Econofeuds just got real.
Carmen Reinhart and Kenneth Rogoff — the two economists whose paper on the negative effects of high debt loads was exposed as flawed by a grad student — have written a long letter to Paul Krugman, blasting him for being uncivil and unprofessional in how he treats them in his writing.
The letter is quite long, not just going through Krugman’s tone, but also in going through his past work and their past work to defend the work they continue to do.
Here’s the key personal bit.
Cambridge, Massachusetts, May 25 2013
Back in the late 1980s, you helped shape the concept of an emerging market debt overhang. The financial crisis has laid bare the fact that the dividing line between emerging markets and advanced countries is not as crisp as once thought. Indeed, this is a recurring theme of our 2009 book, This Time is Different: Eight Centuries of Financial Folly. Today, the growth bind of advanced countries in the periphery of the eurozone has a great deal in common with that of emerging market economies of the 1980s.
We admire your past scholarly work, which influences us to this day. So it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks. You have attacked us in very personal terms, virtually non-stop, in your New York Times column and blog posts. Now you have doubled down in the New York Review of Books, adding the accusation we didn’t share our data. Your characterization of our work and of our policy impact is selective and shallow. It is deeply misleading about where we stand on the issues. And we would respectfully submit, your logic and evidence on the policy substance is not nearly as compelling as you imply.
You particularly take aim at our 2010 paper on the long-term secular association between high debt and slow growth. That you disagree with our interpretation of the results is your prerogative. Your thoroughly ignoring the subsequent literature, however, including the International Monetary Fund’s work as well as our own deeper and more complete 2012 paper with Vincent Reinhart, is troubling. Perhaps, acknowledging the updated literature-not to mention decades of theoretical, empirical, and historical contributions on drawbacks to high debt-would inconveniently undermine your attempt to make us a scapegoat for austerity. You write “Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics.”
Setting aside this wild hyperbole, you never seem to mention our other line of work that has surely been far more influential when it comes to responding to the financial crisis. Specifically, our 2009 book (released before our growth and debt work) showed that recoveries from deep systemic financial crises are long, slow and painful. This was not the common wisdom at all before us, as you yourself have acknowledged on more than one occasion. Over the course of the crisis, and certainly by 2010, policymakers around the world were using our research, alongside their assessments, to help justify sustained macroeconomic easing of both monetary and fiscal policy fronts.
Your desire to blame our later 2010 paper for the stances of some politicians fails to recognize a basic reality: We were out there endorsing very different policies. Anyone with experience in these matters knows that politicians may float a citation to an academic paper if it suits their purposes. But there are limits to how much policy traction they can get with this device when the paper’s authors are out offering very different policy conclusions. You can refer to the appendix to this letter for our views on policy through the financial crisis as they were stated publicly in real time. We were not silent.
Very senior former policy makers, observing the attacks of the past few weeks, have forcefully explained that real-time policies are very seldom driven to any significant extent by a single academic paper or result.
It is worth noting that in the past, polemicists have often pinned the austerity charge on the International Monetary Fund for its work with countries having temporary or permanent debt sustainability issues. Since its origins after World War II, IMF programs have almost always involved some combination of austerity, debt restructurings, and structural reform. When a country that has been running large deficits is suddenly no longer able to borrow new funds, some measure of adjustment is invariably required, and one of the IMF’s usual roles has been to serve as a lightning rod. Even before the IMF existed, long periods of autarky and hardship accompanied debt crises.
Now let us turn to the substance. The events of the past few weeks do not change basic facts and fundamentals.
Krugman has responded in a much shorter post, not taking on nearly the whole letter, identifying what he sees and Reinhart and Rogoff’s key sin:
There is, as everyone in this debate has acknowledged, a negative correlation in the data between debt and growth. As a result, draw a line at any point — 80 percent, 90 percent, whatever — and countries with debt above that level will tend to have slower growth than countries with debt below that level.
There is, however, an enormous difference between the statement “countries with debt over 90 percent of GDP tend to have slower growth than countries with debt below 90 percent of GDP” and the statement “growth drops off sharply when debt exceeds 90 percent of GDP”. The former statement is true; the latter isn’t. Yet R&R have repeatedly blurred that distinction, and have continued to do so in recent writings.