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More on Reinhart/Rogoff: Pollin/Ash vs. James Hamilton

by Robert Pollin and Michael Ash

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.

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Reinhart and Rogoff Are Wrong about Austerity

by Robert Pollin and Michael Ash

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?

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The Reinhart-Rogoff Reassessment in the Media

by admin

Updated May 9

In this new paper, Thomas Herndon, Michael Ash and Robert Pollin look carefully at the analysis underlying a cornerstone of government austerity plans: studies by Carmen Reinhart and Kenneth Rogoff which correlate national debt-to-GDP ratios over 90% with sharp declines in growth. Their critique has struck a live wire in the media. Some interesting highlights are:

Paul Krugman’s blog in The New York Times
Mike Konczal on RortyBomb
Moneybox blog on Slate
Wonkblog in the Wall Street Journal
FTAlphaville blog in the Financial Times
Dean Baker in The Guardian
Josh Bivens on the EPI blog
Jared Bernstein’s blog
Arin Dube on RortyBomb
Mary Bottari on PRWatch

and a sampling of the rest…

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How to Solve the Crisis Without Doing a Thing

by Matias Vernengo

Are you concerned with unemployment and the effects of austerity on the very slow recovery? The Congressional Budget Office (CBO), with the help of mainstream theory, has a solution. Just hike the natural rate of unemployment. Now there are less people involuntarily unemployed, and we are only about 2.2% above ‘full employment.’ If they hike it a bit more we are done, and John Taylor and Martin Feldstein will be correct in pressing the Fed to hike the rate of interest.

It is a convenient solution no doubt. Mind you the most typical way of deriving the natural rate is from some kind of average of the actual unemployment. In other words, they [mainstream] tell you that the average of a series is the attractor of the actual series. Talk about having things upside down!
This reminds me of the time Bob Solow gave a talk at the New School (in 2001) and suggested at the beginning that the idea of the natural rate was incorrect and should be avoided. By the end of the talk he argued that most analysts think that the natural rate was, back then, at around 5.2%. There it is, the natural rate doesn’t exist, but it is 5.2%.
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Employment Conditions Worsen while Obama Capitulates to Austerity and Fossil Fuel Hawks

by Robert Pollin

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.

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