President Obama is reportedly planning to nominate economist Jason Furman to replace Alan Krueger as the head of the Council of Economic Advisers. Like Krueger and, for that matter, Austan Goolsbee and Christina Romer who previously served this administration in the same capacity, Furman boasts an impressive resume, with a Harvard economics doctorate as well as stints at the Brooking Institution, the Center on Budget and Policy Priorities (CBPP), and the CEA under President Clinton, among others. If you’re still of the incorrect belief that tax cuts largely pay for themselves (looking at you, Senate Minority Leader Mitch McConnell), do yourself a favor and read his CBPP report explaining the mechanics and empirics of “dynamic scoring” (pdf) and why invoking it as a talisman doesn’t mean one can claim anything one finds politically expedient.
The Beltway coverage of this news is overly focused on the inside baseball politics between the CEA and the National Economic Council, where Furman has been serving as Deputy Director since January 2009. But it’s important to step back and remember that economic policy in recent years has been principally driven not by well-qualified economists with the CEA, NEC, or elsewhere in the executive branch, but instead by conservative congressional obstructionism. Jason Furman’s appointment to the CEA will not alter the troubling reality that the United States is on an autopilot course of premature, excessive austerity and intentionally poorly designed sequestration spending cuts. But even if the ghost of conservative saint Milton Friedman rose up and warned the GOP against such austerity, today’s conservatives in Congress would declare him an apostate and continue their destructive course.
As my colleague Heidi Shierholz has noted, the recent “hold steady” jobs report represents an ongoing disaster for all workers. But historically, and since the Great Recession, unemployment has inflicted significantly more pain on black and Hispanic workers. EPI recently released five reports on unemployment through the recession that reveal the depth of suffering among black and Hispanic workers in states with large minority populations, focusing particularly on black and Hispanic unemployment in Michigan, Mississippi, New Mexico, North Carolina, and Texas. Coupled with historic barriers to employment for people of color, the economic collapse of the recession and painfully slow recovery have taken a much greater toll on African Americans and Hispanics than whites.
The figure below shows the significant disparities in black-white and Hispanic-white unemployment in the U.S. over the last 34 years. African American unemployment rates have almost always been at least twice—and sometimes more than two and a half times—that of whites since 1979. Even at the depths of the Great Recession, when white unemployment was much higher, the black unemployment rate was 1.88 times that of whites. At this disparity’s peak in 1989, the black unemployment rate was 2.71 times the white unemployment rate. Likewise, Hispanic unemployment rates have been at least one and a half times (and, throughout the 90s, more than twice) that of whites since 1979. The Hispanic-white unemployment gap peaked in 1998 when the Hispanic unemployment rate was 2.12 times that of whites. At the end of 2012, the black unemployment rate was more than twice (2.11) that of whites, and the Hispanic unemployment rate stood at more than one and a half times (1.56) that of whites.
The normally excellent Neil Irwin and Ylan Q. Mui at Wonkblog are mostly wrong, I think, in arguing that the economy is “holding up surprisingly well” in a year of austerity. The data they cite to make this judgment are rising prices in both the stock market and home prices and falling gasoline prices.
But rising stock prices are actually pretty irrelevant to most American families, and today they mostly reflect the stunningly high profit margins of American corporations. These profit-margins in turn are boosted by extremely weak wage-growth, as inflation-adjusted wages for the vast majority of American workers have fallen in each of the last three years. In short, one could easily make the case that today’s high stock prices are actually mostly a sign of bad news for American workers.
This week, we learned that Apple is sitting on over $100 billion in untaxed overseas cash, and this cash will remain untaxed until and unless Apple repatriates this income (that is, brings the cash home to the United States).
In a blog post, Jared Bernstein asked about how we can stop this sort of international tax avoidance. The simplest and most direct way of taxing offshore income would be to simply end deferral entirely. Taxing the overseas income of U.S. multinationals would raise revenue, helping ease current budget pressures, and eliminate incentives for complicated tax avoidance schemes.
Not only do millionaires have low tax rates, so do many corporations, with some large corporations paying less in taxes than the typical middle-class American taxpayer. So how do large multinational corporations avoid paying taxes? The full answer is as complicated as the tax code; the short answer involves profit-shifting and deferral.
Differences between House Republicans’ and Senate Democrats’ proposed funding allocations reveal their priorities
Although the House and Senate have yet to reconcile their respective budget resolutions, the House Appropriations Committee forged ahead and recently approved a GOP spending plan for fiscal year 2014, capping base discretionary funding at $967 billion—the level set by the sequestration. The committee also defeated a Democratic proposal that would have set the top-line discretionary funding allocation at $1.058 trillion—the same level of spending called for in both President Obama’s budget request and the Senate budget resolution.
We know that the two chambers of Congress will not likely reach agreement on spending levels for FY2014. But where exactly do they differ? The chart below indicates that there are very minor differences between the House and Senate on Defense, Homeland Security, and Military Construction-Veterans Affairs appropriation levels. (The latter two allocations are the only without disagreement between the two chambers.) The biggest relative differences occur in funding levels for the Financial Services and General Government, Labor-Health and Human Services-Education, and State and Foreign Operations subcommittee allocations. The biggest dollar difference in proposed appropriations between the two chambers is for the Labor-HHS-Education subcommittee allocation, which the House GOP recommends funding $44 billion below both the Senate and the administration’s budget requests for FY2014.
The large increase since 2007 in the unemployment and underemployment rate of young college grads, along with the large increase in the share of employed young college graduates working in jobs that do not require a college degree, underscores that today’s unemployment crisis did not arise because workers lack the right education or skills. Rather, it stems from weak demand for goods and services, which makes it unnecessary for employers to significantly ramp up hiring.
The figure below, from this report on the labor market prospects of the Class of 2013, gives unemployment and underemployment rates for college graduates under age 25 who are not enrolled in further schooling. The unemployment rate of this group over the last year averaged 8.8 percent, but the underemployment rate was more than twice that, at 18.3 percent. In other words, in addition to the substantial share who are officially unemployed, a large swath of these young, highly educated workers either have a job but cannot attain the hours they need, or want a job but have given up looking for work.
Unemployment and underemployment rates of young college graduates, 1994–2013*
* Latest 12-month average: March 2012–February 2013
Note: Underemployment data are only available beginning in 1994. Data are for college graduates age 21–24 who do not have an advanced degree and are not enrolled in further schooling. Shaded areas denote recessions.
Source: Authors' analysis of basic monthly Current Population Survey microdata
Yesterday it was revealed that Apple has shifted roughly $74 billion in profits out of the reach of the IRS in the last three years, mostly by holding this cash offshore. Amazingly, Tim Cook’s response to the congressional investigation that documented this is to call for corporate tax “reform” that will provide further benefits to both his firm and corporations in general. In his testimony (pdf) in front of the Senate Permanent Subcommittee on Investigations today, Cook bulleted his preferred corporate tax reform:
“….comprehensive [corporate tax] reform should:
- Be revenue neutral;
- Eliminate all corporate tax expenditures;
- Lower corporate income tax rates; and
- Implement a reasonable tax on foreign earnings that allows free movement of capital back to the US.”
So, the first and third prongs of this reform agenda are to raise no additional revenue and to lower corporate tax rates. The second prong (eliminate corporate tax expenditures) has some merit, for sure.
An oped from Wilma Liebman, former chairwoman of the NLRB, tops our list of what we read today:
- Clearing NLRB nominees is a clear step forward (Politico)
- The 1 Percent Are Only Half the Problem (New York Times)
- Do Extended Unemployment Benefits Lengthen Unemployment Spells? (pdf, Federal Reserve Bank of San Francisco)
It’s fitting that director Baz Luhrmann chose contemporary artists like Jay-Z to provide the soundtrack in his new take on The Great Gatsby, because in many ways, the Gatsby story could easily be set in current times. (No, we don’t mean hipsters bringing back vests or flapper hairstyles.) Unfortunately, today’s economy shares many of the same sad qualities of the 1920s highlighted in the Gatsby story: increasing financialization, low socioeconomic mobility, and gross wealth and income inequality such that a privileged few live astonishingly well while a large portion of Americans are struggling just to get by.
EPI has been describing these trends for years. In fact, you might consider our flagship publication, The State of Working America, as a sort of modern-day Gatsby, in charts. The prose may not be as artful as Fitzgerald’s, but the economic descriptions are equally alarming.
The Great Gatsby’s protagonist, Nick Carroway, is drawn to New York by the promise of riches to be made on Wall Street. Indeed, the premium to working in the financial sector at that time was better than ever… until recently. As Figure A shows, at the beginning of the Great Depression, earnings per worker in the financial industry peaked at nearly 1.8 times the earnings per worker of all other private sector workers. After the Depression and the regulation that followed, earnings per worker in finance fell back roughly into line with the rest of the private sector. Beginning in the late 1970s, however, earnings per worker in finance again began to take off. By the onset of the Great Recession, they exceeded 1.8 times the earnings per worker of all other private sector workers. With such striking disparities in compensation, who wouldn’t be attracted to the green light of finance?
Happy Friday! Here are a few stories our experts read today:
- How the Case for Austerity Has Crumbled (New York Review of Books)
- My Two (Per)cents: How Are American Workers Dealing with the Payroll Tax Hike? (Liberty Street Economics)
- Poverty as a Childhood Disease (New York Times)
Though it didn’t get much attention, Democrats on the House Committee on Appropriations recently released a report on the effects of sequestration (pdf) and efforts to mitigate its impact. The report is a comprehensive look at sequestration cuts specific to the following areas: public safety, health, education and science, national security, judiciary and legal representation, commerce, housing, seniors, and foreign assistance. Some highlights in the report on the impacts of sequestration:
- NIH funding for research is cut by more than $1.5 billion, which the report estimates eliminates more than 20,000 jobs at universities, labs, and other research institutions.
- Funding for the Center for Disease Control and Prevention is cut by $285 million due to sequestration, inhibiting the CDC’s ability to—among other things—facilitate immunization, combat disease outbreaks, and manage and prevent both chronic and infectious diseases.
- The National Science Foundation loses $365 million due to sequestration, resulting in approximately 1,000 fewer research grants.
Happy Monday. Here’s what we’re reading today:
- Why Washington Saved the Economy, Then Permanently Destroyed the Labor Market (The Atlantic)
- Student Debt and the Crushing of the American Dream (New York Times)
- How Austerity Kills (New York Times)
- Who Can Take Republicans Seriously? (New York Times)
- Major Retailers Join Bangladesh Safety Plan (New York Times)
Various sources have reported on the intense lobbying efforts by industry representatives of the high-tech sector, who seek to influence the outcome of the Senate’s proposed comprehensive immigration reform legislation. The initial version of the Senate bill already grants the industry two of its key demands: an increased number of H-1B visas for university-educated temporary foreign workers (almost tripling the quota), most of whom work in the IT sector, as well as an unlimited amount of permanent resident visas (green cards) for recent foreign graduates of U.S. universities in STEM fields (and a fast track to receive them). So what is the industry hoping to achieve now? The industry is lobbying to remove the few improvements to the H-1B program that Senator Durbin (D-IL) managed to persuade the other seven members of the Gang of Eight to include in the bill. This week, a number of proposed amendments could make that happen.
Here are the simple, common sense rules and innovations included in the Senate bill that relate to the H-1B program:
The Brookings Institution issued a new report on Friday about the H-1B program—a temporary foreign worker program for “skilled” occupations, meaning those that require a college degree—and then issued corrections to it almost immediately afterwards.
The report claims to include a wage analysis on “new data” that, “suggests that the H-1B program helps to fill a shortage of workers in STEM [science, technology, engineering and math] occupations.”
There are two critical problems with the report’s analysis of these data:
First, the data are proprietary, meaning the data are exclusively held by the authors, thus no one can critique or review the study’s presentation of the data or its findings. (The authors obtained the data from two other researchers, who first obtained it through a Freedom of Information Act request.) This kind of approach, where researchers use data that are not available publicly, means that the data and subsequent analysis can never be checked, leaving out a critical step in the scientific process.
Take a quick survey of any major florist’s website and you’ll find that having flowers delivered for Mother’s Day can be a non-trivial expense. With a middle-of-the-road arrangement, service and delivery fee, you can expect to pay upwards of $70. That may be a pittance compared with the gratitude owed to mom, but here’s another way to consider it: for millions of mothers in low-wage jobs, those flowers would cost more than an entire day’s earnings.
Earlier this year, Senator Tom Harkin (D-IA) and Representative George Miller (D-CA) introduced legislation that would raise the minimum wage to $10.10 per hour by 2015. The number of mothers that would be affected by increasing the minimum wage is staggering. As shown in the table below, there are over 22 million mothers with children under the age of 18 working in the United States today.1 If the federal minimum wage were raised to $10.10 per hour, 5.5 million working moms with children under the age of 18—roughly 25 percent of all these working mothers—would see a pay increase.
This week, the seemingly never-ending fiscal policy skirmishes on Capitol Hill revolved around proceeding to a conference committee to hammer out an FY2014 joint budget resolution compromise. Unlike recent years, this budget season has seen both House Republicans and Senate Democrats produce and pass budget resolutions. Now Congressional Democrats are interested in moving forward on discussions toward a budget for FY2014. The problem? After haranguing Senate Dems for not having produced a budget resolution since 2009—before Senator Patty Murray (D-WA) was chairwoman of the Budget Committee—and maligning President Obama for being late in producing his budget alternative, Republicans are refusing to appoint conferees and commence a budget conference committee. Instead of moving forward with the budget process, the GOP has insisted on conditioning the appointment of conferees with an insistence that any conference report not include any new revenue or raise the debt ceiling. In other words, a non-starter.
Given how broken the budget process has been of late, it’s worth a reminder on what a normal spring budget season should look like. Each year, Congress is supposed to develop a joint budget resolution that sets limits on spending, particularly appropriations, as well as targets for federal revenue. After the Office of Management and Budget publishes the president’s budget request in early February, the House and Senate Budget Committees draft and mark-up budget resolutions, which then go to their respective chamber floors for votes (assuming they make it out of committee markup). If adopted in both chambers, a conference committee is then convened between the two bodies to resolve differences between their budget resolutions. (While this notionally is supposed to take place by April 15, it often takes longer.)
As part of the sequester, roughly $2.4 billion is being cut from emergency unemployment insurance compensation (see page 40 of this OMB report (pdf)).
These cuts cause damage in two ways. Most obviously, they mean that unemployment insurance benefits now provide a weaker lifeline to the long-term unemployed and their families, despite the fact that job opportunities have improved very little since the unemployment rate peaked near the end of 2009.
Less well understood is the fact that cutting unemployment insurance benefits will reduce spending in the economy and thereby cost jobs. While the cuts save an estimated $2.4 billion in government spending on unemployment insurance, the loss to the economy is much greater because these cuts have a large “multiplier” effect. Long-term unemployed workers, who are almost by definition cash strapped, are likely to immediately spend their unemployment benefits. Unemployment benefits spent on groceries, clothes and other necessities increase economic activity, and that increased economic activity saves and creates jobs throughout the economy. For this reason, economists widely recognize government spending on unemployment insurance benefits as one of the most effective tools for generating jobs in a downturn. The flip side of this is that cutting spending on unemployment insurance benefits during a period of economic weakness is one of the most costly tools available for reducing the deficit. Reducing spending on unemployment insurance by $2.4 billion will pull about $3.8 billion in economic activity out of the economy—economic activity that would have been supporting around 30,000 jobs.1 In an economy that is generating jobs at a pace that won’t restore full employment for at least another five years, this is incomprehensible.
Here’s what we read today and throughout the week.
- The Next Priority for Health Care: Federalize Medicaid (The Century Foundation)
- Congress Mentions Jobs Dramatically Less (Huffington Post)
- It doesn’t add up (Columbia Journalism Review)
- Suicide Rates Rise Sharply in U.S. (New York Times)
- Perverse advantage (The Economist)
- Bangladeshis turn rescuers after building collapse (AP)
- How Van Halen Explains the U.S. Government (Bloomberg)
- Budget Cuts Devastate Meals On Wheels: Enrollment Slashed, Services Cancelled (Think Progress)
Recently, barely-perceptible cracks have started to appear in the political foundations of austerity. Prominent Democrats on Capitol Hill—not just progressives but moderates and those who have embraced the administration’s pursuit of a “Grand Bargain” on deficit reduction—have recently called for an implicit time-out on fiscal tightening. Some European policymakers have similarly argued that austerity has gone too far. And prominent financial market players have warned that the United Kingdom should reverse its rapid drive towards austerity. Perhaps most surprisingly, even John Makin from the conservative American Enterprise Institute has called for an end to tightening.
It’s about time. The intellectual foundations for austerity have always been fragile. The recent controversy that erupted over a group of University of Massachusetts economists highlighting the extreme weakness of an oft-cited justification (pdf) for keeping debt ratios below 90 percent is just the latest demonstration of this. The UMass paper was important, but is only the latest and most well-known of the many refutations (pdf) of the case (pdf) that contractionary fiscal policy would produce (pdf) anything but contraction in today’s economy.
The latest issue of the Boston Review features a thought-provoking essay by MIT Professor Richard Locke entitled “Can Global Brands Create Just Supply Chains,” as well as a series of responses (including one I authored that this blog draws from). Locke surveys several decades of efforts to improve global labor standards. Using Nike as the primary case study, Locke concludes that private, voluntary regulation—the leading approach he says has emerged to address working conditions that fall short of basic labor standards—has essentially failed.
My response notes the many parallels between the Nike case study and the current situation regarding Apple. As with Nike, Apple’s elevated commitment to improving labor standards has been largely driven by the desire to mitigate what had become a public relations nightmare undermining its brand—in Apple’s case a series of New York Times and other high-profile stories describing the brutal living and working conditions faced by the workers making its products. As with Nike, Apple’s primary response has been private regulation, another way of saying that the company is pushing for reforms itself, through its Supplier’s Code of Conduct, expanded audits of its suppliers and conversations with its suppliers.
Since late 2010, the U.S. economy has been adding an average of around 175,000 jobs per month. Because this pace has persisted for so long, there is a real danger that it’s beginning to be considered the “new normal,” the pace of growth people assume is the best the economy can do. It’s important to demonstrate just what this rate of job-growth implies for restoring the U.S. labor market to even conservative standards of health.
As of March, I estimate that the U.S. economy needs 8.8 million jobs to get back to the labor market health that we had in December 2007.
This estimate takes into account both how far we are below the Dec. 2007 jobs level (we’re still 2.8 million jobs short of what we had before the Great Recession hit) and the number of jobs we should have added since Dec. 2007 just to keep up with growth in the potential labor force (6 million jobs). Conceptually, this measure is what it would take to restore the labor market to the Dec. 2007 unemployment rate (5.0 percent) at today’s “structural” labor force participation rate, meaning it fully takes into account the fact that demographic shifts since 2007—like baby boomers hitting retirement age—and other “non-cyclical” factors mean that a somewhat lower share of the overall population should be seen as potential workers today than in 2007.1
As Congress pursues comprehensive tax reform, policymakers have made numerous references the 1986 Tax Reform Act, which has been the principle framework for overhaul to date.
The 1986 reforms are revered because they succeeded politically, passing a divided Congress and enacted by a lame-duck president. Comprehensive reform today similarly would have to overcome major political hurdles, particularly Republican intransigence over raising revenue. Yet many policymakers today seem unaware that 1986-style reform is no longer viable.
The 1986 model was designed to be both revenue neutral and distributionally neutral—meaning that average tax rates would remain roughly unchanged across incomes. Replicating these objectives today would imprudently disregard shifts in the economic and budgetary landscape. The Bush-era tax cuts enacted a decade ago violated the spirit of the 1986 reforms by lowering revenue and shifting the burden of taxation further down the income scale. In so doing, they contributed to sizable structural budget deficits and revenue levels inadequate to support the baby-boomers’ retirement (an outlook essentially unchanged by the lame duck budget deal). And today, rising income inequality—exacerbated by reductions in top tax rates—has surpassed Gilded Age levels.
Happy Tuesday! Here’s what we read today:
- The Myth of America’s Tech-Talent Shortage (The Atlantic)
- How the Mainstream Media Broke Up With Austerity (New York Magazine)
- GOP’s debt limit threat goes off the rails (Washington Post)
- Six In The City: More Car Washers Vote To Unionize (Labor Press)
Last week, The Century Foundation hosted a Twitter chat forum in which Mike Konczal of the Roosevelt Institute, TCF fellow Mark Thoma and I discussed the Reinhart and Rogoff kerfuffle and its implications for the policy debate over austerity (here’s the Storified “transcript”). Nearly every facet of this incident has been thoroughly covered in the blogosphere—see Mike’s post for a summary of the Herndon, Ash, and Pollin (2013) paper debunking R&R; Arindrajit Dube’s post on reverse causation; my colleague Josh Bivens’ post on R&R’s response to reverse causation criticism; Paul Krugman on R&R’s obfuscating rebuttal; and Dean Baker’s post on R&R’s purported role in the policy debate.
But what’s gone entirely missing, as far as I can tell, and what I struggled to explain in sub-140-character increments, is that R&R’s reported finding—that “median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower [and slightly negative]”—couldn’t justify austerity even before it was debunked.
Back in early 2010, pundits and policymakers immediately seized on R&R’s now-invalidated results to justify austerity policies, so the paper’s methodological debunking has been correctly interpreted as a major defeat for the austerity movement. But the Beltway interpretation of R&R was based on a false premise from the get-go. Robert Samuelson’s predictably unhelpful addition to the R&R debate—his half-hearted defense of R&R’s “minor mistakes” is scattered with objectively inaccurate revisionist history—perfectly encapsulates this widely propagated false dichotomy: “It’s ‘austerity’ versus ‘stimulus.’ If debt exceeding 90 percent of GDP is hazardous, then the case for austerity seems stronger.” (Emphasis added.)
Jim Tankersley at the Washington Post and Ben Casselman at the Wall Street Journal are in a “wonkfeud” about labor force participation. It started when Casselman estimated that there are currently around 3 million “missing workers” in the US (workers who are not in the labor force but who would be if job opportunities were strong). Tankersley did not dispute that figure, but pointed out that because it only counts workers who are missing due to the weak labor market in the Great Recession and its aftermath, it is a substantial undercount of the total number of missing workers because labor force participation was also weak in the decade leading up to the Great Recession.
To Tankersley’s point I will just add that while I don’t have an estimate of the number of missing workers from the 2000-2007 business cycle, it was indeed the weakest full business cycle in terms of job growth in at least three generations, and the labor market had not yet come close to regaining the health of the late 1990s before the Great Recession began at the end of 2007. It is an important reminder that estimates like the one below of how many jobs we need to get back to the labor market health of 2007 are conservative indeed, since while 2007 was the last year before the Great Recession hit, it was no labor market paradise by any stretch.
John Schmitt and Janelle Jones have written an excellent paper on what it would take to improve job-quality in the U.S., backed with actual data, rather than hand-waving about training-this and skills-that. I would, however, slightly tweak one line in the press release for the paper: “The authors note that restoring the link between economic growth and job quality will be a heavy lift.”
I think a distinction is in order between things that are a heavy economic lift versus those that are a heavy political lift. Schmitt and Jones, for example, show that increasing the share of U.S. workers represented by a union by 25 percent would have a larger impact on boosting good jobs (and reducing bad jobs) than would boosting the share of U.S. workers with a 4-year college degree by 25 percent.
But boosting the share of workers with a 4-year college degree is indeed a heavy economic lift—it takes real resources (books, labs, classrooms and most expensively teachers) to provide the skills and education needed to qualify for a college degree. But boosting the share of workers with union representation really doesn’t cost much at all—there is really no serious research linking economy-wide productivity declines to increased unionization. Instead, boosting the share of union workers in the U.S. would redistribute money, but would not cost the U.S. economy anything in the aggregate. And given that so much of the decline in unionization seems to be policy-driven (PDF), the real lever to make this increase happen is essentially the costless act of changing the policy stance towards unionization (there is no CBO score, for example, for the Employee Free Choice Act because it doesn’t cost anything).
But of course we’re not going to see a more hospitable policy/legal environment for unionization anytime soon—it’s too heavy a political lift.
Here’s what we’re reading and talking about this afternoon:
- Tears and Rage as Hope Fades in Bangladesh (New York Times)
- At chicken plants, chemicals blamed for health ailments are poised to proliferate (Washington Post)
- Austerity is hurting our health, say researchers (Reuters)
- Austerity undone (American Enterprise Institute)
- House Republicans Eyeing New Hostage Opportunity (New York Magazine)
- Heading the Wrong Way (New York Times)
- Budget Cuts, Minus the Inconvenience (New York Times)
As pointed out elsewhere, the claim that the UMASS paper actually supports R&R’s alleged core finding of a significant relationship between high debt and slow growth is flat wrong.1 Yes, the midpoint average growth rate of high-debt countries (over 90 percent of GDP) is lower than the average growth of lower-debt countries, but the differences are not statistically significant. Really, people should give up on this one.
More importantly, the real argument all along has been two-way causality: data showing that there is lower growth at high debt levels does not show that high debt causes low growth. A finding of statistical association between high debt and slow growth would surprise precisely nobody, but there is a better case to be made that slow growth leads to high debt rather than vice-versa. Arin Dube demonstrated this very well in his note on Reinhart and Rogoff’s entire data-set, and for the U.S. John Irons and I did the same with Granger causality tests on the U.S. data in July 2010, nearly three years ago. Paul Krugman kindly referred to our results in his blog saying “John Irons and Josh Bivens have the best takedown yet of the Reinhart-Rogoff paper (pdf) claiming that debt over 90 percent of GDP leads to drastically slower growth.” So the causality problem has been well known for some time. By the way, we compiled the data we used ourselves because emails to Reinhart and Rogoff requesting their data went unreturned. Perhaps if they had shared their data at that time their actual weighting procedure would have become clear much sooner and even their spreadsheet error could have been corrected. Kudos to the UMASS authors for being more persistent than us and for the work they did.