That’s “more” as in “in addition to Rogoff and Reinhart’s efforts”.
First, Costas Milas studies the relationship
between UK public debt and growth between 1831 and 2013 and finds that debt is
negatively correlated with growth. I’m not surprised.
During the first 75% or so of that period (i.e. up to WWII), the ways in
which and reasons for which debt was incurred were very different from the last
25%. In other words it wasn’t till after WWII and Keynsianism was fully
accepted. That had the following consequences.
Where a government borrows more, interest rates will rise. And assuming
nothing is done about those interest rate increases, the result may well be
reduced growth. In contrast, borrow and spend a la Keynes consists of borrowing
and spending PLUS negating any interest rate increase that results from that
borrowing. Thus the net effect should be to increase growth.
Indeed, not only will a central bank NEGATE any interest rate rise
coming from a bout of “borrow and spend”, the central bank may well REDUCE
interest rates, assuming the central bank thinks stimulus is justified: witness
the fact that over the last three or four years, central bank rates have fallen
to record lows for a record length of time.
Thus to draw any conclusions from the undesirable effects of increased borrowing
prior to WWII for us in 2013 strikes me as questionable.
European Commission study.
The second
study, done by the European Commission looks at 74 consolidations and finds
that about half of them had no growth reducing effect. The problem there is that
nearly all the consolidations were in the 1980s and 90s, a time of decent
growth: exactly the scenario when it’s possible to consolidate without adverse
effects. (The study was done way back in 2003, but I stumbled across it on this
blog.)
Indeed, given enough private sector exuberance, government HAS TO
consolidate, else there’ll be excess demand and inflation. The same thing was
going in the US at that time. I.e. Bill Clinton ran a surplus during his
presidency (1993-2001). But I don’t think it was the surplus that CAUSED the
decent economic growth in the 1990s in the US.
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