Sunday, September 13, 2026
Austerity revisited
The paper says that the theories on which chancellor George Osborne based his cuts policies in the 2010 coalition government have been shown to be based on an embarrassing mistake.
The error was in a spreadsheet that could have been easily overlooked, a few rows that were left out of an equation to average the values in a column:
The spreadsheet was used to draw the conclusion of an influential 2010 economics paper: that public debt of more than 90% of GDP slows down growth. This conclusion was later cited by the International Monetary Fund and the UK Treasury to justify programmes of austerity that have arguably led to riots, poverty and lost jobs.
Now the mistake in the spreadsheet has been uncovered – and the researchers who wrote the paper, Carmen Reinhart and Kenneth Rogoff, have admitted it was wrong.
The correction is substantial: the paper said that countries with 90% debt ratios see their economies shrink by 0.1%. Instead, it should have found that they grow by 2.2% – less than those with lower debt ratios, but not a spiralling collapse. Yet cutting public spending to avoid that contraction has become a linchpin of both George Osborne's and the IMF's policies.
For Reinhart and Rogoff, who have a huge reputation in the field – both worked at the IMF, Reinhart is a former chief economist at Bear Stearns, and Rogoff worked at the Federal Reserve – the discovery has been hugely embarrassing. "It is sobering that such an error slipped into one of our papers," they said in a statement.
The focus now is on whether the economic theory that had seemed to bolster austerity programmes will follow them into full reverse – and whether politicians and bankers will stick with programmes that are having dubious effect.
"Cutting the debt was the be-all and end-all for Osborne," said Danny Blanchflower, a former member of the monetary policy committee at the Bank of England and now professor of economics at Dartmouth College in New Hampshire. "This is the foundations of that house being ripped away. Reinhart-Rogoff [as the paper was known] was the fundamental building block."
Jonathan Portes, former chief economist at the Department for Work and Pensions and now director of the National Institute of Economic and Social Research, said: "This was an exceptionally influential and widely cited paper, and George Osborne has repeatedly made clear that Ken Rogoff, who he has frequently met, has been very influential on his thinking."
I doubt whether Andy Burnham will be reintroducing austerity, but this report does highlight that he should not be afraid of borrowing more to boost the economy and invest in infrastructure.
The spreadsheet was used to draw the conclusion of an influential 2010 economics paper: that public debt of more than 90% of GDP slows down growth. This conclusion was later cited by the International Monetary Fund and the UK Treasury to justify programmes of austerity that have arguably led to riots, poverty and lost jobs.
Now the mistake in the spreadsheet has been uncovered – and the researchers who wrote the paper, Carmen Reinhart and Kenneth Rogoff, have admitted it was wrong.
The correction is substantial: the paper said that countries with 90% debt ratios see their economies shrink by 0.1%. Instead, it should have found that they grow by 2.2% – less than those with lower debt ratios, but not a spiralling collapse. Yet cutting public spending to avoid that contraction has become a linchpin of both George Osborne's and the IMF's policies.
For Reinhart and Rogoff, who have a huge reputation in the field – both worked at the IMF, Reinhart is a former chief economist at Bear Stearns, and Rogoff worked at the Federal Reserve – the discovery has been hugely embarrassing. "It is sobering that such an error slipped into one of our papers," they said in a statement.
The focus now is on whether the economic theory that had seemed to bolster austerity programmes will follow them into full reverse – and whether politicians and bankers will stick with programmes that are having dubious effect.
"Cutting the debt was the be-all and end-all for Osborne," said Danny Blanchflower, a former member of the monetary policy committee at the Bank of England and now professor of economics at Dartmouth College in New Hampshire. "This is the foundations of that house being ripped away. Reinhart-Rogoff [as the paper was known] was the fundamental building block."
Jonathan Portes, former chief economist at the Department for Work and Pensions and now director of the National Institute of Economic and Social Research, said: "This was an exceptionally influential and widely cited paper, and George Osborne has repeatedly made clear that Ken Rogoff, who he has frequently met, has been very influential on his thinking."
I doubt whether Andy Burnham will be reintroducing austerity, but this report does highlight that he should not be afraid of borrowing more to boost the economy and invest in infrastructure.
