From Reinhart-Rogoff Witch Hunts To Krugman’s Contradictions

Tyler Durden's picture

Submitted by F.F.Wiley via Cyniconomics blog,

You may have seen the new skirmishes this weekend in the very public debate about Carmen Reinhart’s and Kenneth Rogoff’s government debt research. Reinhart and Rogoff (I’ll call them RR) posted a letter to Paul Krugman on Reinhart’s website, in response to a piece that Krugman wrote for The New York Review of Books.


Krugman, of course, is one of the pundits who last month published “incomplete, exaggerated, erroneous and misleading” reports about RR’s research, as I explained at the time. Unlike some of the others involved, he kept the smear campaign alive and all but guaranteed RR’s latest response. I’ll recap the weekend’s exchange in a moment, but not before offering my take on Krugman’s MO.

Observations on Krugman’s campaign for more deficit spending

I’ll start with an excerpt from my April 27 article, “More Reasons to Call Off the Reinhart-Rogoff Witch Hunt”:

[The] question of how much debt is too much is an extremely important question. And RR’s many critics make no attempt whatsoever to answer it (if I’m wrong about this, please send me the research), even as they bash two researchers who’ve been leading the way to possible answers since well before their 2010 paper.


It seems to me that you can say two things about the many pundits on this issue:

  1. Commentators in the U.S. who’ve both looked under the surface of our fiscal challenges (see the problems with official numbers in articles such as this and this) and seriously considered the question “How much is too much?” have come away alarmed.
  2. Of the commentators on the other side – those now crowing over the misinformation that’s spread all the way from Rortybomb to the Colbert Report – I don’t know of any who’ve attempted to do the same due diligence and answer the all-important question.

Well, I still haven’t found an RR critic who’s made a genuine effort to estimate how much debt is too much. But I did force myself to search a little further, and my search coincidentally focused on Krugman. I read End This Depression Now, his 2012 book, from cover to cover.

This wasn’t my idea of a good read, but I try to make my reading list as balanced as I can stand. In this case, I was looking for counter-evidence to my assertions above. I wanted to see if there was anything more to Krugman’s positions than über-Keynesianism and boasts that his adversaries were proven wrong. He writes incessantly about inaccurate inflation and interest rate forecasts made by so-called “austerians” – those who’ve dared to express concerns about America’s soaring government debt – while arguing that these erroneous forecasts somehow prove his policy advice correct.

But his logic is full of holes. Near-term inflation and interest rate predictions have little to do with one’s beliefs about the mostly long-term risks of excessive debt. I don’t doubt that some forecasters have made faulty predictions. I know for a fact, though, that there are many who’ve opposed Krugman’s deficit spending recommendations while at the same time either accurately forecasting inflation and interest rates or not making any predictions at all. By my estimates, the second group is large and the first not so much.

How Reinhart and Rogoff Spoiled My Holiday

So, what does all of this have to do with RR’s letter to Krugman?

Well, just when I’d gotten through End This Depression Now and thought I could go back to reading stuff that makes sense to me, I learned of the RR post and felt compelled to read through Krugman’s latest attacks. And then I felt compelled to write – not just to offer my two cents on this weekend’s scuffle, but also to draw some parallels between the current debate and Krugman’s book. So much for my planned holiday reading of either The Bankers’ New Clothes or more of The Great Deformation. (I know, I’ll get over it.)

In any case, here’s my list of takeaways from RR versus PK, Memorial Day weekend edition:

  • Using Internet archives (the “WayBackMachine”), RR demonstrated that their data was publicly available as far back as 2010, contrary to PK’s accusations that this data was withheld. (As I said in earlier posts, I’ve downloaded their spreadsheets in the past and knew they were available.)
  • RR showed that they’ve recommended policies intended to reduce austerity, contrary to their portrayal by PK as tireless austerity advocates.
  • RR counterpunched on the question of debt-to-growth causality. (And yes, everyone recognizes this isn’t determined wholly by correlation.) They responded to the accusation that they put too much weight on the causal effects of high debt on growth with an argument that PK puts too much weight on the causal effects of low growth on debt.
  • Krugman eventually retreated to a core position that RR should have prevented impressionable policymakers from over-interpreting their 90% debt-to-GDP threshold. (I offered my opinion on these accusations here.)

For longer summaries, I recommend reading Econbrowser (James Hamilton) and economicprinciples (David Warsh).

Here’s the discussion we should be having

Now I’ll jump from RR versus PK to F.F. Wiley versus PK. (And no, I don’t expect a response, but I’ll say my piece anyway.)

Not surprisingly, End This Depression Now reads like a longer version of Krugman’s blog. If you’re one of his followers, you’ll be even more convinced that poor inflation and interest rate forecasts by the “austerian” crowd provide the evidence needed to justify massive deficit spending. Never mind those of us who’ve forecast inflation and interest rates correctly, or not at all, and yet still believe his fiscal policy views are too extreme.

As I said above, I couldn’t find a genuine effort to estimate how much debt is too much. But Krugman’s book does include a section titled “What about the Burden of Debt?” This is two pages long, running from the top of page 141 to the top of page 143. Here’s an excerpt:

The key thing to bear in mind is that the $5 trillion or so in debt America has run up since the crisis began, and the trillions more we’ll surely run up before this economic siege is over, won’t have to be paid off quickly, or indeed at all. In fact, it won’t be a tragedy if the debt actually continues to grow, as long as it grows more slowly than the sum of inflation and economic growth.

To illustrate this point, consider what happened to the $241 billion in debt the U.S. government owed at the end of World War II … this amounted to about 120 percent of GDP (compared with a combined federal, state, and local debt of 93.5 percent of GDP at the end of 2010). How was that debt paid off? The answer is that it wasn’t.

Krugman goes on to discuss post-World War II debt developments, while providing some incredibly misleading debt service calculations, but I’ll leave those for another day. I’ve shared the excerpt because it seems to tie into the RR debate. Consider the following:

  • By using the post-World War II experience to dismiss our current debt problems, Krugman essentially suggests a debt threshold of 120% of GDP. He says nothing about debt above 120%, but he’s suggesting that we shouldn’t worry as long as we’re below 120%. It’s a threshold, all the same.
  • For all the bellyaching about RR’s data choices, they’ve built the world’s most extensive government debt database (to my knowledge). Their most recent paper on debt and growth, published in 2012 and largely ignored by their critics, examined 26 high debt episodes in 22 countries. Krugman’s threshold, on the other hand, is based on one high debt episode in one country.
  • There are many reasons to believe that our World War II debt was far less troubling than today’s challenges. One of these is that we were running gigantic non-defense budget surpluses, which meant that we balanced the budget after the war by merely bringing our soldiers home and returning factories to civilian use. As I discussed here and here, balanced budgets and financial repression were the critical ingredients in our success at whittling away war debt, and were more important than the “mild inflation and substantial economic growth” cited by Krugman.
  • Outside of the natural slippage that occurs in recessions, our post-war leaders truly detested budget deficits. Presidents Harry Truman and Dwight Eisenhower restored surpluses within two years of every 1940s and 1950s recession, while mostly dismissing Keynesian theories that were being shaped in academia at that time. Truman even raised taxes to help pay for the Korean War (what a novel idea!), while Eisenhower went so far as to claim that “continued deficit spending is immoral.”

In other words, there are several layers of contradictions in Krugman’s reliance on the post-World War II period to support calls for more stimulus. Perhaps most glaringly, the reduction to a 60% debt-to-GDP ratio by 1957 (about half of the 1946 figure) was achieved partly by avoiding the types of Keynesian stimulus measures that have since helped push debt back above 100% of GDP. If Krugman’s ideas about deficits existed at all in the 1950s, they certainly had no influence in policymaking circles, where old-fashioned principles of fiscal discipline still held sway. And without Truman’s and Eisenhower’s un-Krugman-like beliefs, the success story that he cites as a reason to be unconcerned wouldn’t have unfolded the way that it did.

Krugman’s use of this decidedly non-Keynesian episode of debt reduction to justify his Keynesian beliefs reminds me of the many times (too many) that I’ve encountered “circular reference” errors in Excel. His logic is no less flawed or “circular.” But since there’s no spreadsheet involved, I’ll call it an error of induction.

Getting back to RR versus PK, Krugman refuses to walk away from a smear campaign that’s based on overblown accusations of questionable thresholds, selective data use and a spreadsheet error.

I think it’s time to change focus and consider the questionable thresholds, selective data use and induction error in Krugman’s work.

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francis_sawyer's picture

"I think it’s time to change focus and consider the questionable thresholds, selective data use and induction error in Krugman’s work"


I think it's time to put an oxbow on his neck & make the SOB do a days work in the field...

Charley's picture

Really? Who cares about that buffoon Krugman. But does this mean obvious flaws in RR's argument go unchallenged?

MillionDollarBonus_'s picture

The problem with the zerohedge mantra about saving and investing simply isn't supported by modern economics. There is too much information out there for me to gain a complete understanding of economics,, so I need to listen to the professionals. And unfortunately for libertarians, the professionals universally support more government intervention in the economy.

Manthong's picture

Paul Krugman is to real (classical) economics what Pee-Wee Herman is to Shakespearean Drama.

NidStyles's picture

That is only valid if you consider Shakespeare to be anything more than trash novel drama of that era. I do not. Shakespeare is trash, and I don't understand the obsession with trashy novels either.

jbvtme's picture

you talking pee wee acting shakespeare on stage or in the audience jerking off?

NidStyles's picture

If you go through Shakespeare's work is all the same tripe. They are all romatic tragidies and even when he was writing them they were considered trash. Every single one is about a women whom he fell in love with and she ditched him. THe guy should have committed suicide far sooner than catching food poison. It was obvious on the first reading of anything he has written that he wanted to.

philipat's picture

Japan will prove Krugman to be wrong. Happy day.

Manthong's picture


You are entitled to your opinion, but I believe Shakespeare endures for very good reasons.

But OK, for something a little more contemporaneous, Krugman is to economics what Chaz Bono is to Dancing with the Stars. .. and oh, I think some good parallels can be drawn between modern economics and DTWS.

spine001's picture

Tyler for any work on the limit of debt to gdp ratio to be valid it MUST include some type of financial stability analysis. Without that, at most it is a cualitative piece of wishfull thinking. Sadly, there is no simple inductive reasoning way to explain this. Worst of all, they didn't  teach the analysis techniques in economics schools when todsy's top economists were in College. Sadly they are the reviewers today in the important journals in the scientific literature. So imagine what happens when somebody sends a paper they don't understands. As I said before I am a student in one right now and am triggering quite some motion among the brightest and most advanced graduate students just pointing them to look into stability and control using chaos theory. You should see the eye popping faces when I am able to instill comprehension in their minds. On the flip side most of the professors dont know enough about whatI am talking about. Curiously other engineer professionals in control theory classmates of mine are as flabbergasted as I am by their level of ignorance of basic system control analysis.

So don't expect comprehension on their part the works that are being started will not reach the literature for at least 5 more years if the system aisbaround that long. I did manage to impress a sense of urhency in a few of them.

Until next time,


AldousHuxley's picture


Paul Krugman's advice to recent college graduates: "screw established academia, get your learning for free on the internet. They both do not guarantee employment though"

AldousHuxley's picture

Shakespeare endure for the same reason pyramids endure. They are cultural relics of an old empire.

English is spoken widely, so top English author gets overexposure world spot light and schools force kids to read it. In 100 years, American schools will be teaching ancient Chinese folktales instead of the "Good Earth". 


But the funny thing is, rich Chinese kids will be reading celeb tabloids and watching Chinese Snooki instead of Shakespeare or their own literature.

falak pema's picture


Plato and Shakespeare are immortal, not because of language but because of content; its essence of civilization, relevant to all ages.

Its NOT ethnocentric.

And Pyramids are also icons in the same vein. Try climbing one.

AldousHuxley's picture

Your ethnocentricism led you to claim universal nature of immortal work yet give credit only to a few...and surprise they are of past empires.

That's like saying only Americans are athletic because they are best in NFL football, whereas Europeans claim they are most athletic because they are best in their football (aa. soccer). Who gets to claim which sport is the standard for athleticism? Rich and powerful write the rules of culture and pick which one of the copy cats can represent humanity.

Romeo and Juliet is borrowed from another English author Arthur Brooke, who in turn borrowed from Italian writer Metteo Bandello.

You should have gotten a clue when his stories are based in ITALY.


no civilization nor culture is original. They build on one another. But the powerful gets to deliver the final message and gets the credit.

British empire through control of media shaped the culture's origins to themselves to give them the legitemacy or ruling the world.


Next time watch the olympics broadcast from another country instead of NBC and you will the Americans do the same. They only show you sports they are good at.




libertard's picture

I'm not a fan of his work, but zerohedgers can get behind his career as a grain hoarder. He would buy up grain and keep it until the price rose/there was a famine and sell it at a profit. I guess a silo is the old timey  version of a futures market, lol. 

Promethus's picture

Nidiot - you don't have a clue who Shakespeare is do you?

falak pema's picture

now your knowledge of literature is at par with your knowledge of the social costs of neo-fascist economic dogma that you consider as the road to avoid serfdom.


NidStyles's picture

Except I don't advocate statism in the least and stand strongly against Corporations. So now what? We've done this dance before and you bowed out after I handed your ass to you. Would you like to try again, so you can disapppear for a few weeks and think I had forgotten?


I don't drink, I don't do drugs, and I am very fit, so I don't have the memory isues you do.

falak pema's picture

nobody advocates pure statism, its a question of balance; a balance which has been lost during the Reaganomics era that you hanker for.


My memory tells me I know how this PAx Americana mess occurred and it wasn't statism it was private sector hubris. And don't say that Big Business is not US reality. It's at the root of what America is, except for delusional fools. 

Cause and effect; if you think you can kick ass then you should re-read Shakespeare. He kicked ass as universal poet and yours is just right for his caustic poetry :  "Tomorrow, and tomorrow, and tomorrow
Creeps in this petty pace from day to day,
To the last syllable of recorded time;
And all our yesterdays have lighted fools
The way to dusty death.  Out, out, brief candle!
Life's but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more.  It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing." Happy strutting ...



DOT's picture

"First to thine own self be true..."

Rainman's picture

....eggsacly...savings is for suckers and investments don't pay shit.

Atomizer's picture

There is too much information out there for me to gain a complete understanding of economics


Basic Subtraction Math Lesson - Learn to Subtract

exartizo's picture


Is that you...disguised as MDB?

Atomizer's picture

No, he/she is soon to be a unemployed IRS ZH virtual character handed a EBT card.




Freewheelin Franklin's picture

You were soooooooooo close, MDB.


There is too much information out there for me to gain a complete understanding of economics,


Actually, there is too much information out there that is constatntly changing with respect to economic conditions, that it is nearly impossible to implement any informed remedy for current economic woes in real time. Which is why most, if not all, modern macro is bullshit. The markets are perfectly capable of sorting through the crap without any help from the "planners".

PiltdownMan's picture

But the Krugman/Bernanke Princeton/Berkeley solutions are out the window since we are in unchartered and unDOCUMENTED. So WHO do you listen to? Bernanke? Delong? Krugman? Goolsebee? Or are Rogoff and Reinhart actually right?

SOMETHING has been happening since May 2nd. Treasury yields up 50bps despite Fed buying. Durations rising, etc. NOT in the models. See here:

nmewn's picture

But wait, weren't those models invented by some really fart smellers? ;-)

jon dough's picture

I wuz thinkin' fart smuckers, m'self...

nmewn's picture

lol...some of the smartest fellers in the world sometimes spend millions in R&D, marketing and what-not and are completely blind sided by even the simplest things, of an imaginative mind.

Like Jello & Silly Putty ;-)

"I'd put my putty in the fridge, and I pressed my thumb into it just before pouring the jelly in. Silly Putty always creeps towards a puddle-like state unless you've actually frozen it, so I wanted the minimum possible time between the impression and the moulding.

I poured on the gelatine solution, and into the freezer it went for a few minutes to set."

NidStyles's picture

Apparently some of the newer contestants to the club are thinking that sharing information is a bad idea and junking you. I have seen a great influx of Commies lately. It seems they are getting desperate that they are losing the debate and want to get violent now.

nmewn's picture

Its a guarantee that any thread dealing with the quacks who preach socio-economics (like Krugman) will fill up with them...beatiing on drums...shitting on cars...raping women in the next tent.

Standard stuff.


NidStyles's picture

I will try to avoid anything with Krugman. Why anyone listens to the idiot is beyond me. Some of the stuff that he's said is just insane.

Vooter's picture

"It seems they are getting desperate that they are losing the debate and want to get violent now."

Well, that's your problem, now, isn't it?

jon dough's picture

Awesome link nmewn, thx.

nmewn's picture

Welcome, something I stumbled across today...HuffPo of all

Another, which makes sense, seeing as how they simply must put an RFID chip in everything these days...including credit cards...

Capitalism ;-)

jon dough's picture

Ad sez "More comfortable than aluminum foil in your pants."

Should I be worried that they know my comfort level for aluminum in my pants?



ebworthen's picture

Yes MDB, in a Ponziconomy debt is king. 

Destroying an economy and creating trillions of unpayable debt to crush future generations must be left to the "professionals", if that is your goal.


You gotta be a crack or meth baby that got dropped on you head, Trillion Dollar Fiat Bonus - head. 

I  adjusted your persona name for inflation since you joined Zero Hedge for free - my consultation fee waived out of pity for the retarded.

" It only costs five dollars to dig it out of the ground "

 You are a funny guy. 

Vooter's picture

I bet the professionals universally support keeping men in ski masks from hiding in the bushes outside their homes at 6:30 in the morning, too. That doesn't mean they're going to succeed....

macholatte's picture



Where's Bonzai?

a picture of Krugman (Carmen Ghia from The Producers 1968) (must watch)


TheFourthStooge-ing's picture


But does this mean obvious flaws in RR's argument go unchallenged?

Such as?

Seriously, let's hear them.

Fish Gone Bad's picture

Keynes was a smart man who realized his mistakes and often changed his mind.  Krugman doesn't channel Keynes anymore-so than the clergy channel God.

Charley's picture

A witch hunt? To point of obvious flaws of empirical data and reasoning is a witch hunt?

TheFourthStooge-ing's picture


To point of obvious flaws of empirical data and reasoning is a witch hunt?

How about a which hunt instead?

You've alluded to obvious flaws of data and reasoning. Please enumerate them for those of us to whom these flaws are not obvious.

Atomizer's picture


Krugman was hoping that 1998 QE2 alien invasion asteroid might lend a hand in reducing heated inflationary measures. Offering destruction to rebuild new globalization cities as a hub to reconstitute slavery hotspots, so we all can enjoy buying shit we don’t need.

Krugman calls for space aliens to fix U.S. economy


francis_sawyer's picture

Ramuses II would have had doughboy Krugman dancing in the mudpits to make bricks...


I'm not sure if any of the pyramids would have ever been built if that were the case...

Cognitive Dissonance's picture

Krugman is an EXTREMELY useful idiot (savant) to those who wish to kick the can until the rape and looting can be substantially completed. The more we debate his mantra the more credibility he maintains. His arguments do not support his stature, we do. Just as withdrawing as much as we can will starve the Ponzi beast, withdrawing from the Krugmanites of the world will eventually rendor them mute and moot.

bank guy in Brussels's picture

In Europe now we are being practical ...

Instead of academic controversy, we have moved up to thousands of demonstrators attacking European Central Bank headquarters

Photos and video from today :

Protesters versus riot police in Frankfurt this afternoon, after blocking access to European Central Bank and Deutsche Bank headquarters yesterday

1 minute English news video on protests in Frankfurt

ZH readers will especially love the big banner that says,

'Let's Choose Communism' !

NidStyles's picture

Yeah that's right, when you can't make your demands happen through actual petition just act violent and destroy everything. That is a great message you're sending future generations. It say's, "If you don't like something, rather than educating people on how to improve it, just destroy and steal everything from others we don't like."


Typical Euro-Trash. That is you...


You have Communism now, and you still don't like it, what makes you think you will like it when it's the more in your face variety? It just doesn't work, and you keep trying it over and over again like a bunch of retarded chimps shoving your cock into a bee's nest for the honey.

kliguy38's picture

Do you mean like America did in 1776 with the British King.......they didn't exactly exercise Ghandi style activism now did they??? Perhaps you would like us to behave like chumps when they roll out gun confiscation and FEMA camps......WHAT is your limit???? Or are you one of those chicken hawks that let "change" come from those with the balls to go out and demand it???  When was the last time you sacrificed for another person besides yourself?