[danso]

What do people think about the researchers' rebuttal in the WSJ?

http://blogs.wsj.com/economics/2013/04/17/reinhart-rogoff-ad...

I'm too much of a layperson in statistics and economics to tell, at this early in the morning without coffee, how much of this is eloquent backtracking BS:

> So do where does this leave matters on debt and growth? Do Herndon et al. get dramatically different results on the relatively short post war sample they focus on? Not really. They, too, find lower growth associated with periods when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; over 90, 2.2%. Put differently, growth at high debt levels is a little more than half of the growth rate at the lowest levels of debt. They ignore the fact that these results are close to what we get in our Table 1 of our AER paper they critique, and not far from the median results in Figure 2 despite its coding error. And they are not very different from what we report in our 2012 Journal of Economic Perspectives paper with Vincent Reinhart—where the average is 2.4% for high debt versus 3.5% for below 90%

[carbocation]

If I recall correctly, their original result had negative growth (like -0.1%) when debt is above 90%, and the revised result has growth at 2.2%.

The revised 2.2% is much closer than the original -0.1% to the rate at the next level down (3.2%).

So now they are clinging to the fact that 2.2% growth is still less than 3.2%. It is, but it's much closer than the old, original -0.1% growth.

[dangerlibrary]

The -0.1% mean growth rate was the silver bullet. It was everything - the only number anyone remembered or cared about after reading the paper.

Without that, it's another data point correlating economic growth and sovereign debt - and not a very interesting one, either.

[tejaswiy]

Related question: From what I understand, all the study is doing is that it's saying on an average countries with high debt / GDP have a slightly negative growth rate. But isn't that just one data point and not a justification for austerity itself?

[carbocation]

The original study said that. The new study said that their growth, while positive, is a bit less than those with less debt.

It's an association. It does not prove that there is causation, nor the direction of the causal arrow.

[akgerber]

Note the phrase "associated" in the excerpt: "They, too, find lower growth associated with periods when debt is over 90%"

This episode emphasizes that the original study found no causality; one would expect a country with low growth to need to rely more on debt and less on tax revenues to fund government, especially if expenditures were planned based on a higher-growth scenario.