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Jodi Beggs

More on the Debt vs. Growth Argument that Won't Die...

By May 27, 2013

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After serious errors were discovered in an influential paper on debt and economic growth, I figured that the issue would be settled with a critique of the original paper and a response to that critique. Apparently I was wrong, since Carmen Reinhart (along with Ken Rogoff as a co-signer, at the very least) has written an open letter to Paul Krugman.

At this point, the most notable part of the letter is that Reinhart claims that, when she and Rogoff were talking to policymakers, the policies they advocated were not the ones that the austerity crowd used their research to justify. In some cases, that assertion is very much true. In other cases, Rogoff at least is documented as being a champion of the debt-justified austerity measures that he is now trying to distance himself from. For example:

"Absolutely," Rogoff said. "Not acting moves the risk closer," he explained, because every year of not acting adds another year of debt accumulation. "You have very few levers at this point," he warned us.

Krugman responded to the letter on his blog, and he (rightly, in my opinion) chose to focus on the intellectual substance of the debate and reiterate that it's misleading to imply that there is some sort of dropoff point at a 90% debt-to-GDP ratio where economic outcomes become catastrophic, since that isn't actually what the data shows. To make this point a bit clearer, UC Berkley economist Brad DeLong was kind enough to translate Krugman's argument into the language of graphs.

Comments

June 7, 2013 at 8:12 am
(1) Stephen D.Pizzuti says:

Today, while I was at work, my cousin stole my iphone and tested to see if it can survive a twenty five
foot drop, just so she can be a youtube sensation.
My iPad is now broken and she has 83 views. I know this is entirely off topic but I had to share it with someone!

June 30, 2013 at 2:59 pm
(2) EconChris says:

I was really hoping this article would include the rebuff that time-series econometrician Jim Hamilton wrote on Econbrowser…

I mean, maybe it’s because he is my favorite economic blogger, and maybe THAT is because (sadly!) his brand of even-handed economic analysis is not shouted from the rooftops like every Krugman post… To me he is the Krugman antithesis! Calm, collected, smart, very much active in the fields of econometrics and energy economics.

To my knowledge Krugman’s only involvement in the field was putting his name on a DSGE model with financial frictions that Eggertsson built. He seems much more unhinged and politically-driven than Hamilton.

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