It's 2010, and the world is coming out of recession. Two Harvard professors--one of whom is a former economist for the IMF and chess Grandmaster--publish a paper suggesting that a country with a high public debt-to-GDP ratio of over 90% is associated with low economic growth. Turns out the Excel model the professors use is riddled with some basic statistical and formula errors. The results potentially lead to incorrect economic policies, austerity measures, and high unemployment around the world. This is a Google Sheet which shows one of the spreadsheet errors, and I show how you can prevent such an error in this post.

See the video below if you want to jump straight to the tutorial:

https://youtu.be/mXUynkQQ1uM

Background

Economists Carmen Reinhart and Kenneth Rogoff published a paper in 2010 called Growth in a Time of Debt (originally published in the American Economic Review) where they argued:

[...] median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower.

In 2013, PhD students Thomas Herndon, Michael Ash, and Robert Pollin of the University of Massachusetts, Amherst had re-created the study from Reinhart and Rogoff's paper as part of their PhD program. The students had to analyze the original Excel files that Reinhart and Rogoff used, and they weren't able to replicate the original results. They cited in their own paper entitled Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff :

[...] coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period.

Reinhart and Rogoff suggested that the debt/GDP ratio and economic growth is simply a correlation, and that correlation still holds after correcting for the spreadsheet mistakes. However, that correlation is not as strong as their original paper posited.

Why this was a big deal

The implications of their findings resulted in news outlets, politicians, and policymakers using the 90% benchmark as a signal that a country is heading for low economic growth. Some notable examples:

* 2012 Republican nominee for the US vice presidency Paul Ryan included the paper in hi proposed 2013 budget* The Washington Post editorial board takes it as an economic consensus view, stating that "debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth." * Austerity measures are put into place around the world despite the advice from economic advisers, pushing unemployment rate above 10% in the eurozone

3 main Excel spreadsheet problems with the model

The three main errors that Herndon, Ash, and Polling discovered are the following:

* Years of high debt and average growth where selectively excluded from the data set* Countries' G...