Bad Analysis At The Deficit Commission - Paul Krugman Blog
But there’s actually a worse problem: I’m a great admirer of the Reinhart-Rogoff work on crises — but NOT of their work claiming that 90 percent debt/GDP ratios constitute a red line, which isn’t at all up to the standard of the other material. It’s based on a crude correlation — and as soon as you look at specific examples, it starts to look all wrong. I wrote about it here.
Reinhart and Rogoff specifically cite data from the United States showing slower growth when debt was above 90 percent of GDP. But if you know the data at all, you know that so far, the only years in which US debt was above 90 was in the immediate postwar period, when growth was indeed slow — but not because of the debt burden; instead, the US was demobilizing after the war, with many women leaving the paid work force. So it’s a terrible example to use.