You may have heard a bit about some errors and methodological issues in a paper by Carmen Reinhart and Kenneth Rogoff that has been used by austerians to argue for more austerity. The gist is that their work asserts that country’s with debt-to-GDP ratios above 90% have averaged -0.1% growth, whereas other ways of interpreting the same data set give a 2.2%. That’s a big difference. There’s an error in their Excel code that accounts for 0.3% of the difference; the rest of the difference comes from the (to me, strange) way they averaged their data. Justin Fox had a good piece on this:
In the 1990s, the consensus seemed to be that for the U.S. the inflection point was a public debt/GDP ratio of 50% — which is exactly what the country was nearing at the time. Higher than that, and the bond market vigilantes would punish the U.S. with much higher interest rates on government debt. The central teaching of what came to be known as Rubinomics was that cutting the deficit would actually stimulate the economy as it brought interest rates down.
Now, of course, U.S. public debt is up to 76% of GDP, yet the bond market vigilantes all seem to have retired or moved to Europe. In the long aftermath of a global financial crisis, with deflation a real threat, the U.S. can get away with running huge deficits with no immediate consequence. In fact, the Keynesian reasoning goes, big deficits now will lead to a better long run growth picture (and thus lower future debt/GDP ratios).
Is this reasoning correct? Well, right now the evidence would seem to support it: The U.S. is muddling through, while austerity measures have pushed Europe back into recession and most of Southern Europe into depression. For whatever it’s worth, Reinhart and Rogoff have advocated continued deficit spending too — at least for now.
The trouble with this brave new world of big data and whatnot is that people can always find some kind of evidence that supports whatever it is they want to think (I’m not suggesting that this is what Reinhart and Rogoff did here, I have no idea). Start with a conclusion, and look for data that supports that conclusion. No one will check that carefully anyway, our media is almost entirely innumerate.
I agree with Atrios that austerity is more about kicking the poor than anything else, but right-wingers will always be able to find some kind of data that shows austerity is awesome, enough to convince pundits to keep telling everyone that austerity is awesome. But it won’t probably won’t be enough to convince voters to vote for more austerity. How many divisions do the UK and European equivalents of Robert Samuelson and Joe Scarborough have?