Jeffrey Frankel: "[It Is] Alberto Alesina [Who] Has Not Been Receiving His 'Fair Share of Abuse'”
Jeff Frankel:
On Whose Research is the Case for Austerity Mistakenly Based?: Several of my colleagues on the Harvard faculty have recently been casualties in the cross-fire between fiscal austerians and stimulators…. Carmen Reinhart and Ken Rogoff… the statistical relationship between debt and growth…. Niall Ferguson… “suggested that Keynes was perhaps indifferent to the long run because he had no children, and that he had no children because he was gay.”
But what does it all have to do with the debate between austerians and stimulators? Not much. But the battle lines of the austerians have been wavering lately under the continuing onslaught of facts (most notably the recessions in Europe and Japan’s recent conversion to stimulus), and the stimulators find the missteps of Reinhart-Rogoff and Ferguson to be convenient stones to…. Sorry: they are throwing the wrong stones.
The Reinhart-Rogoff controversy is not in fact relevant to the question whether governments should expand or contract at a given point in time. The basic finding in their papers continues to hold up…
Ahem! There is nothing special about 90%. That is also true for 80%, and 70%, and 60%, and 100%. As I am going to say, again, today, for the ninety-fifth time:
The Ferguson controversy is even less relevant, because the phrase “in the long run we are all dead” was neither about fiscal policy when Keynes wrote it nor an argument against deferred gratification…
Ahem! An awful lot of people--including Niall--claim, along with Hayek and Schumpeter, that Keynes had a view that cared only about the short-run--and claim "in the long run we are all dead" is about deferred gratification.
[It is] Alberto Alesina has not been receiving his “fair share of abuse.” His influential papers with Roberto Perotti (1995, 1997) and Silvia Ardagna (1998, 2010) found that cutting government spending is not contractionary and that it may even be expansionary…. The Alesina papers themselves are much more measured in their conclusions than one would think from the claims of some conservative politicians that academic research finds fiscal austerity to be expansionary in general. Nevertheless, the conclusions are clear: “Even major successful adjustments do not seem to have recessionary consequences, on average” (1997)…. Alesina’s recent policy advice is that the US should cut spending “right away.”…
A new attack on Professor Alesina’s econometric findings comes from an unlikely source: Perotti, the co-author of the first two of the five articles, has now recanted (2013a, b). He points out… the same year can count as a consolidation year, a pre-consolidation year, and a post-consolidation year… some of what have been treated as large spending-based consolidations… were in fact never implemented. Currency devaluation, reduced labor costs, and export stimulus played an important part…. His conclusions: “the notion of ‘expansionary fiscal austerity’ in the short run is probably an illusion: a trade-off does seem to exist between fiscal austerity and short-run growth” and so “the fiscal consolidations implemented by several European countries could well aggravate the recession” (2013b, p.10)…
