Thomas Herndon is the grad student over at UMass Amherst who co-wrote the paper refuting the results of Reinhart/Rogoff. He's the David compared to the mainstream academics' Reinhart-Rogoff Goliath, right?
Well, maybe not so fast.
Today Herndon wrote a piece in Business Insider where he rebuts RR's claim that their result was essentially the same as his.
But then he said this:
| "There is not one word in our paper which suggests that a high level of government indebtedness is never a problem. It would be absurd to think that governments never have to worry about their level of indebtedness. The aim of our paper was much more narrowly focused. We show that, contrary to R&R, there is no definitive threshold for the public debt/GDP ratio, beyond which countries will invariably suffer a major decline in GDP growth." |
With that comment he may have just resurrected Reinhart/Rogoff and the entire austerity movement. That's because they're gonna say, as long as you feel that debt can be a problem, why wait for it to become a problem? Why not just keep it low all the time or better yet, eliminate it completely?
This is EXACTLY the argument that is continuously employed so ineffectively by people like Paul Krugman. It's also the argument used by every single member of the Democratic Party, including Obama. By agreeing to the false belief that debt is a problem they open up a huge hole that the Austerians can drive a truck through. From there, they're simply able to frame themselves as the grown-ups; the people who represent fiscal responsibility.
The fact is, debt in and of itself is never a problem (as long as we're talking about a fiat money system), it's merely a choice. By allowing debt to rise you may risk inflation at some point. That's a choice. On the other hand keeping debt low or eliminating it via austerity or fixing the quantity of money via a gold standard or some regime of convertibility means deflation. That's also a choice.
Why is deflation (and high unemployment), the current choice, better than inflation? I say it's not. Why do we treat it as the "grown up" way to address this supposed problem?
As long as we keep agreeing to the Austerians' assertions about debt, at whatever threshold, we lose the debate, pure and simple.
The fact is, the discussion should not be about debt at all. The level of debt is irrelevant in a fiat money system. We should be talking about jobs, standard of living and the general welfare of the citizens in our society and we should be doing whatever it is we need to do, within our physical and intellectual constraints to achieve that. That means people, brains, energy, water, land and air, etc.
To hell with the the debt! Stop saying it matters, no matter what level. It doesn't.
