Not even boring academics can escape the allure of Schadenfreude
A not-insignificant storm in the academic teacup has been raging for the past few weeks. Celebrity US economists, Professors Carmen Reinhart and Kenneth Rogoff, were still basking in the glory of their most recent work, when a group of adamant peers said, May we please have that data, we want a review. As it happened, the learned academic duo allegedly ignored most if not all these requests.
Reinhart and Rogoff were noted scholars long before the publication of their most recent book, “This time it’s different.” They are well-known and highly regarded for their benchmark work in macro-economics, and both enjoyed a quasi-celebrity status, at least in the United States. The publication of their seminal work was in part the result of developments in the G20 economies following the 2008 crisis. The work’s title alludes to typical political and policy responses, citing economic planners who fell back on the argument that today’s conditions after the crisis can not be compared to any other period in economic history. But the title is meant sarcastically implying that this time, it is NOT different.
In short, by comparing macro-economic data for numerous countries, some stretching back 200 years, the two came to the conclusion that when a country’s sovereign debt exceeds 90% of Gross Domestic Product, this burden acts as a brake on economic growth, and that all attempts at artificial stimulation can be expected to be futile. This definitive value must have struck a cord with planners worldwide, because very quickly, their book became one of the most-quoted recent academic publications.
I have referred to their conclusions on more than one occasion and even our own economic celebrity, the finance minister, noted their work in this year’s budget speech.
But then a group of equally astute but not so high profiled economists found a teeny flaw in one of the complex set of formulas the professors employed in their spreadsheets and it opened a floodgate of recriminations and jealous nitpicking. Suddenly, in certain circles, the R&R team became the scoundrels of the academic world and widely discredited despite the overall validity of their work.
In an effort to make sense of the debate, I read an article by Randall Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College, NY. He had obtained the R&R data and designed his own spreadsheet to plot what is called a country-year i.e. a singular value in a large data set that compares a country’s GDP growth, only for specific years. He produced a type of dotted graph that displays noticeable patterns and convergence areas. What was immediately evident is that the R&R 90% rule did not posit a statistical cliff, neither did it hold true for all countries under all conditions.
But studying the graph, one notices a marked fall-off in growth beyond 90% debt levels, and an almost equally noticeable dearth of positive growth years, beyond 120% debt to GDP. As can be imagined, every second rate analyst and his cousin had an opinion on Reinhardt and Rogoff’s work and they were viciously attacked by a slew of hopeful academics both for methodology and for protocol.
The most hilarious comments I heard was on an obscure TV channel, Russia Today, where a particularly acerbic commentator by the name of Max Keiser, called the academics names that I would not confer on my most hated enemy. Incidentally, Mister Keiser’s co-host completely missed the fact that “This time is different” is intended to mean exactly the opposite of what it appears to be. She ranted for many minutes on how despicable this type of behaviour from leading academics are.
Analysts who realise the value of R&R’s work, came out in a more reserved fashion to defend their colleagues. For instance, another team of noted analysts, Van R. Hoisington and Dr Lacy H. Hunt, released a very deliberate report on public debt quoting numerous other sources of highly regarded academic work, all basically drawing the same conclusion: – above a certain level of debt, that debt becomes a burden and instead of boosting growth, it detracts from it.
This chain of events provided me with much entertainment for it illustrated just how human even the most revered academics are. But it also showed just how spiteful academics can be, and it alerted me to the reality that the last word on debt has not been spoken. Still I follow the debate with great interest, keeping one eye on our own growing debt, knowing very well that at some point, it is not the planners that decide, but the market.