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Why the Fuss Over Reinhart and Rogoff Is Overblown

Adam Jeffery | CNBC

It's not Carmen Reinhart and Kenneth Rogoff's fault that politicians hijacked their landmark work on debt and growth.

Reinhart and Rogoff, along with their seminal book, "This Time is Different: Eight Centuries of Financial Folly," and an accompanying research paper, have become synonymous with the debate over how much debt governments can carry before growth is affected.

The popular interpretation is that once public debt reaches 90 percent of gross domestic product, it shaves median growth by 1 percent and average growth by more than that. Politicians in the U.S. and Europe have used that conclusion to justify measures aimed at cutting debt now in the hope of paving the way to growth.

(Read More: Some Fed Members Fear Monetary Policy Effects)

But a recent examination of Reinhart and Rogoff's work showed fairly conclusively that the two had missed some data that could have altered their conclusions. That has led some to wonder whether the book has led to bad public policy that actually will crimp growth because of the trend toward cost-cutting and smaller government.

A few problems:

For one thing, anybody who actually read R&R's work will understand that their assertion all along was that financial crises led to more debt, which then led to slower growth—not that the debt came before a crisis, as their critics suggest.

(Read More: Europe's Austerity Era Could Be Coming to an End)

An important passage from Chapter 10 of "This Time is Different" reads as such: "On average, during the modern era, real government debt rises by 86 percent during the three years following a banking crisis." (Note "following.")

A second is that few economists other than liberals Paul Krugman and Dean Baker seem particularly bothered by the discrepancies in R&R's work, at least insofar as how much they affect the conclusion that heavy debt loads impair growth.

"The mistakes that are most embarrassing are the least consequential," University of Michigan economist Justin Wolfers said in this excellent analysis by Annie Lowry in The New York Times.

Finally, the evidence that R&R's work has had a profound impact on public policy is tenuous at best. That claim has led to another faulty idea—that more debt could be good for growth.

The rebuttal to R&R that is making waves came from Thomas Herndon, Michael Ash and Robert Pollin at the University of Massachusetts.

Their primary claim—no, make that their only claim outside of "popular media" citations—of R&R's influence on public policy is something they cryptically refer to as the "Paul Ryan Budget."

That's a nod to the Republican Wisconsin congressman and former vice presidential candidate whose "budget" has never been adopted as public policy. Yet it alone is considered an indictment of how much R&R has influenced policy.

(Read More: 5 Fiscal Secrets Buried In Obama's Budget)

The authors use the same logic to turn the debt findings on their head.

Because R&R had issues with data, the UMass trio argue, the whole body of work must be wrong and "therefore lead us to reassess the austerity agenda itself in both Europe and the United States."

As for public policy, the Obama administration—hardly a champion of the "intellectual bulwark in support of austerity politics," as the UMass group phrases it—has used "This Time is Different" to explain away the slow growth after the financial crisis.

And, yes, the president's Republican opponents have invoked the country's debt-to-GDP ratio to bash the president.

But governments throughout southern Europe have been forced into cost-cutting far more by their need to comply with mandates from their creditors and the euro zone than by any ideas raised in a book by two Harvard professors.

Global cost-cutting has become a necessity, but that's not Reinhart and Rogoff's fault, either.

By CNBC.com Senior Writer Jeff Cox.

Disclosure: Cox co-authored a book, Debt, Deficits and the Demise of the American Economy, that cited Reinhart and Rogoff's work.

Follow Cox on Twitter @JeffCoxCNBC.com.

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