Last week on the Planet Money podcast, it was reported that a graduate student named Thomas Herndon at the University of Massachusetts Amherst discovered that Carmen M. Reinhart and Kenneth S. Rogoff’s study on how austerity measures are “good” for a country’s economy was wrong in so many words. Reinhart and Rogoff stated that there was a correlation between debt and economic growth. Their argument is that the higher debt to GDP a country the slower its economy would grow. And their idea was picked up by a entire regime of world leaders who pushed austerity on their countries during a global recession. When that started I remember thinking, “Isn’t supposed to be the opposite way around?” The typical response is to put a stimulus into the economy. As the global recession and European Debt Crisis have continued, many countries that have done severe austerity measures have experienced economic stagnation. Now enter the grad student Thomas Herndon who was working on a paper about Reinhart and Rogoff’s study. They sent him the Excel spreadsheet they used for the basis of their findings and Herndon and his professors discovered that the duo made errors on it. Paul Krugman’s op-ed “The Excel Depression” describes the errors as omission of some data, unusual and questionable statistical procedures, and a simple coding error. The correlation that Reinhard and Rogoff stated that was there was not. When the correct data and errors were fixed in the spreadsheet, it showed that any correlation was weak and statistically unimportant. So what does this mean? Basically the entire austerity argument is invalid. All these cuts that politicians have argued for and pushed have done nothing, but inflect pain on people and the economy. The Atlantic has a really good article about who is going to back the idea now and it’s time to move on from this stupidity.

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