Reinhart-Rogoff reprise

By R.A. | WASHINGTON

AFTER watching the recent feeding frenzy over challenges to the Reinhart-Rogoff debt-threshold stylised fact—that growth rates slow sharply once public debt rises above around 90% of GDP—I feel like it's worth making a few points.

1) Carmen Reinhart and Kenneth Rogoff did not cause the shift toward fiscal consolidation. If one had to list contributing factors to that shift in order of importance, I doubt their work would rate the top ten. Easily the most important driver of the shift was the dynamic shown in the chart at right, which shows the level of public debt. I think it was unreasonable to think that governments would accept that increase in debt with insouciance. And indeed, the Reinhart-Rogoff paper that began the threshold discussion, which was published as a working paper in January of 2010, was a contribution to a discussion that was already well under way. In 2009, the IMF's Fiscal Monitor was already sounding the alarm. Barack Obama's 2010 State of the Union speech which also dated to January of 2010, warned of the dangers of high debt and included plans for a spending freeze. There was no world in which elected leaders didn't begin to worry about and move to address indebtedness.