Reinhart-Rogoff
Is higher debt associated with lower GDP?
Obviously... c'mon. Why wouldn't it be? A nation suffering low growth sees reduced revenue. A nation suffering low growth spends on stimulus and spends more on social welfare because the economy is slow.
There are a thousand reasons to expect the two to be correlated.
In the 1990s we balanced the budget because the economy was good and revenues were way up.
The question of CAUSATION is a whole 'nother thing. Does a large debt cause low economic growth? Well, if it restrains government spending it certainly would, and in the rare case where government borrowing competes with private borrowing causing higher local interest rates it could. (Though that is entirely unlike anything we are experiencing today.)
So how does that fit into our deficit debates?
It doesn't! We have no credit competition and slowing government spending is not a practical result of the debt in any way. Slowing government spending is a political choice informed by a gross misunderstanding of economics. The economy is not forcing us to borrow less. The economy is encouraging us to borrow more. The economy (the magical marketplace) has people lined up to lend us money at ridiculously low interest rates.
Cutting government spending is a denial of common sense and a denial of what te market is saying.
The Austerian knows better than the market, and knows that some catastrophic trigger point awaits us. At some magic ratio of debt and GDP the wheels will come off.
Reinhart-Rogoff are currently defending their flawed work by pointing out that there is an inverse correlation of debt and GDP, as they found.
Yes, assholes. Everyone knew that before your paper.
What made their paper globally INFLUENTIAL was precisely the part of it that was WRONG, which was they they found a critical threshold around 90% of GDP that caused a novel and dramatic GDP decline.
That novel and dramatic tipping point is essential to the Austerian argument because without assuming some mysterious emergent phenomenon at a tipping point it is all nonsensical.
The Austerian's NEED a mysterious and dramatic emergence of what they claim because the real world is not backing them up. The curves and lines do not back them up. They NEED to assume a distinct breaking point to justify their counter-factual and counter-intuitive ideology.
The magical breaking point is precisely the part of Reinhart-Rogoff that made it influential.
And that breaking point is precisely the part of their research that sis BOGUS. Derived from a computer coding error. Not existent in the real world.
So to defend their work as mostly right is like defending a forged check by noting that though the signature is wrong, the date is correct and the penmanship admirable.
The part of their work that was dead WRONG was the only part of it that was interesting and the only part that anybody cared about to begin with.
