The bonfire of vanities

No, this has nothing to do with the promising yet disappointing 1990 movie staring Tom Hanks, Melanie Griffith and Bruce Willis; this is a story about vanities in top-tier academia. Paul Krugman has been relentless in attacking Reinhart and Rogoff over their allegedly controversial findings on debt overhangs and recoveries from the crisis after huge debt episodes. Even the WSJ has decided to weigh in on the recent quarrel stating that "the gloves are off in the academic dispute over the merits of austerity and the dangers of debt". The whole thing culminated in his latest column for the New York Review of Books, where Krugman stated, among other, that R&R "haven’t just lost their canonized status, they've become the objects of much ridicule", accusing them further in not making their data widely available thereby rendering it impossible for researchers to reproduce their results. Needless to say, the response from R&R was swift. They call Krugman "uncivil" and refer to his attacks as unnecessarily personal:

"Your characterization of our work and of our policy impact is selective and shallow. It is deeply misleading about where we stand on the issues ... You particularly take aim at our 2010 paper on the long-term secular association between high debt and slow growth. That you disagree with our interpretation of the results is your prerogative. Your thoroughly ignoring the subsequent literature, however, including the International Monetary Fund's work as well as our own deeper and more complete 2012 paper with Vincent Reinhart, is troubling. Perhaps, acknowledging the updated literature-not to mention decades of theoretical, empirical, and historical contributions on drawbacks to high debt-would inconveniently undermine your attempt to make us a scapegoat for austerity."   

"Your desire to blame our later 2010 paper for the stances of some politicians fails to recognize a basic reality: We were out there endorsing very different policies. Anyone with experience in these matters knows that politicians may float a citation to an academic paper if it suits their purposes. But there are limits to how much policy traction they can get with this device when the paper's authors are out offering very different policy conclusions ... 

Very senior former policy makers, observing the attacks of the past few weeks, have forcefully explained that real-time policies are very seldom driven to any significant extent by a single academic paper or result." [exactly my point - if only politicians were that responsive to academic research]

Basically, read the whole thing, it's very direct.  

Krugman writes back emphasizing once more that it's slow growth that causes high debt, not vice-versa (even though there is a good reason why debt increased rapidly in 2008/09 - let me give you a hint, it wasn't because of austerity). 

"There is, however, an enormous difference between the statement “countries with debt over 90 percent of GDP tend to have slower growth than countries with debt below 90 percent of GDP” and the statement “growth drops off sharply when debt exceeds 90 percent of GDP”. The former statement is true; the latter isn’t. Yet R&R have repeatedly blurred that distinction, and have continued to do so in recent writings."

DeLong defends Krugman's points with a few graphs. His points are undisputed, but the fact that high debt episodes result in slower growth still remains. Regardless of how we define it, debt is still bad for growth; whether corporate, household, or (particularly) emerging market government debt. 

BTW, R&R have several times before the "controversy" took aim against the way European policymakers handled their crises. They have particularly expressed concern with British "austerity" for example, and have called for emulating the Swedish 90-ies approach to reform. I wrote about this back in November 2012, calling upon their interview. 

But the most interesting parts of this academic slander are the reactions from across the blogosphere; I'll point out the ones from James Hamilton at Econbrowser...

"The smear campaign had only one purpose-- to distract people from thinking clearly about the consequences of the current high debt loads of many of the world's countries. On this fundamental question you can also find much to help set the record straight in Reinhart and Rogoff's open letter. 

But be forewarned-- there are many folks out there who still think that if that if they just keep shouting lies and nonsense loudly enough they can prevent you from hearing Reinhart and Rogoff's true message."

...and a particularly vicious one from David Warsh: (HT: Greg Mankiw). He goes back in time to discover the reasons behind Krugman's grumpiness:

Bill Clinton had been elected and convened an all-star economics conference in Little Rock. Krugman was then being mentioned as a possible member of the Council of Economic Advisers. After Tyson, a University of California at Berkeley economist who had been a graduate student at the Massachusetts Institute of Technology just before Krugman arrived there, was chosen to chair the Council, Krugman went on Larry King Live and called the summit “useless.”

Over the next several weeks Krugman conducted a not-so-sotto-voce campaign against various appointments, especially Tyson’s. At one point he told Hobart Rowen of The Washington Post that Clinton “wouldn’t be able to get good economists to work for him.”

Then RR came along:

"The current drama bears a striking resemblance to the earlier event mainly for this reason: Reinhart and Rogoff have something that Krugman wanted. Their 2009 book, This Time Is Different: Eight Centuries of Financial Folly turned out to be the authoritative warning of the severity, breadth and duration of the recent economic crisis.

In comparison, Krugman’s rapid revision of an earlier book about Japan, The Return of Depression Economics and the Crisis of 2008, which appeared about the same time, had comparatively little effect on the way the crisis was perceived in policy circles (though it was a mass-market best-seller). And, for all Krugman’s spirited defense of massive stimulus, it was NEC director Lawrence Summers and CEA chair Christina Romer who devised the government’s response for the Obama Administration. As an economist, as opposed to a journalist, Krugman was a marginal figure throughout the crisis." 

Hence the title - bonfire of vanities.

Warsh concludes:

"I have known Krugman for a long time; I admire him. I share many of his convictions. I would even say that we are friends. His career as a journalist, like his career as an economist, has been studded with brilliant coups. But as in the Little Rock case, he lacks a governor; or, in this situation, even an editor. The earlier episode ensured that Krugman would never again serve in government ... This one surely cinches the case that he should never win a Pulitzer Prize. The habitual thumb on the scale has become contempt for the balance itself."

P.S. (29.05.2013): The "Big Picture"

It is rather sad that many on the left relentlessly emphasize embarrassing methodological errors, but seem to completely neglect the big picture, which still tells us the same story: 

Source: Bloomberg