They claim their concern was always long term and that they never said we should be having deep cuts now. That's surely not how they sounded when they spoke to Senator Tom Coburn (R-Missouri). That's not what he took away from it anyway.
One kind of apologetics you see for R-R lately is that it's all just a minsuderstanding: of course they agree with Krugman that we don't want fiscal consolidation for the short term as this Wall Street Journal tries to claim:
"Don't be misled because politicians are promiscuous citers of authorities they haven't consulted and papers they haven't read for what politicians would do anyway. As much as some try to invent a fierce debate between "austerians" and advocates of stimulus, the policy consensus, in fact, has been strikingly solid. Michael Kinsley nicely demonstrates in a Los Angeles Times column that even Paul Krugman and his bête noire, deficit hawk Pete Peterson, have been saying the same thing: NO to immediate fiscal stringency, YES to long-term reform."
http://online.wsj.com/article/SB10001424127887323982704578454780975879730.html
"Reinhart and Rogoff speak with a degree of clarity and authority unusual for academics. They were ideal visitors to help us pause and think. Both economists had hundreds of years of data at their fingertips and were unquestionably nnpartisan. Neither had an axe to grind."
"Reinhart and Rogoff had spent much of the last year dismantling the mistaken belief that "this time is different"-the notion that this particular group of policymakers in this moment of history was somehow smartr than all the others and could run up debt forever without cataclysmic consequences. A key conclusion of their work is that economies like ours slow down considerably when our debt to GDP ratio reaches about 90 percent."
http://delong.typepad.com/sdj/2013/05/is-a-higher-borrowing-trajectory-warranted-or-not.html
Cobrun didn't even understand the point of their book title which was not that of course it's not different as smarty pants Obama thinks but rather that it really is different: financial crises are different, they're longer and deeper. So Coburn totally missed the point of the part of their work they got right. R-R now like to play down their role in advocating austerity and insist they always said it's a long term not a short term issue. Yet you can't blame Senator Coburn for not getting that:
Johnny Isakson, a Republican from Georgia and always a gentleman, stood up to ask his question: “Do we need to act this year? Is it better to act quickly?”
“Absolutely,” Rogoff said. “Not acting moves the risk closer,” he explained, because every year of not acting adds another year of debt accumulation. “You have very few levers at this point,” he warned us.
One kind of apologetics you see for R-R lately is that it's all just a minsuderstanding: of course they agree with Krugman that we don't want fiscal consolidation for the short term as this Wall Street Journal tries to claim:
"Don't be misled because politicians are promiscuous citers of authorities they haven't consulted and papers they haven't read for what politicians would do anyway. As much as some try to invent a fierce debate between "austerians" and advocates of stimulus, the policy consensus, in fact, has been strikingly solid. Michael Kinsley nicely demonstrates in a Los Angeles Times column that even Paul Krugman and his bête noire, deficit hawk Pete Peterson, have been saying the same thing: NO to immediate fiscal stringency, YES to long-term reform."
http://online.wsj.com/article/SB10001424127887323982704578454780975879730.html
"Reinhart and Rogoff had spent much of the last year dismantling the mistaken belief that "this time is different"-the notion that this particular group of policymakers in this moment of history was somehow smartr than all the others and could run up debt forever without cataclysmic consequences. A key conclusion of their work is that economies like ours slow down considerably when our debt to GDP ratio reaches about 90 percent."
http://delong.typepad.com/sdj/2013/05/is-a-higher-borrowing-trajectory-warranted-or-not.html
Cobrun didn't even understand the point of their book title which was not that of course it's not different as smarty pants Obama thinks but rather that it really is different: financial crises are different, they're longer and deeper. So Coburn totally missed the point of the part of their work they got right. R-R now like to play down their role in advocating austerity and insist they always said it's a long term not a short term issue. Yet you can't blame Senator Coburn for not getting that:
Johnny Isakson, a Republican from Georgia and always a gentleman, stood up to ask his question: “Do we need to act this year? Is it better to act quickly?”
“Absolutely,” Rogoff said. “Not acting moves the risk closer,” he explained, because every year of not acting adds another year of debt accumulation. “You have very few levers at this point,” he warned us.
"Senator Kent Conrad, the chairman of the Senate Budget Comittee, said our current deficits were severe because we had very low revenues due to a slow economy combined with very high spending. He then offered his own stern warning to the assembled senators. Turning around in his chair in the middle of the room, he explained to his colleagues that when our high debt burden causes our economy to slow by 1 point of GDP, as Reinhart and Rogoff estimate, that doesn’t slow our economy by 1 percent by 25 to 33 percentwhen we are growing at only 3 to 4 GDP points a year."
"Reinhart echoed Conrad’s point and explained that countries rarely pass the 90 percent debt-to-GDP tipping point precisely because it is dangerous to let that much debt accumulate. She said, “If it is not risky to hit the 90 percent threshold, we would expect a higher incidence.”
As Delong points out they've been all over the map on austerity and whether we should stimulate in the short term. Their latest tact to try to rehabilitate themselves is to claim that they are not for austerity and never were.
Jonathan Portes at Not the Treasury View wrote a letter to FT after their latest piece at FT:
Jonathan Portes at Not the Treasury View wrote a letter to FT after their latest piece at FT:
"My letter to the FT responds to Ken Rogoff and Carmen Reinhart's opinion piece (2 May):
"In their article 'Austerity is not the only answer to a debt problem', Ken Rogoff and Carmen Reinhart argue:
"the debate needs to be reconnected to the facts. Let us start with one: the ratios of debt to gross domestic product are at historically high levels in many countries, many rising above previous wartime peaks."
In an effort to reconnect myself with the facts, I consulted Rogoff and Reinhart's owndatabase. Among G7 countries, their statement is false for the UK, US, Canada, France and Italy. They do not have data for Germany or Japan for the World War 2 peak. More importantly, the way that these very high debts were reduced was primarily by growth, not by rapid fiscal consolidation at a time of weak private demand.
Nevertheless, their call for more borrowing for public infrastructure investment, and their recognition that such borrowing can make the public finances more, not less, sustainable is welcome. Many of us, including of course Martin Wolf in your columns, have been arguing for some time that in the UK with demand weak, interest rates at historically extraordinarily low levels, and a legacy of underinvestment, this is both basic macroeconomics and simple common sense. The support of Professors Reinhart and Rogoff is welcome.
http://notthetreasuryview.blogspot.com/2013/05/comment-on-reinhart-and-rogoffs-ft.html
Of course,they continue to give mixed messages. Even in the above they seem to both say we should have public investment and that debt is a real worry right now. As Jonathan Portes notes WWII is a bad example for them because we didn't do rapid debt consolidation.
If you want to understand the reason why they are being so roundly criticized it's in what Tom Coburn said. Coburn didn't even understand the book that everyone still agrees was of a high quality. Yet, its not surprising that he was confused by R-R. As Portes show they continue to try to have it both ways:
"The letter deliberately concentrates on the case for borrowing now to finance investment, where Reinhart and Rogoff have belatedly joined a growing consensus. In the interests of brevity and focus, I omitted a couple of points where their article is simply incoherent, which I will set out here. In particular, they argue that we should be cautious about borrowing because interest rates might rise:
So they continue to mix up cause and effect. As Portes says, we have record low rates right now-if this is not the time fore more government debt then when? Indeed, we actually want higher interest rates-not as a cause but an effect of a recovery-high interest rates don't lead to a recovery but a recovery will see higher interest rates.
"Leave aside the silly straw man (repeated elsewhere) that "ultra-Keynesians" want an "unlimited open-ended surge in debt." Who are these "ultras"? Not Martin Wolf and Simon Wren-Lewis in the UK, or Paul Krugman and Brad Delong in the US. And, as Reinhart and Rogoff know perfectly well, of course we think (and hope!) that real interest rates will rise at some stage, when demand and confidence returns and the private sector wants to invest. Bringing that time forward is precisely the objective of the policies we advocate."
"The broader point here is that Reinhart and Rogoff seem to have got their logic completely inverted. At the moment the UK (and US) can borrow very long term at very low or even negative real interest rates; the UK index-linked gilt maturing in 2055 has a real yield below zero. So what Reinhart and Rogoff are arguing is that we should not lock ourselves into long-term debt at very low real interest rates now, because real interest rates might go back up. Suffice it to say that if your financial adviser told you not to take out a long-term fixed rate mortgage now, because interest rates might go up next year, you might reasonably doubt her competence."
Of course,they continue to give mixed messages. Even in the above they seem to both say we should have public investment and that debt is a real worry right now. As Jonathan Portes notes WWII is a bad example for them because we didn't do rapid debt consolidation.
If you want to understand the reason why they are being so roundly criticized it's in what Tom Coburn said. Coburn didn't even understand the book that everyone still agrees was of a high quality. Yet, its not surprising that he was confused by R-R. As Portes show they continue to try to have it both ways:
"The letter deliberately concentrates on the case for borrowing now to finance investment, where Reinhart and Rogoff have belatedly joined a growing consensus. In the interests of brevity and focus, I omitted a couple of points where their article is simply incoherent, which I will set out here. In particular, they argue that we should be cautious about borrowing because interest rates might rise:
"Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates.No one fully understands why [real interest] rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained...Economists simply have little idea how long it will be until rates begin to rise. If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause."
So they continue to mix up cause and effect. As Portes says, we have record low rates right now-if this is not the time fore more government debt then when? Indeed, we actually want higher interest rates-not as a cause but an effect of a recovery-high interest rates don't lead to a recovery but a recovery will see higher interest rates.
"Leave aside the silly straw man (repeated elsewhere) that "ultra-Keynesians" want an "unlimited open-ended surge in debt." Who are these "ultras"? Not Martin Wolf and Simon Wren-Lewis in the UK, or Paul Krugman and Brad Delong in the US. And, as Reinhart and Rogoff know perfectly well, of course we think (and hope!) that real interest rates will rise at some stage, when demand and confidence returns and the private sector wants to invest. Bringing that time forward is precisely the objective of the policies we advocate."
"The broader point here is that Reinhart and Rogoff seem to have got their logic completely inverted. At the moment the UK (and US) can borrow very long term at very low or even negative real interest rates; the UK index-linked gilt maturing in 2055 has a real yield below zero. So what Reinhart and Rogoff are arguing is that we should not lock ourselves into long-term debt at very low real interest rates now, because real interest rates might go back up. Suffice it to say that if your financial adviser told you not to take out a long-term fixed rate mortgage now, because interest rates might go up next year, you might reasonably doubt her competence."
So R-R are just doing the same thing they've done over the last 3 years. Confuse and muddy the discussion but giving intellectual cover to the Tom Coburns and Oli Rehns of the world. This is why they deserve the continued disapproval of their peers.
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