Paul Krugman Closes The Debate With Reinhart And Rogoff

Economic policy makers in the US and Europe used the study by Reinhart and Rogoff to set government debt reduction as its top economic priority.  Subsequently, the study has been widely criticized and R&R have been working overtime to protect their flawed academic reputations.  Paul Krugman, like many of us, is tired of the endless debate with R&R.  He points out that the data do not support the R&R conclusion that there is a threshold ratio between debt and GDP of 90%, at which point economic growth dramatically declines.  The direction of causality is also an issue.  Low growth can cause the debt to GDP ratio to increase, and a high debt to GDP ratio might also contribute to low growth.  R&R were perfectly happy to let policy makers use their study to make economic decisions based upon the conclusions that they erroneously derived from their data.  They should have known better, but they encouraged policy makers to use their research to make bad policy decisions.  Their reputations have been badly damaged for good reasons.  The debate is over.