers of austerity include IMF, most European Governments at the behest of the IMF, UK, and US Republicans. This makes for a very awkward moment as politicians from all these groups have relied on “This Time is Different” as a backstop to make the argument for them on austerity. I am in that same camp finding the book makes the argument that makes sense to me.
We are in for some deep debate as this new paper will be used for political gain, and I look forward to some reasonable debate and clarity about the real true impact of the papers conclusions, the central one being that countries with debt exceeding 90% of GDP will suffer harm to GDP.