3. The Architects Of His Austerity Programme Abandon Him
Big George will tell anyone within spitting distance, at least a couple of times an hour, about the impact that high levels of public debt can have on growth. Carmen Reinhart and Kenneth Rogoff are two Harvard economists who published an academic paper, Growth in a Time of Debt in the American Economic Review in 2010. Its main finding, drawing on data from economies over the past 200 years, was that in both rich and developing countries, high levels of government debt was associated with lower rates of growth. They argued that countries needed to bring down national debt before their economies could prosper. Reinhart and Rogoffs paper is the central plank of Osbornomics Austerity and has been repeatedly cited by the Chancellor to justify his policy decisions. However, on April 15, 2013, three economists at the University of Massachusetts, released a paper criticising the findings of Reinhart and Rogoff. They correctly identified a spreadsheet coding error in the original paper which led to miscalculations of the growth rates. They also accused the two Rs of serious errors stemming from their selective exclusion of relevant data and unconventional weighting of statistics. The Harvard authors were discredited and their theory completely debunked. Reinhart and Rogoff maintained that the error didn't take away from the main thrust of their paper and responded to the criticism with three main points; 1) Debt should be stabilised only when growth is solidly entrenched. 2) Borrowing to finance productive infrastructure raises long-run potential growth, ultimately resulting in lower debt ratios. 3) There are a myriad of alternatives to the two extremes of "tight-fisted austerity" and "freewheeling spending. Governments, having made use of a wide range of options over the ages, should return to this basic economic "toolkit." It's a sad day when your intellectual mentors leave you twisting in the wind with your trousers around your ankles, but wait. There's more. New research out yesterday (y'see? Gotta be quick in the world of economics) further undermines this austerity narrative. University of Michigan economist Miles Kimball, examining the Reinhart-Rogoff data, concludes that high levels of debt have no link to slow, or negative, long term economic growth. He said he couldn't find even a shred of evidence in the initial Reinhart and Rogoff study for a detrimental effect of government debt on growth. All of which, unfortunately for Gorgeous George, contradicts everything he's been saying for the past three years.