Harvard economists Ken Rogoff and Carmen Reinhart, authors of a widely-cited paper suggesting that high government debt levels lead to low growth -- have responded defensively to a new paper suggesting that their results were due to mathematical and software errors. I reported on the controversy, which is burning up the econ wonk world, earlier today.
The original 2010 R & R paper is important because it has provided a scholarly veneer for a wave of fiscal austerity policies around the world, including those coming out of Congress. The paper contended that debt/GDP ratios of 90% or higher sent economic growth off a cliff. Since the U.S. has been around that point, deficit hawks swooped in to argue for sharp spending cuts on things like social programs.
The debunking paper by three University of Massachusetts scholars indicated that, properly calculated and with the R & R data properly encoded in a spreadsheet, the effect was in fact moderate. An excellent chart showing the difference is posted by economist Jared Bernstein here. The "whoops," obviously, is what you want to look at.
In their response, R & R don't directly address the UMass critique that their math was erroneous. Instead, they argue that since the critique also finds lower economic growth in high-debt situations, the new findings are no big deal. The point, however, is that the corrected figures don't show anything like a break point in economic growth at the 90% ratio, which Rogoff and Reinhart cited.