Stevenson-Wolfers on Reinhart-Rogoff

They write:

In the end, all the corrections advocated by the critics shift the average GDP growth for very-high-debt nations to 2.2 percent, from a negative 0.1 percent in Reinhart and Rogoff’s original work. The finding remains that economic growth is lower in very-high-debt countries (see chart). It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture.

Click on graphic to enlarge. 

Snapshots from the Performance

 Photo credit:  JACOB BELCHER/HARVARD OFA

The President as Financial Planner

He and Michelle seem inattentive to their own finances:

The Obamas paid $45,046 in mortgage interest in 2012, which appears from the disclosure statement to be at a 5.625% interest rate with Northern Trust. That suggests an outstanding principal balance of about $800,000. 

On the other hand, the bulk of their investments are in Treasury notes. Based on the disclosures, I estimate they hold about $3 million in Treasury notes (also held by Northern Trust), yielding 0.71% if averaging a five-year maturity. 

By selling some of those Treasuries and paying off the mortgage, they would effectively be getting five more percentage points on the amount; they would also be about $40,000 better off each year before taxes, not to mention being less exposed to notes that could take a hit from possible rising rates. 

The Obamas would pay more in taxes but make much more after taxes -- especially since they aren’t getting the full deduction anyway, due to the AMT. That's more money going to the U.S. Treasury and more money for them; Northern Trust would be the loser.

Mistakes

Several people have asked me to comment on the coding error found in one of the Reinhart-Rogoff papers. I have avoided the topic, since I don't think I have a lot to add to the discussion.  But because so many people have asked, here are a few observations:

1. Everybody makes mistakes. I once made an analytic error in one of my published papers and, after it was pointed out to me, subsequently wrote a correction (published version).  Finding and correcting errors is a part of the research process.  Sure, errors are embarrassing, but there is nothing dishonorable about making them.

2.  Policy should not be based on the results of a single study.  And my experience is that it never is.

3. I believe that high levels of debt and deficits are a negative for the economy in the long run.  My views on this issue have not changed substantially since I wrote about it with Larry Ball almost twenty years ago.

4. I never thought there was a magic threshold for the debt-to-GDP ratio above which all hell breaks loose.  The world is more continuous than that.

5. The coding error in Reinhart and Rogoff has gotten a lot more media attention than it deserves.  Some people on the opposite side of the policy debate have taken advantage of this opportunity to pound the drum for their views.  But just because someone in Team A makes an inadvertent excel error does not mean that everything Team B believes is true.  To suggest otherwise would be a truly egregious mistake.

A Reading for the Pigou Club

Europe's Cap-and-Trade Scheme Failing Spectacularly

More Endorsements

From Megan Amram, Tommy Amaker, and Larry Summers. More to come at this link in the coming days.

Help a Student!

A student I know (specifically, my older son) is trying to collect some survey data.  Click here if you are willing to participate.  The survey will take about 15 minutes.

Update: No more data is needed.  Thanks to the more than 1000 of you who participated.