Forget About Reinhard & Rogoff

this-time-is-differentEver since a minor spreadsheet error was discovered in a 2010 study evidencing the plainly obvious fact that increased debt loads hinder economic growth, pundits from the left have been gleefully jumping over this molehill pretending it’s a mountain.  Apparently completely forgetting that the conclusion of the paper in question is broadly supported by empirical data the world over, these ideologues now loudly proclaim that the final nail in the coffin of the “austerians” has been placed and that any idea of fiscal responsibility is now dead.

Reinhard and Rogoff Don’t Matter

It’s true, and I can prove it with a simple question: If interest payments consume all available revenue, by what mechanism can an economy grow?

This is all it takes to drive the spendthrift maniacs in to an episode of verbal diarrhea and flimsy excuses.  The obvious answer is that an economy in such a predicament cannot grow, it can’t even reduce it’s debts.  Thus there is a clear mathematical limit on how much debt an economy can sustain as well as a clear impact on growth rates.  If there is no economic surplus, there can be no investment.  Without investment, there can be no growth.  To make the claim that growth can occur without investment is to profess a belief in nothing less than magic and negate the very foundations of economics, no matter what theories one ascribes to.

While Reinhard and Rogoff’s paper may not have provided iron-clad proof that debt above 90% of GDP is dangerous, the left’s reaction to its revision surely has provided iron-clad proof that they have abandoned reality in its entirety.

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3 Responses to “Forget About Reinhard & Rogoff”

  1. zak says:

    presumably the author is speaking of government debt but the analysis misses the mark. why was that debt incurred? if it came as a result of massive reductions in taxes it would be far different from debt accrued by increases in spending (the former being preferable). presumably the implicit assumption is that the growth of the economy can be measured by GDP which is also false. ceteris paribus less government debt is probably better for the economy but the increase in debt assumes that things are not equal in all other respects.

    • Chris Horlacher says:

      "if it came…", "presumably…"

      You are reading things in to the question that were not a part of it. It's a simple thought experiment that demonstrates that high levels of debt will necessarily dampen growth.

    • Vangel says:

      I am sorry but where in the commentary did you get this from? I think that the point was that common sense, a pencil, and the back an envelope is sufficient to tell us that R&R are correct in their conclusion even if their method is not very good.

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