Thomas Herndon

Last updated
Thomas Herndon
Thomas Herndon headshot.jpg
Born25 February, 1985 (1985-02-25) (age 39)
Education Economics
Alma mater Evergreen State College
University of Massachusetts Amherst
Known forExposing fundamental errors in "Growth in a Time of Debt"
Notable workAcademic paper: Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff [1]

Thomas Herndon (born 25 February, 1985) is an associate professor of economics at John Jay College, CUNY in New York City, who has previously worked as assistant professor at Loyola Marymount University in Los Angeles. During his PhD studies at the University of Massachusetts Amherst Herndon became known for critiquing "Growth in a Time of Debt", a widely cited academic paper by Carmen Reinhart and Kenneth Rogoff supporting the austerity policies implemented by governments in Europe and North America in the early 21st century. His research concluded that these measures may not have been necessary. [2]

Contents

Herndon proved that the paper contained multiple errors, provoking widespread international interest. [3] [4] The Reinhart–Rogoff paper was frequently cited during the 2012 U.S. presidential election campaign. [5] It was also frequently cited among policymakers in congress, including in the drafting of the Bowles-Simpson report. However, there are differing views on the actual impact the original paper may have had on policy making. [6]

The findings have been described as "shocking" and as having rocked the economics world. Publications such as The Washington Post had for several years taken the conclusions of the Reinhart–Rogoff paper as an "economic consensus view." [7] [8] New York magazine wrote that Herndon "just used part of his spring semester to shake the intellectual foundation of the global austerity movement." [9]

Discovery of flaws in "Growth in a Time of Debt"

During his graduate studies in a class with Professor Michael Ash, Herndon was assigned to pick an economics paper and try to replicate the results. He chose "Growth in a Time of Debt", and throughout the semester his attempts to replicate the results proved unsuccessful. After further consultation with his professors Michael Ash and Robert Pollin, Herndon was encouraged to contact the authors Reinhart and Rogoff at Harvard. They provided him with the actual working spreadsheet they had used to obtain their results. Herndon looked into the detail of the original spreadsheet and found several issues: [4]

The basic conclusion that countries with indebtedness rates above 90% of GDP have lower growth rates still held, but the most spectacular results disappeared, the relationship was much gentler and there were numerous exceptions to the rule. These results were published on 15 April 2013 as a draft working paper, and in 2014 in the peer-reviewed Cambridge Journal of Economics . [6] [4] [10]

Related Research Articles

<span class="mw-page-title-main">Spreadsheet</span> Computer application for organization, analysis, and storage of data in tabular form

A spreadsheet is a computer application for computation, organization, analysis and storage of data in tabular form. Spreadsheets were developed as computerized analogs of paper accounting worksheets. The program operates on data entered in cells of a table. Each cell may contain either numeric or text data, or the results of formulas that automatically calculate and display a value based on the contents of other cells. The term spreadsheet may also refer to one such electronic document.

<span class="mw-page-title-main">Economic history</span>

Economic history is the study of history using methodological tools from economics or with a special attention to economic phenomena. Research is conducted using a combination of historical methods, statistical methods and the application of economic theory to historical situations and institutions. The field can encompass a wide variety of topics, including equality, finance, technology, labour, and business. It emphasizes historicizing the economy itself, analyzing it as a dynamic entity and attempting to provide insights into the way it is structured and conceived.

<span class="mw-page-title-main">National debt of the United States</span>

The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury securities that have been issued by the Treasury and other federal agencies. The terms "national deficit" and "national surplus" usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. In a deficit year the national debt increases as the government needs to borrow funds to finance the deficit, while in a surplus year the debt decreases as more money is received than spent, enabling the government to reduce the debt by buying back some Treasury securities. In general, government debt increases as a result of government spending and decreases from tax or other receipts, both of which fluctuate during the course of a fiscal year. There are two components of gross national debt:

<span class="mw-page-title-main">Austerity</span> Economic policies intended to reduce government budget deficits

In economic policy, austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both. There are three primary types of austerity measures: higher taxes to fund spending, raising taxes while cutting spending, and lower taxes and lower government spending. Austerity measures are often used by governments that find it difficult to borrow or meet their existing obligations to pay back loans. The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures. Proponents of these measures state that this reduces the amount of borrowing required and may also demonstrate a government's fiscal discipline to creditors and credit rating agencies and make borrowing easier and cheaper as a result.

<span class="mw-page-title-main">Household debt</span> Combined debt of all people in a household

Household debt is the combined debt of all people in a household, including consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and subsequent European economic crises of 2007–2012. Several economists have argued that lowering this debt is essential to economic recovery in the U.S. and selected Eurozone countries.

<span class="mw-page-title-main">Kenneth Rogoff</span> American economist and chess player

Kenneth Saul Rogoff is an American economist and chess Grandmaster.

<i>American Economic Review</i> Academic journal

The American Economic Review is a monthly peer-reviewed academic journal first published by the American Economic Association in 1911. The current editor-in-chief is Erzo FP Luttmer, a professor of economics at Dartmouth College. The journal is based in Pittsburgh.

<span class="mw-page-title-main">Debt-to-GDP ratio</span> Economic assessment of a countrys debt

In economics, the debt-to-GDP ratio is the ratio between a country's government debt and its gross domestic product (GDP). A low debt-to-GDP ratio indicates that an economy produces goods and services sufficient to pay back debts without incurring further debt. Geopolitical and economic considerations – including interest rates, war, recessions, and other variables – influence the borrowing practices of a nation and the choice to incur further debt.

A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy.

<span class="mw-page-title-main">Ricardo Hausmann</span> Venezuelan economist

Ricardo Hausmann is the former Director of the Center for International Development currently leading the Center for International Development’s Growth Lab and is a Professor of the Practice of Economic Development at the John F. Kennedy School of Government at Harvard University. He is also a former Venezuelan Minister of Planning and former Head of the Presidential Office of Coordination and Planning (1992–1993). He co-introduced several regularly used concepts in economics including original sin, growth diagnostics, self-discovery, dark matter, the product space, and economic complexity.

<span class="mw-page-title-main">Robert Pollin</span> American economist

Robert Pollin is an American economist and professor at the University of Massachusetts Amherst, where he is also founding co-director of its Political Economy Research Institute (PERI).

<span class="mw-page-title-main">Alberto Alesina</span> Italian economist (1957–2020)

Alberto Francesco Alesina was an Italian economist who served as the Nathaniel Ropes Professor of Political Economy at Harvard University from 2003 until his death in 2020. He was known principally as an economist of politics and culture, and was famed for his usage of economic tools to study social and political issues. He was described as having “almost single-handedly” established the modern field of political economy, and as a likely contender for the Nobel Memorial Prize in Economic Sciences.

At the micro-economic level, deleveraging refers to the reduction of the leverage ratio, or the percentage of debt in the balance sheet of a single economic entity, such as a household or a firm. It is the opposite of leveraging, which is the practice of borrowing money to acquire assets and multiply gains and losses.

The Deutsche Bank Prize in Financial Economics honors renowned researchers who have made influential contributions to the fields of finance and money and macroeconomics, and whose work has led to practical and policy-relevant results. It was awarded biannually from 2005 to 2015 by the Center for Financial Studies (CFS), in partnership with Goethe University Frankfurt, and is sponsored by Deutsche Bank Donation Fund. The award carried an endowment of €50,000, which was donated by the Stiftungsfonds Deutsche Bank im Stifterverband für die Deutsche Wissenschaft.

<span class="mw-page-title-main">Carmen Reinhart</span> American economist

Carmen M. Reinhart is a Cuban-American economist and the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School. Previously, she was the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics and Professor of Economics and Director of the Center for International Economics at the University of Maryland. She is a research associate at the National Bureau of Economic Research, a Research Fellow at the Centre for Economic Policy Research, Founding Contributor of VoxEU, and a member of Council on Foreign Relations. She is also a member of American Economic Association, Latin American and Caribbean Economic Association, and the Association for the Study of the Cuban Economy. She became the subject of general news coverage when mathematical errors were found in a research paper she co-authored.

The anti-austerity movement refers to the mobilisation of street protests and grassroots campaigns that has happened across various countries, especially in Europe, since the onset of the worldwide Great Recession.

<span class="mw-page-title-main">Proposed long-term solutions for the eurozone crisis</span>

The proposed long-term solutions for the Eurozone crisis address ways to deal with the European debt crisis that took place in the European Union from 2009 till the late 2010s, including risks to Eurozone country governments and the Euro.

Growth in a Time of Debt, also known by its authors' names as Reinhart–Rogoff, is an economics paper by American economists Carmen Reinhart and Kenneth Rogoff published in a non peer-reviewed issue of the American Economic Review in 2010. Politicians, commentators, and activists widely cited the paper in political debates over the effectiveness of austerity in fiscal policy for debt-burdened economies. The paper argues that when "gross external debt reaches 60 percent of GDP", a country's annual growth declined by two percent, and "for levels of external debt in excess of 90 percent" GDP growth was "roughly cut in half." Appearing in the aftermath of the financial crisis of 2007–2008, the evidence for the 90%-debt threshold hypothesis provided support for pro-austerity policies.

<i>Capital in the Twenty-First Century</i> 2013 book by French economist Thomas Piketty

Capital in the Twenty-First Century is a book written by French economist Thomas Piketty. It focuses on wealth and income inequality in Europe and the United States since the 18th century. It was first published in French in August 2013; an English translation by Arthur Goldhammer followed in April 2014.

<span class="mw-page-title-main">Nicoletta Batini</span> Italian economist

Nicoletta Batini is an Italian economist, notable as a scholar of innovative monetary and fiscal policy practices. During the crisis she pioneered the IMF work exposing the dangers of excessive fiscal austerity and designed ways to consolidate public debt successfully during phases of financial deleveraging. Since 2003 at the International Monetary Fund, she has served as Advisor of the Bank of England’s Monetary Policy Committee between 2000-2003 and was Professor of Economics at the University of Surrey (2007-2012), and Director of the International Economics and Policy office of the Department of the Treasury of Italy’s Ministero dell’Economia e delle Finanze (MEF) between 2013-2015. Batini's fields of expertise include monetary policy, public finance, open economy macroeconomics, labor economics, energy and environmental economics, and economic modeling. She has handled extensive consultancy roles in the public sector in advanced and emerging market countries. She holds a Ph.D. in international finance from the Scuola Superiore S. Anna and a Ph.D. in monetary economics from the University of Oxford.

References

  1. Herndon, Thomas; Ash, Michael; Pollin, Robert (15 April 2013). "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff" (PDF). Political Economy Research Institute – Working Paper Series (322). Archived from the original on 1 July 2013. Retrieved 25 June 2013.
  2. "Doubt cast on research supporting austerity". BBC News. 19 April 2013. Retrieved 19 April 2013. The new research suggests that austerity measures may not have been necessary
  3. "How Thomas Herndon, a student, took on Harvard economists and won". IBN Live. 18 April 2013. Archived from the original on 22 April 2013. Retrieved 18 April 2013.
  4. 1 2 3 4 5 6 Alexander, Ruth (19 April 2013). "Reinhart, Rogoff... and Herndon: The student who caught out the profs". BBC News Magazine. Archived from the original on 8 June 2013. Retrieved 25 June 2013.
  5. Evans, Pete (17 April 2013). "Key pro-austerity study based on incorrect math: Holes poked in analysis that claims high debt loads cause economies to shrink". CBC News. Retrieved 17 April 2013.
  6. 1 2 Trotter, JK. "UMass Student Exposes Serious Flaws in Harvard Economists' Influential Study". The Atlantic Wire. Archived from the original on May 30, 2013. Retrieved June 25, 2013.
  7. Konczal, Mike (16 April 2013). "Shocking Paper Claims That Microsoft Excel Coding Error Is Behind The Reinhart-Rogoff Study On Debt". Businessinsider. Retrieved 16 April 2013.
  8. Parnass, Larry (18 April 2013). "UMass graduate student Thomas Herndon rocks economics world with class project on debt, growth". Gazettenet. Retrieved 18 April 2013.
  9. Roose, Kevin (18 April 2013). "Meet the 28-Year-Old Grad Student Who Just Shook the Global Austerity Movement". New York . Retrieved 18 April 2013.
  10. "Reinhart, Rogoff Admit Excel Mistake, Rebut Other Critiques". Wall Street Journal. April 17, 2013. Archived from the original on June 22, 2013. Retrieved June 25, 2013.