United Kingdom

The error that could subvert George Osborne's austerity programme

The theories on which the chancellor based his cuts policies have been shown to be based on an embarrassing mistake

It was a mistake in a spreadsheet that could have been easily overlooked: a few rows 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.

https://www.theguardian.com/politics/2013/apr/18/uncovered-error-george-osborne-austerity