Love the "high five" palm that shows up under the desk around 3:40!
And by the way, maybe the reason some places have debt around 90% of GDP is BECAUSE THEIR ECONOMIES ARE DEPRESSED TO BEGIN WITH. When people are losing their jobs, they tend not to be making money and contributing revenues, and they tend to need unemployment and other types of spending. So no shitr, their economies might be growing slower than other economies that have lower debts. And the difference is so small, it almost doesn't matter.
Econbrowser has had some good breakdowns on the Reinhart-Rogoff report the last few days, and I'd recommend giving that a look as well.
Now debt may not necessarily slow down an economy and risk recession, but you know what does? AUSTERITY! Heck, just ask the British, who are barely staying above 0%, with joblessness back on the rise, in no small part due to austerity measures approved by the Tory-Lib Dem government.
Compare that to what we'll probably see from U.S. GDP tomorrow, which'll be in the 2.5- 3.0% range, and ask which situation you'd rather have? And with the 10-year note staying around 1.7%, why in the world would you want to slam the brakes on an economy that still hasn't nearly recovered to the wage and unemployment levels that we had before?
With all of the evidence to the contrary, what kind of fool would still believe in the "debt tipping point" thesis of Reinhart-Rogoff that has been disproven time and again over the last 80 years? Probably someone clueless enough to think this shot looks cool.
Actually, I would go one step further than you did and posit that Econbrowser says it ALL-- though I'm not sure how comfortable it would make the people who have been jeering over R-R...
ReplyDelete"In any case ... whichever number you used, you would still conclude that higher debt loads are associated with slower growth in the postwar advanced economy data set, just as they were in the postwar emerging economy data set, just as they were in the centuries-long individual country data sets, and as also was found to be the case in separate analyses of yet other data sets by Cecchetti, Mohanty and Zampolli (2011), Checherita and Rother (2010), and the IMF (2012), among others." (JDH)
So the thesis of R-R isn't really falsified by the 2013 UMass paper. I would just say that where all of those folks in the policy arena who hung on R-R got it wrong, was assuming that the costs to growth of continued spending actually outweigh the greater costs to growth of a government which idles by during a recession and doesn't supporting the labor markets with things like unemployment insurance.
Thanks for your response, Chris. I think there's some chicken-egg issues here. While the corrected R-R paper shows slightly lower growth levels with higher debt levels, I'd argue that it's a depressed economy that often drives higher debt, and not the high debt that slows the economy. As I mentioned, with the 10-year note is at 1.7%, so clearly the markets aren't worried right now.
DeleteGDP just came in at 2.5%, not bad, but we need it to continue. Instead we have the sequester slamming the brakes on this, and growth will probably be half that for the rest of the year as a result.
Austerity being the wrong policy was shown again by the Wall State Journal this week- the top 7% of incomes Sadat major gains from. 2009-2011, but the bottom 93% lost ground. That wage and wealth inequality is the Number 1 economic problem in America today, not the deficit