Was this the most important news of the week?

What was the most important news of the week? Perhaps it was the announcement that the UK had been stripped of its coveted AAA credit rating by a second agency. Fitch joined its rival Moody’s in reducing the credit rating to AA+ and its decision comes on top of the call from the International Monetary Fund for the government to rethink its austerity plans. Maybe that was the most important news.

After all, when the government was elected, the Chancellor, George Osborne, staked his entire reputation on keeping our AAA credit rating. He said that the credit rating was the most important measure of the economy’s strength and it was one of the reasons he justified the huge cuts and the assault on the poorest parts of the country in particular. The loss of that rating shows even on the measure on which he asked to be judged he and this government have failed the people of this country. The double downgrade was certainly significant news.

But no, I think that there was a more important announcement. So what was so important that most commentators missed it or chose not to mention it? I refer to a further fundamental piece of evidence used by Osborne to justify the austerity measures he has introduced since 2010. This ‘evidence’ has been completely discredited – and it should be news.

Two Harvard economists, Carmen Reinhart and Kenneth Rogoff published research in 2010 which appeared to show that countries who borrow more than 90% of the value of GDP go into recession. The research had looked at evidence from across the world and Reinhart and Rogoff were widely regarded as the leading experts on the subject. Certainly George Osborne relied on their research to justify his huge cuts. If anything their evidence was of even greater importance than the claim that he had to protect our credit rating.

The point is that the research included a key spreadsheet which appeared to show that cuts had to be made because of the level of national debt. The evidence was quoted by the economists and by the government who used the spreadsheet and the research of which it was part to justify the cuts to services, jobs and benefits which have hit the poor and those on middle incomes in this country and around the world.

The only problem with the research was that the spreadsheet didn’t add up. There was a mistake in the formula. The published results showed that a debt to GDP ratio of 90% would lead to a recession with a contraction in the economy of 0.1%. But when the spreadsheet was checked a few days ago by a student at Harvard, it showed that the real result was actually steady if unspectacular growth of 2.2%.

The mistake came to light as a result of the work of grad student Thomas Herndon. You can read about his work here.

If only Reinhart and Rogoff had checked their work. They have admitted their mistake which is a bit late for all those who have suffered as a result of the cuts.

In America, Barrack Obama chose to ignore the research in 2010 and instead decided to invest and to stimulate the economy, that of course is why the Americans have enjoyed growth while we have faced at least a double dip recession and possibly a triple dip.

In truth I don’t know what was the most important news of the week. But, I think the news about a simple mistake in a spreadsheet by two eminent economists was of rather more importance than many other stories which have been published. That mistake has had far reaching ramifications especially for those who have suffered and who continue to suffer as result of this government’s policies. So, I wonder whether our chancellor and the rest of the Conservatives and Lib-Dems who followed his lead will admit they were wrong too. After all the mistake has been at the root of an entire economic policy and programme of cuts which in the real world has cause enormous harm to many, many people.

Bill Esterson is the Labour MP for Sefton Central