How a student took on eminent economists on debt issue - and won
Source Charles Brown
Date 13/04/19/21:53
How a student took on eminent economists on debt issue - and won
By Edward Krudy

(Reuters) - When Thomas Herndon, a student at the University of
Massachusetts Amherst's doctoral program in economics, spotted
possible errors made by two eminent Harvard economists in an
influential research paper, he called his girlfriend over for a second

As they poured over the spreadsheets Herndon had requested from
Harvard's Carmen Reinhart and Kenneth Rogoff, which formed the basis
for a widely quoted 2010 study, they spotted what they believed were
glaring errors.

"I almost didn't believe my eyes when I saw just the basic spreadsheet
error," said Herndon, 28. "I was like, am I just looking at this
wrong? There has to be some other explanation. So I asked my
girlfriend, 'Am I seeing this wrong?'"

His girlfriend, Kyla Walters, replied: "I don't think so Thomas."

In the world of economic luminaries, it doesn't get much bigger than
Reinhart and Rogoff, whose work has had enormous influence in one of
the biggest economic policy debates of the age.

Both have served at the International Monetary Fund. Reinhart was a
chief economist at investment bank Bear Stearns in the 1980s, while
Rogoff worked at the Federal Reserve, passing through Yale and MIT
before landing at Harvard.

Their study, which found economic growth slows dramatically when a
government's debt exceeds 90 percent of a country's annual economic
output, has been cited by policymakers around the world as
justification for slashing spending.

Former U.S. vice presidential candidate Paul Ryan, a Republican
congressman from Wisconsin, is one influential politician who has
cited the report to justify a budget slashing agenda.

Using the two professors' data, Herndon found that instead of a
dramatic fall in growth, the decline was much milder, slowing to about
2.2 percent, instead of the slump to minus 0.1 percent that Reinhart
and Rogoff predicted.

Things tend to move at a glacial pace in the world of academic
research papers, but within 24 hours Herndon and his two teachers, who
co-authored the report, Michael Ash and Robert Pollin, found
themselves swept up in a global debate.

Herndon's paper began life as a replication exercise for a term paper
in a graduate econometrics class. He expected to replicate Reinhart
and Rogoff's results, then challenge the idea that high public debt
caused growth to slow.

But he never got that far. Repeated failures to replicate the results
roused his interest. Pollin and Ash encouraged him to pursue it after
he convinced them he was onto something.

"At first, I didn't believe him. I thought, 'OK he's a student, he's
got to be wrong. These are eminent economists and he's a graduate
student,'" Pollin said. "So we pushed him and pushed him and pushed
him, and after about a month of pushing him I said, 'Goddamn it, he's

Herndon approached Reinhart and Rogoff earlier this year for the
spreadsheets they used in their paper. The two professors provided
them at the start of April, unlocking the mysteries of the data that
had stumped Herndon.

Herndon said only 15 of the 20 countries in the report had been used
in the average. He also said Reinhart and Rogoff used only one year of
data for New Zealand, 1951, when growth was minus 7.6 percent,
significantly skewing the results.

Reinhart and Rogoff have admitted to a "coding error" in the
spreadsheet that meant some countries were omitted from their
calculations. But the economists denied they selectively omitted data
or that they used a questionable methodology.

For Ash, the findings mean the claim that high public debt causes
growth to stall no longer holds water.

"Their central thesis has been substantially weakened," he said.

Reinhart and Rogoff, however, say their conclusion that there is a
correlation between high debt and slow growth still holds.

"It is sobering that such an error slipped into one of our papers
despite our best efforts to be consistently careful," they said in a
joint statement. "We do not, however, believe this regrettable slip
affects in any significant way the central message of the paper or
that in our subsequent work."

Now that Herndon has ably crossed swords with some of the most eminent
figures in his field, he is thinking about expanding his work into a
Ph.D. thesis.

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