Monday, 4 February 2019

A classic bit of George Osborne / Kenneth Rogoff pro-austerity drivel.

This from George Osborne in 2010:

“So while private sector debt was the cause of this crisis, public sector debt is likely to be the cause of the next one. As Ken Rogoff himself puts it, “there’s no question that the most significant vulnerability as we emerge from recession is the soaring government debt. It’s very likely that will trigger the next crisis as governments have been stretched so wide.”

The latest research suggests that once debt reaches more than about 90% of GDP the risks of a large negative impact on long term growth become highly significant. If off –balance sheet liabilities such as public sector pensions are included we are already well beyond that.  And even on official internationally comparable measures of debt, we are forecast to break through 90% of GDP in just two years time….”.

Well now the first problem there is that the UK’s debt to GDP ratio just after WWII was 250%: nearly three times Rogoff’s allegedly disastrous 90%. Moreover, that 250% does not  include the public sector pensions element which Rogoff uses to get his 90%. So if public sector pensions WERE ADDED to the 250% that would probably take it above the latter “three times”.

But what happened just after WWII in the UK (and indeed other countries with similarly high debt:GDP ratios after WWII)? Nothing much: economic growth in the 1950s and 60s was just fine: indeed better than it’s been for the last few years.

Moreover, Rogoff’s 90% figure was subsequently shown to be nonsense.

Hat tip to Laurie MacFarlane for the above material. See here and here.

As Laurie MacFarlane says “It’s a damning indictment of the economics profession that people like Roghoff still have top academic positions.”

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