Economists don boxing gloves and start swinging

Economists don boxing gloves and start swinging

It is not often that a dispute between rival economists starts attracting significant public attention - you know, Sunday morning talk show segments, outraged blog posts, enthusiastic heckling from the newspaper sidelines - but in this case the stakes are high and the contenders are heavyweights.

The blue in question pits the Nobel Prize-winning economist and The New York Times columnist Paul Krugman against his former Massachusetts Institute of Technology classmates, Carmen Reinhart and Kenneth Rogoff, a former chief economist for the International Monetary Fund.

Nobel Prize-winning Economist Paul Krugman.

Nobel Prize-winning Economist Paul Krugman.Credit:Bloomberg

Hurtful things have been said. Nasty reviews have been written. Sides have been taken.

Reinhart and Rogoff have accused Krugman of incivility.


Krugman has gone a tad further, accusing Reinhart and Rogoff of helping to prolong the worst economic downturn since the Depression, contributing to the misery of millions around world, and of doing so by stuffing up an entry on a spreadsheet.

At issue is a paper Reinhart and Rogoff co-authored in 2010 called Growth in a Time of Debt. In it they wrote that they had found evidence that once a nation's debt reaches 90 per cent of gross domestic product a tipping point is reached and its economy risks dropping off a cliff.

Normally this sort of academic argument might not have a significant real-world consequence. In this case, Krugman argues, the result was catastrophic.

He believes the paper gave valuable ammunition to policymakers both in European governments and the US Republican Party, which never accepted the Keynesian orthodoxy that governments should boost spending during downturns.

It gave them cover to advocate austerity, despite the agony of high unemployment.

''Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics,'' writes Krugman in the New York Review of Books. ''The 90 per cent claim was cited as the decisive argument for austerity by figures ranging from Paul Ryan, the former vice-presidential candidate who chairs the House budget committee, to Olli Rehn, the top economic official at the European Commission, to the editorial board of The Washington Post.''

A confluence of historical issues compounded the problem, Krugman argues. At the time a new Greek government discovered that the nation's debt and deficit was far worse than had been admitted by the former incumbent.

''Put Greece and Reinhart-Rogoff together, and there seemed to be a compelling case for a sharp, immediate turn toward austerity,'' Krugman writes.

Krugman argues that the stabilisation and recovery promoted by stimulus on both sides of the Atlantic ended when the austerity argument promoted by Reinhart and Rogoff, among others, became the new orthodoxy.

But his critique gets tougher.

He says that even as austerity was demonstrably failing, his two former classmates failed to make the data on which they had based their thesis widely available, and those economists who sought to replicate it were flummoxed.

When a graduate student from the University of Massachusetts, Thomas Herndon, got access to the data this year, he discovered not only the coding error in the spreadsheet, but also the absence of available data that might have conflicted with the paper's central thesis. ''The threshold 90 per cent vanished,'' Krugman writes.

In late May, Reinhart and Rogoff made public a letter they had written to Krugman.

''We admire your past scholarly work, which influences us to this day,'' they wrote, ''so it has been with deep disappointment that we have experienced your spectacularly uncivil behaviour 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 characterisation of our work and of our policy impact is selective and shallow.''

They write that Krugman has been ''deeply misleading'' about their stance and that they ''would respectfully submit, your logic and evidence on the policy substance is not nearly as compelling as you imply''.

Last Sunday Krugman appeared on Fareed Zakaria's CNN International program, where he was asked if he worried about how personal the disagreement had become.

For a moment Krugman was conciliatory, noting that Rogoff was a ''magnificent economist''.

Then this: ''Who cares, right? I mean who cares about my feelings or Carmen Reinhart's feelings or Ken Rogoff's feelings? We're having a global economic crisis which is not over, which we have handled abysmally.

''We have massive long-term unemployment in the US. We have massive youth unemployment in southern Europe.

''I don't think the question of how civil a bunch of comfortable academic economists who went to MIT in the mid-1970s … matters at all compared to the question of the substantive issues and are we doing this wrong, which I think we are.''


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