Thank a Simple Excel Error For Austerity Economics

You know the much-ballyhooed theory that high national debt always correlates to crappy economic growth? The one that's trotted out on a regular basis by politicians arguing for austerity budgets and sequestration? Well, according to new findings, the study that austerity proponents cite more than any other is based on an Excel error. A big one.

The glitchy data comes from a hallmark study on debt, Growth in a Time of Debt, from 2010. Since it was published, it's become a favorite of people like Paul Ryan, who mentioned it frequently during the Romney campaign. But a new meta-analysis of the study's original Excel spreadsheet, by three UMASS economists, uncovered several errors, including the selective omission of data, an undiscussed weighting system, and an error in the Excel spreadsheet that excluded five countries. As the Rortybomb blog explains (and to clarify an earlier version of this post), correcting for the omission, weighting, and Excel mistake shows that countries with a debt-to-GDP ratio over 90 percent have an average growth rate of 2.2 percent, not -.1 percent as the original paper concluded. This suggests that while debt and growth are related, the correlation is weaker than previously assumed. "We will redouble our efforts to avoid such errors in the future," responded the scientists in a Wall Street Journal post today.

Of course, it's not like politicians were basing their ideas on the paper alone—in reality, these kinds of studies are used to post-rationalize prior beliefs about the economy. More importantly, Paul Krugman points out that there are plenty of instances where countries boomed during high debt periods, as well as plenty of examples of countries slogging through depressions with tons of debt. In other words, it's a more complex issue than simple causation.

You can't really blame Excel for the error—the data should've been reviewed back when the paper was published. Still, there are plenty of other examples of mistakes like this leading to major inaccuracies. The moral of the story? Double check your sources before making decisions that affect the global economy.

[Ars Technica]