Is based on a bad formula on an Excel spreadsheet.
So what do Herndon-Ash-Pollin conclude? They find “the average real GDP growth rate for countries carrying a public debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as [Reinhart-Rogoff claim].” [UPDATE: To clarify, they find 2.2 percent if they include all the years, weigh by number of years, and avoid the Excel error.] Going further into the data, they are unable to find a breakpoint where growth falls quickly and significantly.
This is also good evidence for why you should release your data online, so it can be properly vetted. But beyond that, looking through the data and how much it can collapse because of this or that assumption, it becomes quite clear that there’s no magic number out there. The debt needs to be thought of as a response to the contingent circumstances we find ourselves in, with mass unemployment, a Federal Reserve desperately trying to gain traction at the zero lower bound, and a gap between what we could be producing and what we are. The past guides us, but so far it has failed to provide an emergency cliff. In fact, it tells us that a larger deficit right now would help us greatly.
[UPDATE: People are responding to the Excel error, and that is important to document. But from a data point of view, the exclusion of the Post-World War II data is particularly troublesome, as that is driving the negative results. This needs to be explained, as does the weighting, which compresses the long periods of average growth and high debt.]
The spreadsheet error is just a data point flaw. The problem is that there is no such thing as an absolute or tipping point number. So long as sovereign debt is being incurred by all developed countries, the measure is one of relativity. There is not a quantum measurement challenge,” it is the interest rate, Stupid!” We are maintaining at historic lows. The demand for dollars is flowing inward and away from the bonds of the austerity trapped countries even at very high rates of return, as those borrowings are considered at risk. Buying into the numeric claptrap is a macroeconomic example of cutting of your nose to spite your face.