I regret that I really have run out of DeLong Smackdowns--run out of people making what I think are good, or even arguable, criticisms of me that show that I do or perhaps might need to mark my beliefs to market...
Come on, people! Step up your game!
Oh well, we do what we can...
And today we pick on Salim Furth of the truly execrable Heritage Foundation
Anybody who followed the debt-and-growth debate learned seven important things:
- There is a huge amount of evidence that high debt when accompanied by high interest rates has very damaging effects on growth.
- The higher is the debt, the more likely it is that interest rates will spike.
- There is no evidence that a 90% debt-to-annual-GDO ratio is any kind of magic tripwire, beyond which a big spike in interest rates becomes much more likely in any semi-discontinuous way.
- The amount of debt that a country can runup without adverse consequences--its debt capacity--is wildly variable.
- The historical evidence tells us that reserve-currency issuers--like Britain, Japan, and the United States--can runup debt well over 150% of annual GDP without any adverse interest rate effects.
- There is no evidence that high debt unaccompanied by high interest rates has any damaging effects on growth.
- At current interest rates in the North Atlantic, governments that increase their deficits in order to finance programs that build infrastructure or reduce hysteresis at even low rates of return will find that their long-run debt-to-annual-GDP ratio is not higher but lower.
And the complaints against Reinhart-Rogoff and Reinhart-Reinhart-Rogoff were all that they appeared to be denying (3) and (6)...
Yet now comes the Heritage Foundation's Salim Furth, yet again--and Salim Furth knows better--to confuse his audience:
Salim Furth: Reinhart, Rogoff and the Spreadsheet Error a Year Later: "A year after the Reinhart-Rogoff controversy...
...we still have good reason to believe that high public debt is a drag on growth. In March 2013, I published a review of scholarly literature on public debt and growth. It found harmony across institutions and methods: Researchers agreed that high debt was a drag on growth and that there might be a threshold effect such that extra debt was especially harmful when public debt exceeded about 90% of gross domestic product.
The next month, three economists at the University of Massachusetts dropped a bombshell: The best-known paper on the topic, by Carmen Reinhart and Kenneth Rogoff, had a spreadsheet error. For those who mistrusted the debt-growth link, the typo was a chance to reexamine the evidence.
But a year after the uproar, very few economists have changed their minds. Although the book by Ms. Reinhart and Mr. Rogoff was the best-known, other, wonkier papers arrived at the same conclusion. Crucially, the other papers claimed to show a causal link between high debt and low growth, not just a correlation. But instead of engaging with, for example, papers by Manmohan S. Kumar and Jaejoon Woo or Stephen G. Cecchetti, M.S. Mohanty and Fabrizio Zampolli, most critics of the debt-growth nexus failed to even acknowledge them.
In other words: Skeptics have still not made a case for abandoning the conclusions of the best research so far on public debt and growth.
Note the absence of phrases like "interest rates", "reserve currency", "exchange rate regime", and "debt capacity" from Furth? Sure you do.
How can we have a technocratic debate with these people?