Then, a young doctoral candidate from M.I.T. was given the routine assignment this year of checking the research methodology of the work done by Reinhart & Rogoff. As it turns out, the original research omitted five nations that had high economic growth AND high debt-to-GDP, such as Canada, Australia, and New Zealand. This skewed the data suspiciously. Even more amazing, there was a simple programming error in the Excel spreadsheet that nobody noticed until this young doctoral student came along.
When these oversights and the error are corrected, we find economic growth improves from a negative 0.1% to a positive 2.2%. This is a huge difference! Suddenly, the anti-austerity crowd in Europe became emboldened, fortified by the revised Reinhart & Rogoff study. Everywhere, Keynesian economists feel reborn and recharged.
With central banks in the U.S. and Japan expanding the money supply so rapidly and with the expectation that Europe’s central bank will soon begin the same and with the expectation that Austrian or austerity economics is “on its heels,” I just don’t see how hyper-inflation can be avoided in the long-run.
But, how long is the long run?