Britain and Spain once went to war over the severed ear of a ship’s captain. The annals of unusual conflicts will surely record that the 18th-century War of Jenkins’ Ear was a pretty unremarkable affair when set against today’s War of the Spreadsheet Coding Error.
Economists have taken up arms. One side has long claimed proof that high public debt suffocates growth. European governments have fallen in behind, rampaging across the continent under the flag of austerity. Now a rival army of academics says the statistical books were spiked. As things turn out, the causality may flow in the opposite direction: it is low growth that drives up debt.
The Harvard economists Carmen Reinhart and Kenneth Rogoff had posited that debt above 90 per cent of national income was almost always associated with significantly reduced growth. The implication was that deep retrenchment was the only route back to prosperity. Now, economists at the University of Massachusetts Amherst say the results reflected a data “coding error” and some questionable aggregation. The assumption that high debt always equals low growth is not sustained by the evidence.