Last Friday, The New York Times published a lengthy response by Reinhart and Rogoff to our critique of their work in “Growth in a Time of Debt,” and the ensuing worldwide debate. We have replied to them, which appeared in the Times online Monday night. As you can see below, we did not find their defense at all convincing. We also go into these issues in much more depth in a technical appendix here.
Debt and Growth: A Response to Reinhart and Rogoff
The debate over government debt and its relationship to economic growth is at the forefront of policy debates across the industrialized world. The role of the economics profession in shaping the debate has always come under scrutiny.
There have been an extraordinary number of reactions to the paper we wrote with Thomas Herndon that critiqued the highly influential 2010 Reinhart and Rogoff paper “Growth in a Time of Debt.” Not surprisingly, these reactions have run the gamut. It is obviously impossible for us to respond to all the points raised. One of the most thoughtful critical responses was from Prof. James Hamilton of UC San Diego. Prof. Hamilton is an eminent econometrician. He posted his critique on his own blog site Econbrowser here. We are reposting here his critique of our work along with our response, below. Prof. Hamilton was kind enough to post our response on his site as well.
In 2010, two Harvard economists published an academic paper that spoke to the world’s biggest policy question: should we cut public spending to control the deficit or use the state to rekindle economic growth? Growth in a Time of Debt by Carmen Reinhart and Kenneth Rogoff has served as an important intellectual bulwark in support of austerity policies in the US and Europe. It has been cited by politicians ranging from Paul Ryan, the US congressman, to George Osborne, the UK chancellor. But we have shown that several critical findings advanced in this paper are wrong. So do we need to rethink austerity economics more broadly?
The U.S. Department of Labor today reported that the official unemployment rate had nudged down from 7.7 percent in February to 7.6 percent in March. But this slight improvement in the unemployment rate was due entirely to the fact that nearly 500,000 people dropped out of the labor force in March. Think of a mid-sized city like Indianapolis. Now image if all of the people in the labor force in Indianapolis in February dropped out in March. That’s effectively what happened last month to bring down the official unemployment rate to 7.6 percent. If those nearly 500,000 people (from Indianapolis and everywhere else) had been included among the unemployed, the official rate today would instead be 7.9 percent. On top of this, if we also take into account people who wanted full-time work but had to accept a part-time job, plus people who didn’t look for work this month but haven’t fully stopped looking, the unemployment rate rises to 13.8 percent, or 21.3 million people.
Last December, I posted a very thoughtful set of critiques of my book Back to Full Employment by Phillip Harvey, a Professor of Law and Economics at Rutgers University. I posted my responses to Phil then along with his comments.
Last month, Phil sent me a long set of responses—running to over 6,000 words—to my initial replies to him. I appreciate Phil’s interest and commitment around this issue. We are therefore posting his comments in full below. At the same time, after giving lots of thought to what he had written in this second go-round, I don’t think there is too much more to be gained through me responding to all of his points in full, as I did in the previous round. The main reason is that my responses this time would be basically the same as what I already wrote back in December.
I therefore think it would be most constructive for me to simply highlight what I see as Phil’s main critiques of my approach and to restate my position. That should then provide some context for interested readers to go through Phil’s comments in full. Here, therefore, is what I see as the main areas of contention: