Friday, April 26, 2013

Global Austerity, Debt, Growth and Reinhart-Rogoff

It's a debate replete with vested interests so don't expect it to be settled any time soon. A number of people have been forwarding me this NYMag article "Meet the 28-Year-Old Grad Student Who Just Shook the Global Austerity Movement". The critique has been overhyped (particularly evident in the NYMag article) and those who oppose moderating the massive overspending by governments have overstepped what they see as their momentary advantage.

Of course, things don't quite work that way. Judge for yourself - A roundup of other articles in response:
Researchers Finally Replicated Reinhart-Rogoff, and There Are Serious Problems (HN) Carmen Reinhart and Kenneth Rogoff respond (NYT)
A Study That Set the Tone for Austerity Is Challenged (NYT)
Reinhart-Rogoff reprise (Economist)
Mistakes (Greg Mankiw)

Update (April 28): Refereeing Reinhart-Rogoff Debate (Betsey Stevenson & Justin Wolfers writing in Bloomberg). After taking the adjustment into account:

The finding remains that economic growth is lower in very-high-debt countries (see chart). It has been disappointing to watch those on the left seize on the embarrassing Excel errors but ignore this bigger picture"

Update (April 30): Investors who failed to roll over Greek debt were not scared off by an economic research paper. (WSJ):
When Germany insisted, in return for bailouts, that these countries enact tax hikes and spending cuts, it wasn't because German pols were in thrall to Rogoff and Reinhart.

In inflicting serial fiscal cliffs on itself, Washington wasn't studying Rogoff and Reinhart. It was studying the irreconcilable demands of voters who want no spending cuts, no tax hikes and no deficits.

In the sequestration accident that followed, the culprit wasn't Rogoff and Reinhart. The culprit was the desire of politicians to put off spending discipline until tomorrow—and then, dammit, tomorrow arrived.

Don't be misled because politicians are promiscuous citers of authorities they haven't consulted and papers they haven't read for what politicians would do anyway. As much as some try to invent a fierce debate between "austerians" and advocates of stimulus, the policy consensus, in fact, has been strikingly solid. Michael Kinsley nicely demonstrates in a Los Angeles Times column that even Paul Krugman and his bĂȘte noire, deficit hawk Pete Peterson, have been saying the same thing: NO to immediate fiscal stringency, YES to long-term reform.

Now if various blowhards who campaign against austerity and say they are in favor of long-run reform actually supported long-run reform, we might get somewhere.
Update (May 6): Larry Summers: Reinhart-Rogoff Debacle Shows No Policy Should Be Based 'On A Single Statistical Result' [and it wasn't] (HuffingtonPost via GregMankiw)

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