Three years ago, Carmen Reinhart and Ken Rogoff published a study
that quickly became one of the most famous, most talked about economics
papers since the financial crisis. It got so much attention because it
answered a basic question everybody was asking: How much debt is too
much?
Reinhart and Rogoff looked at what had happened in many
different countries over many years. And they found a what looked like a
clear debt threshold: 90 percent. Average growth was much, much slower
in countries with debt-to-gdp ratios over 90 percent.
The paper got a lot of coverage in the press. Politicians cited it in the U.S. and Europe.
Then,
this week, a 28-year-old grad student and his professors published a
startling finding: Reinhart and Rogoff had made a simple Excel error in
one part of their study. The authors of the new critique also questioned
other elements of the study and argued that, in fact, there is no debt
threshold.
On today's show, we hear from the grad student who found the error. And we ask: How much should we trust economics?
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