http://www.huffingtonpost.com/2013/05/02/reinhart-rogoff-austerity_n_3201453.html?ref=topbar
Under steady attack after their seminal research was found to be
riddled with errors, Harvard economists Carmen Reinhart and Kenneth
Rogoff are making a show of backing away from the austerity that their
research encouraged.
They claim that their views on austerity have never changed, but the
record tells a different story. They're still trying to have it both
ways -- advocating for government belt-tightening while trying to
avoid being seen as political.
For those readers who have spent the past month held prisoner by the
Sleestaks from "The Land Of The Lost," let me catch you up: Reinhart
and Rogoff wrote a paper back in January 2010, called "Growth In A
Time Of Debt," which strongly suggested that government debt of more
than 90 percent of gross domestic product caused bad things to happen
to economies. In the years since its publication, that paper has been
cited by many politicians, from Rep. Paul Ryan (R-Wis.) to George
Osborne of the U.K., to justify harsh belt-tightening programs despite
deep, widespread economic pain in the U.S., U.K. and Europe.
Two weeks ago, a University of Massachusetts-Amherst grad student,
Thomas Herndon, destroyed their paper's credibility by pointing out
that it was riddled with errors, including glaring data omissions and
a goofy Excel spreadsheet mistake. Suddenly, the Paul Krugmans of the
world, who have spent the past few years arguing fruitlessly against
austerity, had the upper hand. The austerity movement had been
discredited, along with the research from Reinhart and Rogoff that
underpinned it.
Of course, Reinhart and Rogoff have repeatedly claimed that their work
has not been discredited at all, that the bulk of the data still
supports their thesis that debt is a really, really bad thing. And
austerity advocates claim, accurately, that they weren't relying only
on Reinhart and Rogoff in pushing for austerity. They still believe
debt is a really, really bad thing, with or without Reinhart and
Rogoff's numbers.
As part of the effort to rehabilitate their image, Reinhart and Rogoff
have taken the additional step of trying to distance themselves from
austerity altogether by claiming they were never advocates. In a
Financial Times piece on Wednesday (subscription required) and in a
New York Times op-ed last week, they argued that "austerity is not the
only answer" to the oh-so-serious problem of government debt. In fact,
a whole toolkit must be used -- a little austerity here, a little
financial repression there, maybe a little inflation.
And with Wednesday's FT column, a surprising new tool appears in the
kit: More government debt! Although not too much more, and only if
it's used for the right things (emphasis added):
To be clear, no one should be arguing to stabilise debt, much less
bring it down, until growth is more solidly entrenched....
Nevertheless, given current debt levels, enhanced stimulus should
only be taken selectively and with due caution. A higher borrowing
trajectory is warranted, given weak demand and low interest rates,
where governments can identify high-return infrastructure projects.
Borrowing to finance productive infrastructure raises long-run
potential growth, ultimately pulling debt ratios lower. We have argued
this consistently since the outset of the crisis.
But Reinhart and Rogoff never argued, in many of the high-profile
columns they wrote following the release of their paper, that
governments should take on more debt for infrastructure spending, or
for anything else. In fact, they strongly suggested that governments
had better hurry up and start cutting their debt, tout de suite, lest
a new financial crisis hit.
This is what they wrote in the FT in January 2010, around the time of
the publication of "Growth In A Time Of Debt" (emphasis mine):
Given the likelihood of continued weak consumption growth in the
US and Europe, rapid withdrawal of stimulus could easily tilt the
economy back into recession. Yet, the sooner politicians reconcile
themselves to accepting adjustment, the lower the risks of truly
paralysing debt problems down the road. Although most governments
still enjoy strong access to financial markets at very low interest
rates, market discipline can come without warning. Countries that have
not laid the groundwork for adjustment will regret it.
Markets are already adjusting to the financial regulation that
must follow in the wake of unprecedented taxpayer largesse. Soon they
will also wake up to the fiscal tsunami that is following. Governments
who have convinced themselves that they have done things so much
better than their predecessors had better wake up first. This time is
not different.
In July 2011, they wrote in Bloomberg:
Although we agree that governments must exercise caution in
gradually reducing crisis-response spending, we think it would be
folly to take comfort in today's low borrowing costs, much less to
interpret them as an "all clear" signal for a further explosion of
debt.
Rather than suggesting that it might be okay to increase
crisis-response spending temporarily, they allow only that spending
can be reduced "gradually." Which is austerity by another name. And
they warn governments against "a further explosion of debt" to pay for
infrastructure or stimulus or anything else, even when interest rates
are at record lows and people are suffering.
In June 2012, Rogoff did call "debt-ceiling absolutists" naive in
their belief that governments could suddenly just stop taking on debts
necessary to pay for stuff like armies and roads. But he also scolded
the "simplistic Keynesians" like Krugman who have called for more debt
and more government spending: "[E]xpanding today's already large
deficits is a risky proposition, not the cost-free strategy that
simplistic Keynesians advocate."
A little later, in August 2012, Rogoff claimed that he had "always
favoured investment in high-return infrastructure projects that
significantly raise long-term growth." But as Slate's Matthew Yglesias
noted at the time, this is a stingy sop -- okay, fine, we can spend
some money, but only as long as we're sure we're spending it on
"high-return" projects. Good luck figuring out what those are.
And for the past three years, as their paper was used as a political
weapon by austerity advocates, Reinhart and Rogoff remained mute,
never complaining that their paper was being misconstrued or taken too
far. In fact, their columns and congressional consultations only
fanned austerity's flames. Rogoff in 2011 told Congress that right now
was "absolutely" the time to start cutting debt, according to Sen. Tom
Coburn (R-Okla.).
Now that their thesis has suffered a potentially fatal blow, and the
"fiscal tsunami" of soaring interest rates they predicted has still
not materialized, Reinhart and Rogoff are re-writing history and
appearing to get a little cozier with the idea of debt. Given the
damage that austerity has already caused, any apparent abandonment of
it is welcome. Still, there's no better proof that the intellectual
case for austerity has always been empty.
Under steady attack after their seminal research was found to be
riddled with errors, Harvard economists Carmen Reinhart and Kenneth
Rogoff are making a show of backing away from the austerity that their
research encouraged.
They claim that their views on austerity have never changed, but the
record tells a different story. They're still trying to have it both
ways -- advocating for government belt-tightening while trying to
avoid being seen as political.
For those readers who have spent the past month held prisoner by the
Sleestaks from "The Land Of The Lost," let me catch you up: Reinhart
and Rogoff wrote a paper back in January 2010, called "Growth In A
Time Of Debt," which strongly suggested that government debt of more
than 90 percent of gross domestic product caused bad things to happen
to economies. In the years since its publication, that paper has been
cited by many politicians, from Rep. Paul Ryan (R-Wis.) to George
Osborne of the U.K., to justify harsh belt-tightening programs despite
deep, widespread economic pain in the U.S., U.K. and Europe.
Two weeks ago, a University of Massachusetts-Amherst grad student,
Thomas Herndon, destroyed their paper's credibility by pointing out
that it was riddled with errors, including glaring data omissions and
a goofy Excel spreadsheet mistake. Suddenly, the Paul Krugmans of the
world, who have spent the past few years arguing fruitlessly against
austerity, had the upper hand. The austerity movement had been
discredited, along with the research from Reinhart and Rogoff that
underpinned it.
Of course, Reinhart and Rogoff have repeatedly claimed that their work
has not been discredited at all, that the bulk of the data still
supports their thesis that debt is a really, really bad thing. And
austerity advocates claim, accurately, that they weren't relying only
on Reinhart and Rogoff in pushing for austerity. They still believe
debt is a really, really bad thing, with or without Reinhart and
Rogoff's numbers.
As part of the effort to rehabilitate their image, Reinhart and Rogoff
have taken the additional step of trying to distance themselves from
austerity altogether by claiming they were never advocates. In a
Financial Times piece on Wednesday (subscription required) and in a
New York Times op-ed last week, they argued that "austerity is not the
only answer" to the oh-so-serious problem of government debt. In fact,
a whole toolkit must be used -- a little austerity here, a little
financial repression there, maybe a little inflation.
And with Wednesday's FT column, a surprising new tool appears in the
kit: More government debt! Although not too much more, and only if
it's used for the right things (emphasis added):
To be clear, no one should be arguing to stabilise debt, much less
bring it down, until growth is more solidly entrenched....
Nevertheless, given current debt levels, enhanced stimulus should
only be taken selectively and with due caution. A higher borrowing
trajectory is warranted, given weak demand and low interest rates,
where governments can identify high-return infrastructure projects.
Borrowing to finance productive infrastructure raises long-run
potential growth, ultimately pulling debt ratios lower. We have argued
this consistently since the outset of the crisis.
But Reinhart and Rogoff never argued, in many of the high-profile
columns they wrote following the release of their paper, that
governments should take on more debt for infrastructure spending, or
for anything else. In fact, they strongly suggested that governments
had better hurry up and start cutting their debt, tout de suite, lest
a new financial crisis hit.
This is what they wrote in the FT in January 2010, around the time of
the publication of "Growth In A Time Of Debt" (emphasis mine):
Given the likelihood of continued weak consumption growth in the
US and Europe, rapid withdrawal of stimulus could easily tilt the
economy back into recession. Yet, the sooner politicians reconcile
themselves to accepting adjustment, the lower the risks of truly
paralysing debt problems down the road. Although most governments
still enjoy strong access to financial markets at very low interest
rates, market discipline can come without warning. Countries that have
not laid the groundwork for adjustment will regret it.
Markets are already adjusting to the financial regulation that
must follow in the wake of unprecedented taxpayer largesse. Soon they
will also wake up to the fiscal tsunami that is following. Governments
who have convinced themselves that they have done things so much
better than their predecessors had better wake up first. This time is
not different.
In July 2011, they wrote in Bloomberg:
Although we agree that governments must exercise caution in
gradually reducing crisis-response spending, we think it would be
folly to take comfort in today's low borrowing costs, much less to
interpret them as an "all clear" signal for a further explosion of
debt.
Rather than suggesting that it might be okay to increase
crisis-response spending temporarily, they allow only that spending
can be reduced "gradually." Which is austerity by another name. And
they warn governments against "a further explosion of debt" to pay for
infrastructure or stimulus or anything else, even when interest rates
are at record lows and people are suffering.
In June 2012, Rogoff did call "debt-ceiling absolutists" naive in
their belief that governments could suddenly just stop taking on debts
necessary to pay for stuff like armies and roads. But he also scolded
the "simplistic Keynesians" like Krugman who have called for more debt
and more government spending: "[E]xpanding today's already large
deficits is a risky proposition, not the cost-free strategy that
simplistic Keynesians advocate."
A little later, in August 2012, Rogoff claimed that he had "always
favoured investment in high-return infrastructure projects that
significantly raise long-term growth." But as Slate's Matthew Yglesias
noted at the time, this is a stingy sop -- okay, fine, we can spend
some money, but only as long as we're sure we're spending it on
"high-return" projects. Good luck figuring out what those are.
And for the past three years, as their paper was used as a political
weapon by austerity advocates, Reinhart and Rogoff remained mute,
never complaining that their paper was being misconstrued or taken too
far. In fact, their columns and congressional consultations only
fanned austerity's flames. Rogoff in 2011 told Congress that right now
was "absolutely" the time to start cutting debt, according to Sen. Tom
Coburn (R-Okla.).
Now that their thesis has suffered a potentially fatal blow, and the
"fiscal tsunami" of soaring interest rates they predicted has still
not materialized, Reinhart and Rogoff are re-writing history and
appearing to get a little cozier with the idea of debt. Given the
damage that austerity has already caused, any apparent abandonment of
it is welcome. Still, there's no better proof that the intellectual
case for austerity has always been empty.
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