[UPDATE below. Make sure you read that if you are just now stumbling upon this post.]
Man, Reinhart and Rogoff are getting hammered by the Keynesians lately. First of all, you’ve got commentators (here’s but one example of many) who are making it sound like all the “austerity” the last 3 years was due to an Excel mistake. This is simply ridiculous, as the R&R headline number only changes “a few tenths of a percent” when you correct the spreadsheet formula.
Although (to his credit) Krugman didn’t lead his readers to believe all of R&R’s results hinged on that Excel mistake, he too has been just blasting them. In this post on “Knaves” and “Fools” Krugman says, “And so you have the spectacle of…powerful officials instantly canonizing research papers that turn out to be garbage in, garbage out”, a clear reference to R&R. And let’s not forget this post where Krugman summed up the lessons of the R&R fiasco:
Notice, however, that the problem with the original [R&R paper] wasn’t that it failed to convey the nuances. The problem was that it was just plain wrong — wrong about America after the war, wrong about what a debt-growth correlation means. (It turns out that there was other wrongness too, but that was enough).
So the moral of the story should not be, “Don’t take strong positions”. It should instead be “Don’t take a strong position that some people want to hear if the position isn’t supported by theory and evidence”. Or maybe, even more briefly, “Don’t pander”.
And the trouble with where I think [Tyler] Cowen, at least, is going is the apparent suggestion that everyone who develops a prominent public profile in economics has to do it by pandering. No, they don’t — and specifically, I don’t think that’s what I do. I’ve taken very strong positions over the years; I’ve been wrong on some occasions; but I can’t think of any cases where I took a stronger position than my actual beliefs warranted.
So you see, it’s not just that these researchers were wrong, but that they were consciously pandering to politicians, telling them what they wanted to hear in their quest to hurt the underprivileged and reward the fat cats, when R&R knew that they were taking a stronger position than their actual beliefs warranted. Man, what horrible people!
In the interest of evenhandedness, I guess we should try to find the views of someone else to counterbalance Krugman’s strong accusations. Now to be fair, we can’t just quote from some adjunct professor at Hillsdale College. Let’s get, say, a Nobel laureate, and one who has read the entire literature on financial crises and macroeconomic policies to get us out of a depression–this is the kind of guy (or gal) we need, to give a balanced view.
Oh, I’ve got an example of just such a person, who wrote in July 2010:
Regular readers will know that I’m a huge admirer of Ken’s work, both theoretical and empirical. Obstfeld and Rogoff is the definitive work on New Keynesian open-economy macro; Reinhart and Rogoff the definitive empirical history of financial crises and their aftermath. It was largely thanks to my study of Obstfeld-Rogoff that I realized, from the get-go, that many of the arguments we were hearing about how modern macro had proved Keynesianism wrong were just ignorant; it was largely thanks to my reading of Reinhart-Rogoff that I realized, early in the game, that this was going to be a prolonged slump rather than a V-shaped recovery.
UPDATE: I had not clicked through the link of Krugman’s July 2010 quote. (You can choose whether to believe this or not, but yesterday the NYT wasn’t letting me read his stuff because it said I had exceeded my monthly limit, so I didn’t think it would let me. But, for some reason today–still April–it’s letting me.) I was just relying on the quotes from the other blog posts on this.
The quote is accurate, but later in the same post Krugman says:
Unfortunately, the Reinhart-Rogoff paper now being cited all over the place – the one that suggests that there’s a critical level of government debt, at around 90 percent of GDP — doesn’t follow that strategy. All it does is look at a correlation between debt levels and growth. And since debt levels are not sharp extreme events, there’s no good reason to believe that they’re identifying a causal relationship. In fact, the case they highlight – the United States – practically screams spurious correlation: the years of high debt were also the years immediately following WWII, when the big thing happening in the economy was postwar demobilization, which naturally implied slower growth: Rosie the Riveter was going back to being a housewife.
It’s just not up to the standard of the other work. And yet Ken is leaning hard on that paper to justify his pro-austerity position.
So, had I realized that upfront, I wouldn’t have made this post. I would take it down now, except that seems Orwellian.