I was going to post something sort of kind of defending Reinhart-Rogoff in the wake of the new revelations — not their results, which I never believed, nor their failure to carefully test their results for robustness, but rather their motives. But their response to the new critique is really, really bad.
What Herndon et al did was find that the R-R results on the relationship between debt and growth were partly the result of a coding error, partly the result of some very odd choices about which data to exclude and how to weight the data that remained. The effect of fixing these lapses was to raise the estimated mean growth of highly indebted countries by more than 2 percentage points.
So how do R-R respond?
First, they argue that another measure — median growth — isn’t that different from the Herndon et al results. But that is, first of all, an apples-and-oranges comparison — the fact is that when you compare the results head to head, R-R looks very off. Something went very wrong, and pointing to your other results isn’t a good defense.
Second, they say that they like to emphasize the median results, which are much milder than the mean results; but what everyone using their work likes to cite is the strong result, and if R-R have made a major effort to disabuse people of the notion that debt has huge negative effects on growth, I haven’t noticed it.
Third, they point out that even cleaned-up data do show a negative association between debt and growth. Yes, but that’s where the issue of reverse causation comes in. More on that in a second.
Finally, while they acknowledge the issue of reverse causation, they seem very much to be trying to have it both ways — saying yes, we know about the issue, but then immediately reverting to talking as if debt was necessarily causing slow growth rather than the other way around.
So, about the slow growth/debt connection: I’ve done a quick and dirty mini-RR for the period 1950-2007 (starting 1950 because that’s where the Total Economy Database starts), focusing only on the G7. If you look at the scatterplot, there does seem to be an association between high debt and slow growth:
But I’ve coded the points by country — and if you look at it, you see that most of the apparent relationship is coming from Italy and Japan; Britain didn’t seem to suffer much from its high debt in the 1950s. And it’s quite clear from the history that both Italy and (especially) Japan ran up high debts as a consequence of their growth slowdowns, not the other way around.
So this is really disappointing; they’re basically evading the critique. And that’s a terrible thing when so much is at stake.