The Phaserl


Austerity after Reinhart and Rogoff

by David Howden, Mises:

With the world abuzz about mistakes in some influential research by economists Carmen Reinhart and Kenneth Rogoff, attention is being drawn to the case for austerity. Reinhart and Rogoff published several academic articles arguing that, among other things, high levels of debt negatively impact growth. More famously they popularized this idea in their 2011 book This Time It’s Different: Eight Centuries of Financial Folly.

While attention is mainly focused on issues of academic honesty and the accuracy of published results, most people are missing the forest for the trees. There are bigger issues at stake. In particular the question of what austerity or deficit spending implies are being overlooked.

The argument for austerity is precipitated on the very basic dictum that “there is no such thing as a free lunch.” Every action has a cost associated with it, even if the cost is in the distant future and difficult to see.

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