Reinhart and Rogoff’s faulty spreadsheet doesn’t destroy the case for austerity

Economists should always leave themselves a margin for error. When challenged that free-market policies on both sides of the Atlantic in the 1980s led straight from boom to bust, Milton Friedman argued that problems arose not when politicians applied his prescriptions too dogmatically, but because they only ever did so half-heartedly. John Maynard Keynes, the high priest of big government, changed his mind ‘when the facts change’ and was so magisterially flexible that he was able to express ‘deeply moved agreement’ with the moral stance of The Road to Serfdom, Friedrich Hayek’s sermon against the tyranny of the over-powerful state. The Harvard professors Kenneth Rogoff and Carmen Reinhart, by contrast, made the fatal mistake of offering a theory reducible by politicians to a soundbite that was also an unambiguous equation: countries whose debt-to-GDP ratio rises above 90 per cent suffer significantly slower growth.

Britain’s latest debt figures, announced on Tuesday, were not quite as dire as markets expected and Ed Balls hoped, bringing relief to the embattled and downgraded Chancellor Osborne with a slim reduction in the budget deficit for the year just ended.