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Evergreen grad pokes a giant hole in austerity

An interview with Thomas Herndon, author of the “economic term paper heard ‘round the world” 

Matson: On April 15, Thomas Herndon, a former Evergreener, released a paper critiquing Reinhart-Rogoff, which is perhaps the most influential economic analysis of the last few years. It was immediately clear why this was a very big deal: Thomas found huge errors in the key paper in the intellectual edifice behind austerity. Within days, newspapers and magazines around the world were covering the story of the “Grad Student Who Shook The Global Austerity Movement,” to quote the New York Magazine headline, and Thomas appeared on CNN and the Colbert Report.

A quick bit of context: Reinhart and Rogoff are Harvard professors who put out a paper in 2010 making the case that if countries’ public debt exceeds 90% of GDP, average growth in those economies drops close to zero. This paper was used by the global austerity movement to help push for immediate cuts to spending, which have since been instituted here and around the world, most sharply in Europe. The human consequences of these austerity measures have been dreadful—just last week reports emerged out of Greece of children going hungry. Needless to say, the policies haven’t succeeded at restoring the economies or balance-sheets either, instead they’ve caused a depression-level disaster. Then mid-April Thomas Herndon and his colleagues at UMass Amherst released their “epic wonk takedown,” showing that Rogoff and Reinhart made serious mistakes. Once corrected, the data shows no such drop-off of growth at the claimed 90% debt threshold.


Thomas joins us now for an interview with Works In Progress, with questions from myself and Peter Bohmer, Thomas’s mentor at Evergreen.


Matson: I think it makes a lot of sense that this discovery, as simple as it was, was made first by you, a radical from Evergreen at radical UMass, and it wasn’t made by the thousands of economists out there at other more orthodox schools. Do you see anything in your background, Evergreen or UMass or elsewhere, that gave you the skepticism and persistence to make this happen?

Thomas: I’ve always been skeptical, and I will say within the profession there were a lot of critiques out there, they just weren’t taken seriously before this “emperor has no clothes” moment. And no one was able to find these errors because Reinhart and Rogoff wouldn’t share their spreadsheet with anybody. People had been asking for it for years, and those people were also from a critical background as well. Certainly my skepticism is influenced by my knowledge of the history of austerity policies and the pain they inflict on people.


I think the most important thing I got from Evergreen that helped me with this project, besides being critical of capitalism, was the ability to read through text line-by-line, like we always did in seminar. It was that word-by-word, paying close attention to details, those were the practical things that I used for this. And as for being critical, Evergreen helped give me the confidence to think that the big, really highly prominent economists could be wrong.


Matson: Before we get back to Evergreen, you mentioned that Reinhart and Rogoff weren’t sharing their spreadsheets. What is with economists hiding their data like this, and do we have any prospect of this kind of behavior ending someday?


Thomas: I don’t think I would really describe it as hiding data. They did make their debt/GDP series available to the public, but they didn’t make their actual spreadsheet available, where all the data was put together. Dean Baker even requested it publicly, and never received it. Part of this  was because it wasn’t in a peer-reviewed edition of the American Economic Review, but you’re also right that the professional standards for releasing data aren’t entirely consistent. There have been a few attempts at making replication easier. I think we are moving, hopefully, to a place where replication is important, more like the other sciences. It’s hard for me to predict the future, whether the profession will adopt those sort of norms, but I think it is kind of moving in that direction, albeit slowly, and hopefully this will make it move there a little bit quicker.


Peter: How did your opposition to neoliberalism influence your decision to examine the article?


Thomas: I would just say broadly that my knowledge of the pain austerity policies inflicted on populations across the world made me critical of austerity policies, because I had studied their human effects. That inspired me to look at the study more critically.


Peter: Why do you think there is so much support of austerity, from political and economic elites, and how can activists and intellectuals challenge this dogma?


Thomas: I have my own suspicions, but I don’t have any evidence where I can make a strong claim about that. About what folks can do, critical research helps, people working in their communities to get the message out about why austerity isn’t good, that whole tradition of grassroots community organizing—that’s how folks can stop this. That’s how we’ve made the great changes in the past. That’s how we’re going to continue to make the great changes in the future.


Matson: I noticed in Reinhart and Rogoff’s reply to your paper, they admit their Excel mistake, but they say that you’re actually confirming their point.


Thomas: That’s wholly not our interpretation. That is not at all how we see our results. I wrote about this a little bit more in depth in my blog post for Business Insider. Reinhart and Rogoff don’t really talk about the second half of our paper, where we show that their claim that growth falls off noticeably once debt goes above 90% isn’t actually statistically significant, so that doesn’t confirm their claim. Also one of their claims was that this 90% threshold exists for all time and place in history— you know that’s why they did their two centuries of data— that’s also not true, because the negative correlation between debt and growth actually reduces the closer to the present you get. So if you look at the most recent period, 2000-2009, the countries with a debt-to-GDP ratio over 90% actually have higher growth than countries with debt-to-GDP ratio below 90%.


Matson: I’m really curious personally, why did Reinhart and Rogoff share their data with you and not the other scholars who asked for it? Were they expecting some repercussions for not sharing? Did they underestimate you and the UMass team?


Thomas: I have no idea. If you could ask them that, that’s been baffling me as well. They just ignored my first couple of emails and I finally said I was going to publish my results anyway. I couldn’t speculate why they did what they did; I’ve wanted to know the answer to that mystery since last semester.


Matson: Can you paint the contrast between your normal grad student life and this last week of you know, Colbert, CNN and all the rest of that? What’s a normal week like for you?


Thomas: A normal week for me, is more or less working from the time I wake up to the time I go to sleep on my work. Whether it’s the chapter I owe Jerry Epstein [his professor], I have problem sets, I have a microeconomics final coming up, time-series econometrics takes a lot of time, that’s the general life. The last week, sure I’ve been working from the time I wake up ‘til the time I go to sleep, but I haven’t done any of my homework, so I really need to get back to that. Losing a week-and-a-half or two weeks is a little bit more than I can do.


Peter: Why are you studying economics? What do you hope to do with your learning, beyond this?


Thomas: I study economics because economic policies affect people the world over. They’re incredibly important and they affect so many facets of people’s lives, and I hope that I can make a contribution to make economic policies focus on human development, because I think, the whole point of economic policies or an economic system in general, should be to provide material support to people so that they can develop and grow as human beings. And I think a lot of times, that human side of economic policies, you know the profession doesn’t look at it from that perspective. It affects folks’ lives and the communities that I’m a part of and care deeply about and communities across the world. So that’s what motivates me to do what I do.


Matson: Before you go, one last question: do you have any more to say about your time at Evergreen and what that did for you?

Thomas: It’s hard for me to find the words, how transformational my time at Evergreen was and how huge an effect that had on me. Evergreen was where I really made the choice to be an economist because I saw the effect of all these things, and Pete’s class had a huge effect on me in that regard. Working in that class and seeing those folks really helped me make the decision about what I wanted to do with my life. It also gave me the tools that I needed to go out and do it. I was able to find this error because of the attention to detail that I paid to text, and I think Evergreen bar-none is the best place to learn that at. Seminars taught me how to do that because I had to memorize the readings in order to go into seminar and function. You had to know where every passage in the reading was.


Evergreen also gave me that human orientation as well, to really ask, how do these policies affect real people’s lives? And it gave me a critical grounding in a lot of different readings, a really good sense of history as well. That was also important for this project: I know a lot of the history of austerity, public borrowing and recession—Evergreen gave me the tools to look at that history in depth. It also gave me that focus on being embedded in communities and working with communities to look at and solve the problems that are affecting them. Those sort of things, you know I really can’t speak highly enough of my time at Evergreen. It was the best place I could have been and I got so much from it. I really want to thank all the folks I worked with and my fellow students. Evergreen showed me a lot of ways things could be done better.


Matson Boyd is a long-time Evergreener who will be joining Thomas Herndon in the Economics PhD program at UMass Amherst in the Fall.

Peter Bohmer is an activist and long-time Evergreen faculty member, and received his economics PhD at UMass Amherst.

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