The accuracy and value of modern macroeconomics

In 2012 two economists (Carmen Reinhart and Kenneth Rogoff) presented a study that claimed that economic growth slowed significantly when a nation’s government debt breached 90% of Gross Domestic Product. The study was widely quoted by politicians and other economists as an argument towards austerity (significant cuts in government spending).

Very recently, a graduate student at the University of Massachusetts found that the original authors had made a calculation error, invalidating many of the claims of the study.

NPR’s Planet Money podcast recently did a short but great episode on the topic and raised the question of the value of macroeconomic study.  They raised an interesting question: Is there value in the study of macroeconomics for practical application?

If you have so much as a passing interest in government spending, economics, fiscal and monetary policy and a spare 17 minutes, I encourage you go to listen to the episode right now.

In summary, to paraphrase Winston Churchill via Justin Wolfers, macroeconomic study is the worst way to make policy decisions, except for every other way you can think of.

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