Bowles dismisses ‘flaws’ in favorite debt study

{mosads}The study purported to find a steep drop in economic growth in economies once governmental debt reaches 90 percent of gross domestic product.

This week, University of Massachusetts scholars Thomas Herndon, Michael Ash, Robert Pollin revealed data errors in the study including a common computer spreadsheet calculation. 

“I have obviously read the report and have referenced it a number of times,” Bowles said. “I know they had a worksheet error in the report and my understanding is that does make a difference.” 

“But what it doesn’t change is the common sense and my own personal experience in both the public and private sector that when any organization has too much debt that is an enormous risk factor and your risks go up then people lending you money will want more money for their money,” Bowles said. 

“My best guess is that whether the 90 percent number is the number or not, I don’t know,” he said. “That is obviously up to question. But the fact that adding more leverage to a company or a not-for-profit or a government’s balance sheet does increase, risk and therefore increases the return that somebody is going to expect on their capital, is absolutely a fact.”

Proponents of stimulus spending to combat high unemployment have had a field day this week with the new analysis of Reinhart-Rogoff, including New York Times columnist and Nobel Prize-winner Paul Krugman

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