April 19, 2013

Meet the 28-Year-Old Grad Student Who Just Shook the Global Austerity Movement

Most Ph.D. students spend their days reading esoteric books and stressing out about the tenure-track job market. Thomas Herndon, a 28-year-old economics grad student at UMass Amherst, just used part of his spring semester to shake the intellectual foundation of the global austerity movement.
Herndon became instantly famous in nerdy economics circles this week as the lead author of a recent paper, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff," that took aim at a massively influential study by two Harvard professors named Carmen Reinhart and Kenneth Rogoff.  Herndon found some hidden errors in Reinhart and Rogoff's data set, then calmly took the entire study out back and slaughtered it. Herndon's takedown — which first appeared in a Mike Konczal post that crashed its host site with traffic — was an immediate sensation. It was cited by prominent anti-austerians like Paul Krugmanspoken about by incoming Bank of England governor Mark Carney, and mentioned on CNBC and several other news outlets as proof that the pro-austerity movement is based, at least in part, on bogus math.
We spoke to Herndon about his crazy week, and how he's planning to celebrate his epic wonk takedown.
"This week has been quite the week," Herndon told us in a phone call from UMass Amherst's campus. "Honestly, I was not expecting at all the kind of attention it has received."
Herndon, who did his undergraduate study at Evergreen State College, first started looking into Reinhart and Rogoff's work as part of an assignment for an econometrics course that involved replicating the data work behind a well-known study. Herndon chose Reinhart and Rogoff's 2010 paper, "Growth in a Time of Debt," in part, because it has been one of the most politically influential economic papers of the last decade. It claims, among other things, that countries whose debt exceeds 90 percent of their annual GDP experience slower growth than countries with lower debt loads — a figure that has been cited by people like Paul Ryan and Tim Geithner to justify slashing government spending and implementing other austerity measures on struggling economies.
Before he turned in his report, Herndon repeatedly e-mailed Reinhart and Rogoff to get their data set, so he could compare it to his own work. But because he was a lowly graduate student asking favors of some of the most respected economists in the world, he got no reply, until one afternoon, when he was sitting on his girlfriend's couch.
"I checked my e-mail, and saw that I had received a reply from Carmen Reinhart," he says. "She said she didn't have time to look into my query, but that here was the data, and I should feel free to publish whatever results I found."
Herndon pulled up an Excel spreadsheet containing Reinhart's data and quickly spotted something that looked odd.
"I clicked on cell L51, and saw that they had only averaged rows 30 through 44, instead of rows 30 through 49."
What Herndon had discovered was that by making a sloppy computing error, Reinhart and Rogoff had forgotten to include a critical piece of data about countries with high debt-to-GDP ratios that would have affected their overall calculations. They had also excluded data from Canada, New Zealand, and Australia — all countries that experienced solid growth during periods of high debt and would thus undercut their thesis that high debt forestalls growth.
Herndon was stunned. As a graduate student, he'd just found serious problems in a famous economic study — the academic equivalent of a D-league basketball player dunking on LeBron James. "They say seeing is believing, but I almost didn’t believe my eyes," he says. "I had to ask my girlfriend — who's a Ph.D. student in sociology — to double-check it. And she said, 'I don't think you're seeing things, Thomas.'"
The mistakes Herndon found were so big, in fact, that even Herndon's professors didn't believe him at first. As Reuters reported earlier:
"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,'" [UMass Amherst professor Robert] 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 right.'"
After consulting his professors, Herndon signed two of them — Pollin and department chair Michael Ash — on as co-authors, and the three of them quickly put together a paper outlining their findings. The paper cut to the core of a debate that has been dividing economists and politicians for decades. Fans of austerity believe that governments should cut spending in order to grow their economies, while anti-austerians believe that government spending in times of economic duress can create growth and reduce unemployment, even if it increases debt in the short term. What Herndon et al. were claiming, in essence, was that the pro-austerity movement was relying on bogus information.
When Herndon and his professors published their study, the reaction was nearly immediate. After Konczal's blog post went viral, Reinhart and Rogoff — who got a fawning New York Times profile when their book was released — were forced to admit their embarrassing error (although they still defended the basic findings of their survey). And today, another UMass Amherst professor,Arindrajit Dube, followed up on Herndon's paper with additional proof that there were serious theoretical and causal problems (as opposed to just sloppy Excel work) in the Reinhart-Rogoff study. Observers have been raising serious questions about what Herndon's work means for the future of austerity politics, and Reinhart and Rogoff's respectability as scholars.
Herndon says he isn't implying that Reinhart and Rogoff intentionally skewed their data to support a pro-austerity finding, and simply reported the errors.
"I don’t want to sound the alarm and call for anyone’s jobs," he says. "I didn’t do this to be punitive or malicious."
With Reinhart and Rogoff's once-authoritative work now under serious question, there's no question that the austerity movement has been dealt a major blow. But Herndon's finding won't likely stop politicians from trying to reduce the deficit. The global march for austerity began before Reinhart and Rogoff's work was published, and will continue as long as there are people who believe that governments can shrink their way to prosperity.
Still, Herndon holds out hope. He calls austerity policies in the United Kingdom and elsewhere "counterproductive," and implies that part of why he took up the study of Reinhart and Rogoff's study was to question the benefits of current economic policy. "I have social motivations," he says. "I care deeply about how policy affects people."
Now that he's left his mark, Herndon says he's coping with the effects of academic celebrity — getting a new publicity head shot taken, receiving kudos from his professors and colleagues, handling interview requests. He says he's gotten extensions on some of his papers in order to handle his quasi-fame, but that he hasn't been popping Champagne yet in celebration.
"I’m going to celebrate this weekend," he says. "But for now, I have a really gnarly problem set."


  1. I solidly believe that one needs not be a rocket scientist to see the plain truth that austerity measures do not help ordinary people. How could rewarding corporate gabbling fools help anyone but the fools gambling.

    1. "Fools"? They're hardly fools. "Criminals", "thugs" describe them better but aren't strong enough.

  2. Go read nature bats
    All this digital wanking over useless numbers is going to be over soon.
    Extinction level events , how do those fit into economic sophistry models ?

    Have fun going cold turkey off your normalcy bias heroin . Then kubler rossing your way through your upcoming end of life experience )

  3. Steve McIntyre did the same to the Climate 'Science' of Michael Mann - yet you don't show the moral equivalency?

  4. Austerity should be imposed on the entities that created the financial environment we now live in. The debt based loaning institutions and the governments they service should bear the burden of debt. They have not felt the sting of austerity in their budgets. They have not lost their jobs or homes. Debt based economies are doomed to contract as they do not exceed the monetary volume needed to pay down the compounded debt, ever. Credit based currency, on the other hand can expand with the economy and population growth without compounding the debt. Look to the few states and countries that do not issue debt to service money growth. Look to the original treasury system of the US and that of North Dakota for examples of healthy economic growth without excessive debt accumulation. There is no legal or constitutional reason for issuing debt-based money. It is a drag on the real physical economy, always. Credit may be extended to states and municipalities in various creative ways that do not involve compounding debt. Example: Instead of issuing mortgages at interest, what would be wrong with charging a simple fee up front of say, 2% to service the creation of a no interest mortgage?

  5. Good Lord is everybody confused?

    Anybody can deduce that "shrinking into prosperity" is ridiculous.. Do they get PhD´s for this? The IMF has been trying to push this into underdeveloped countries and forcing them into recession for years.. We can tell you this, those who live there..Greece will NEVER RECOVER with this policy but the Masters of the EU don´t care..They will just come in and take advantage of the fire sale of assets....This is the frying pan.

    But don´t jump for joy because that does not necessarily imply that government debt is the solution for prosperity for the 90%ers... Now when governments induce spending in WASTE and the enrichment of the Big Business cartels, as has been the case of all these monstrous government debts all over, it is like jumping from the flying pan into the fire...

    Printing or borrowing money (Bernanke and Krugman style) to increase debt simply strangles both government and people when it exceeds repayment possibilities. Then they invent Cyprus Bail-ins and legalize theft because of it ... Do they get PhD´s for this also?

    Trying to spend yourself out of debt is futile... Ok you can kickstart a recovery that way but taking it overboard will be the other extreme... both bad.

    The secret is that the 90%ers need to enjoy a bigger slice of the GDP (an d borrow only to real repayment capacity) and that should be the goal of the economist... Not GDP for GDP´s sake.

    A trip Back to the Past and visiting Samuelson´s text books of the 50´s would put humanity back in its tracks. He wrote all the correct equations. Krugman needs to do just that.

    Even Keynes said that liquidity should be injected just to kick start and then withdrawn. The recipe is misapplied today, to Bankers glee whose only means to richness is "interest now who cares later". Well they also happily print money to speculate with derivatives and financials which of course does not benefit The People,

    Bottom line, you can not have a successful People Oriented Economy with strict austerity but neither with excessive government spending which irreversibly leads to waste and corruption from the leeches that live off it, (or run it).

    Samuelson explained it all .. But of course people need to become famous and write whatever for it, and celebrate, or write articles in New York Times.

  6. Cat amongst the pigeons, us traditionalist won't like this one little bit. Expect new studies to debunk these finding very soon. Taleb's take on growth in 'Antifragile' rings true: in the Industrial Revolution, countries grew at 1% GDP per annum. More than that required debt and burdened future growth. Few companies can sustain 6% for a while, almost none can do this for 2 decades.
    When Government spending is excluded from the GDP calculation, a very different oicture emerges. Gov spending via debt is misused to show "growth", an insidious, incorrect and potentially fatal strategy

  7. no impressive at all...what isnt real can be very easily exposed...let me see someone come out with real economic acknowledging the validity of any personal trade contract as real money...

  8. Once more, government spending is a leak in the prosperity barrel .. There is a clever drawing in Samuelson´s text book that spells it clearly....

    The solution lies in that text book from 1950´s . Read it and do not look further... If my memory is right it was called Principles of Economics.. if not just look for the text books Samuelson published

    Problem is that banking now dominates the governments and the laws and rules (or the neglect of them) are managed by themselves.

  9. If people understood proper management of any Medium of Exchange (MOE), all of this would be viewed as comical. Kind of like the great scientists and theologians of Copernicus' day debating without knowing the true organization of things.

    Proper management of any Medium of Exchange (MOE)
    Money is “a promise to complete a trade”. This is obvious by studying its genesis as an efficient improvement over simple barter. Look at barter. In a trade, at the instant a good moves from one hand to another there is an open promise to complete a trade. The instant before, it is a trading promise in the making. The instant after it is a promise kept.

    All that money does is allow that promise to occur at different times; over different periods; at different places; and for intermediate goods. These promises are “certified” and then take on value themselves. The certificates are freely traded and called money. When the trade is completed, the trading promise is extinguished. The certificates (money) representing it are returned and extinguished with it.

    Again ... money is "a promise to complete a trade".

    Characteristics of a properly managed MOE:
    o INFLATION is zero at all times and in all places
    o The time value of money is always zero (same as above)
    o Money is in free supply at all times and in all places
    o Supply and demand for money are always in perfect balance
    o Money circulates freely and is universally accepted
    o Responsible traders enjoy zero INTEREST
    o Irresponsible traders pay INTEREST ... it's an actuarial issue
    o Traders, not governments, determine the value of the MOE
    o No capital what-so-ever is required
    o There is no commodity, precious or otherwise, backing the currency
    o There are no runs on banks
    o There is no business cycle
    o There are no bubbles
    o Saving and hoarding have no effect on the economy
    o No cascading effects
    o No marking to market
    o No inflation measurements or estimates
    o No price measurements or estimates

    To properly manage any Medium of Exchange (MOE), the controlling relation is:


    Proper management entails:
    o measuring DEFAULTS on trading promises
    o collecting INTEREST equal to DEFAULTS experienced
    o thus maintaining INFLATION at zero for all time and in all places
    o assuring a free supply of certificates for trading promises at all times in all places

    It is the marketplace, not capital or commodities, that backs money (promises to complete trades). And it is precise management of defaults and interest collections that give the responsive negative feedback assuring stability and integrity in the marketplace.

    Money is debt, that is true … but that is not a bad thing any more than making a trading promise is a bad thing. Gold, silver, and any other good is not money. It is simply a good exchanged in simple barter.

    Todd Marshall

  10. Where the cuts are made is as important as the location & duration of cuts.

    Neither spending nor austerity are evil if applied logically to obtain the prescribed results. Where people seek add their own agenda into the equation is where the fork in the road to positive results appears. The wrong branch is too often, ever increasingly, selected.


    Power, ultimately inseparable from money, has always been a major side effect inherent to humans.