The big scandal in the world of economics today is a new paper attempting to refute claims put forth by Harvard econ professors Carmen Reinhart and Ken Rogoff that high levels of government debt result in slower growth.
We already posted a response from Reinhart and Rogoff, which essentially says that the critique is overblown, and that ultimately the critics corroborate the essence of the paper, which is that high debt does result in slower growth.
We just got the following chart from Professor Carmen Reinhart, which further clarifies the statement she sent out with Ken Rogoff.
It shows that Herndon, Ash et. al. (the other papers authors) got almost the exact same results as she and Rogoff did in their original paper, “Growth in a Time of Debt” — namely, that higher debt resulted in slower growth.
The key thing to look at is the MEAN column under HAP (2013) which shows that as debt/GDP increases, mean GDP growth does decline.
Still there’s a difference. HAP’s mean is 2.2%, whereas Reinhart and Rogoff’s mean growth at the above 90% debt/GDP level is -0.1% for the years 1945-2009.
Here is Reinhart’s (brief) correspondence in full. We’ve also spotlighted the main sections in red:
Further to our very preliminary reaction. I attach a table to help clarify the discussion.