It was an amazing discovery by a graduate student last week that ought to change the nation’s budget conversations. But, as it turns out, this discovery hasn’t impacted budget negotiations at all.
Last week, the world learned that economics graduate student Thomas Herndon had found that the “famous academic paper often used to make the case for austerity cuts contains major errors.”
As part of his economics graduate program curriculum, Herndon was instructed to find a published economic study and try to replicate its findings — an exercise designed to help students practice applications.
But, try as he might, Herndon could not recreate the results of the study he chose: “Growth in a Time of Debt,” the pivotal paper by Harvard economists Carmen Reinhart and Kenneth Rogoff that lawmakers cite in defense of cutting budgets for schools, safety nets, and other important services. (Including, to list a few, Rep. Paul Ryan, former Treasury Secretary Tim Geithner, and Sen. Johnny Isakson.)
As it turned out, Herndon’s inability to replicate the findings was not because of student error (as he and his professors originally presumed) but was instead due to an Excel spreadsheet error in the original reporting. The expert economists failed to include data from several countries in their analysis which skewed their results dramatically. As the New York Magazine reports, “They had also excluded data from Canada, New Zealand, and Australia — all countries that experienced solid growth during periods of high debt and would thus undercut their thesis that high debt forestalls growth.”
And even further doubts have been cast on the Renhart & Rogoff study by economist Arindrajit Dube, now that the data set has been made available.
So this change everything, doesn’t it?
Wellll, you’d think so, wouldn’t you? The Center for Economic and Policy Research wrote after the finding, “If facts mattered in economic policy debates, this should be the cause for a major reassessment of the deficit reduction policies being pursued in the United States and elsewhere.”
But it doesn’t look like that’s the case. At least so far, it does not appear that lawmakers who pointed to the study as justification for their policies are reconsidering their policy stances. As the Fiscal Times reported,
In Washington, the nuances of [Renhart & Rogoff’s] research quickly became over-hyped and distorted by those with a political agenda. It reinforced biases that already existed.
Even though Ryan can no longer cite the 90 percent figure with confidence, he will continue to warn about the ravages of the $16.8 trillion national debt…
Senate Minority Leader Mitch McConnell—either unaware or oblivious to the refutation of the 90 percent number—highlighted its findings in a Wednesday speech, noting that the current debt level is “handicapping the present.”
So the Republican’s partisan battle over cutting vital services is now both without public support and without economic theory; yet they persist and stall, in hopes of pushing forward with more budget cuts.
In Oregon, we see a similar storyline as Republican legislators point to cuts as the state budget solution (including cuts to retired teachers’ and firefighters’ retirement accounts.) In the meantime, Democrats in the House have crafted HB 2456 to generate $275 million for schools and critical services by closing tax loopholes for big corporations and upper-income taxpayers. (Read more about the bill here, and send an email to your Representative urging him or her to vote yes on HB 2456.)
The bottom line is this: One of the only “values” of budget cuts was just disproved by a graduate student. But Oregonians and Americans have long seen the value in supporting our schools and other vital services.