LEFT'S ATTEMPT TO TO SMEAR 2 ECONOMISTS AND THEIR STUDY TYING HUGH DEBT TO LOW GROWTH FAILS

THE 2 ECONOMISTS THEMSELVES STRAIGHTEN THINGS OUT IN A NYTIMES OP-ED:

We did find that episodes of high debt (90 percent or more) were rare, long and costly. There were just 26 cases where the ratio of debt to G.D.P. exceeded 90 percent for five years or more; the average high-debt spell was 23 years. In 23 of the 26 cases, average growth was slower during the high-debt period than in periods of lower debt levels. Indeed, economies grew at an average annual rate of roughly 3.5 percent, when the ratio was under 90 percent, but at only a 2.3 percent rate, on average, at higher relative debt levels.

(In 2012, the ratio of debt to gross domestic product was 106 percent in the United States, 82 percent in Germany and 90 percent in Britain — in Japan, the figure is 238 percent, but Japan is somewhat exceptional because its debt is held almost entirely by domestic residents and it is a creditor to the rest of the world.)
The fact that high-debt episodes last so long suggests that they are not, as some liberal economists contend, simply a matter of downturns in the business cycle.

In “This Time Is Different,” our 2009 history of financial crises over eight centuries, we found that when sovereign debt reached unsustainable levels, so did the cost of borrowing, if it was even possible at all. The current situation confronting Italy and Greece, whose debts date from the early 1990s, long before the 2007-8 global financial crisis, support this view.

The politically charged discussion, especially sharp in the past week or so, has falsely equated our finding of a negative association between debt and growth with an unambiguous call for austerity.
We agree that growth is an elusive goal at times of high debt. We know that cutting spending and raising taxes is tough in a slow-growth economy with persistent unemployment. Austerity seldom works without structural reforms — for example, changes in taxes, regulations and labor market policies — and if poorly designed, can disproportionately hit the poor and middle class. Our consistent advice has been to avoid withdrawing fiscal stimulus too quickly, a position identical to that of most mainstream economists.

In some cases, we have favored more radical proposals, including debt restructuring (a polite term for partial default) of public and private debts. Such restructurings helped deal with the debt buildup during World War I and the Depression. We have long favored write-downs of sovereign debt and senior bank debt in the European periphery (Greece, Portugal, Ireland, Spain) to unlock growth.

In the United States, we support reducing mortgage principal on homes that are underwater (where the mortgage is higher than the value of the home). We have also written about plausible solutions that involve moderately higher inflation and “financial repression” — pushing down inflation-adjusted interest rates, which effectively amounts to a tax on bondholders. This strategy contributed to the significant debt reductions that followed World War II.

In short: many countries around the world have extraordinarily high public debts by historical standards, especially when medical and old-age support programs are taken into account. Resolving these debt burdens usually involves a transfer, often painful, from savers to borrowers. This time is no different, and the latest academic kerfuffle should not divert our attention from that fact.

PEOPLE WHO THINK GOVERNMENTS CAN HAVE UNLIMITED DEBT AND THAT CENTRAL BANKS CAN PRINT AN UNLIMITED AMOUNT OF PAPER MONEY ARE NUTS.

IF GOVERNMENTS AND CENTRAL BANKS COULD MAKE ECONOMIES GROW BY PRINTING MONEY, THEN ZIMBABWE AND WEIMAR WOULD BE THE WORLD'S BEST ECONOMIES.

IF PRINTING MONEY COULD REALLY IMPROVE THE ECONOMY, THEN WHY NOT JUST PRINT $300 TRILLION AND TRANSFER $1 MILLION TO EVERY SINGLE AMERICAN?

THE NUTS WHO THINK GOVERNMENT DEBT IS NOT A PROBLEM ARE PART OF THE PROBLEM.

WHAT WE NEED IS MORE SUSTAINED ECONOMIC GROWTH.

ANY AND ALL GOVERNMENT POLICIES THAT GET IN THE WAY OF HIGHER GROWTH SHOULD BE REDUCED TO THE LOWEST LEVELS POSSIBLE: TAXES; REGULATIONS; ETC.

AND SINCE WE ALREADY HAVE A DEBT PROBLEM, THE ONLY WAY WE CAN RESPONSIBLY LOWER TAXES IS BY CUTTING GOVERNMENT SPENDING.