By Edward Krudy
NEW YORK, April 17 (Reuters) – When Thomas Herndon, a
student at the University of Massachusetts Amherst’s doctoral
program in economics, spotted possible errors made by two
eminent Harvard economists in an influential research paper, he
called his girlfriend over for a second look.
As they pored over the spreadsheets Herndon had requested
from Harvard’s Carmen Reinhart and Kenneth Rogoff, which formed
the basis for a widely quoted 2010 study, they spotted what they
believed were glaring errors.
“I almost didn’t believe my eyes when I saw just the basic
spreadsheet error,” said Herndon, 28. “I was like, am I just
looking at this wrong? There has to be some other explanation.
So I asked my girlfriend, ‘Am I seeing this wrong?'”
His girlfriend, Kyla Walters, replied: “I don’t think so,
Thomas.”
In the world of economic luminaries, it doesn’t get much
bigger than Reinhart and Rogoff, whose work has had enormous
influence in one of the biggest economic policy debates of the
age.
Both have served at the International Monetary Fund.
Reinhart was a chief economist at investment bank Bear Stearns
in the 1980s, while Rogoff worked at the Federal Reserve,
passing through Yale and MIT before landing at Harvard.
Their study, which found economic growth slows dramatically
when a government’s debt exceeds 90 percent of a country’s
annual economic output, has been cited by policymakers around
the world as justification for slashing spending.
Former U.S. vice presidential candidate Paul Ryan, a
Republican congressman from Wisconsin, is one influential
politician who has cited the report to justify a budget slashing
agenda.
Using the two professors’ data, Herndon found that instead
of a dramatic fall in growth, the decline was much milder,
slowing to about 2.2 percent, instead of the slump to minus 0.1
percent that Reinhart and Rogoff predicted.
Things tend to move at a glacial pace in the world of
academic research papers, but within 24 hours Herndon and his
two teachers, who co-authored the report, Michael Ash and Robert
Pollin, found themselves swept up in a global debate.
Herndon’s paper began life as a replication exercise for a
term paper in a graduate econometrics class. He expected to
replicate Reinhart and Rogoff’s results, then challenge the idea
that high public debt caused growth to slow.
But he never got that far. Repeated failures to replicate
the results roused his interest. Pollin and Ash encouraged him
to pursue it after he convinced them he was onto something.
“At first, I didn’t believe him. I thought, ‘OK he’s a
student, he’s got to be wrong. These are eminent economists and
he’s a graduate student,'” Pollin said. “So we pushed him and
pushed him and pushed him, and after about a month of pushing
him I said, ‘Goddamn it, he’s right.'”
Herndon approached Reinhart and Rogoff earlier this year for
the spreadsheets they used in their paper. The two professors
provided them at the start of April, unlocking the mysteries of
the data that had stumped Herndon.
Herndon said only 15 of the 20 countries in the report had
been used in the average. He also said Reinhart and Rogoff used
only one year of data for New Zealand, 1951, when growth was
minus 7.6 percent, significantly skewing the results.
Reinhart and Rogoff have admitted to a “coding error” in the
spreadsheet that meant some countries were omitted from their
calculations. But the economists denied they selectively omitted
data or that they used a questionable methodology.
For Ash, the findings mean the claim that high public debt
causes growth to stall no longer holds water.
“Their central thesis has been substantially weakened,” he
said.
Reinhart and Rogoff, however, say their conclusion that
there is a correlation between high debt and slow growth still
holds.
“It is sobering that such an error slipped into one of our
papers despite our best efforts to be consistently careful,”
they said in a joint statement. “We do not, however, believe
this regrettable slip affects in any significant way the central
message of the paper or that in our subsequent work.”
Now that Herndon has ably crossed swords with some of the
most eminent figures in his field, he is thinking about
expanding his work into a Ph.D. thesis.
