>Raising the denominator should receive as much , if not more , attention than shrinking the numerator. Yes. Perfectly encapsulated, and blessed in its conciseness and cogency. It took us thirty-five years to work down the debts from The Great Depression/World War II--largely through economic growth. We don't have the advantage now, of course, of having 15 years of private frugality behind us that was (then) converted to consumption. So it won't be easy.

Thanks, Goldilocks. I should just add that I am in no way arguing that debt is benign, or that there might not be some thresholding effect where it starts to get decidedly non-benign. I'm simply saying that because of their analysis methods, R&R's paper doesn't give us any real insight into that. Because of their zero-lag analysis, they certainly give no insight into the long-term effects, which strike me as the effects that really matter. Compounding interest and all that...

The Reinhart and Rogoff paper seems to me (in my amateurish ignorance) to make the most basic error that I see in almost all "determinants of growth" econometrics: it doesn't consider multiple lags--what periods (of debt) are being compared to what ensuing periods (of growth). Post hoc obviously doesn't mean propter hoc, but "ensuingness" is one of the few natural-experiment handles we've got in a science where you can't re-run the experiment. While the paper (oddly, it seems to me) doesn't say so explicitly, it seems to be comparing a country's debt levels in a given year to that country's GDP growth *in the same year.* While the data set is impressive (are they sharing?), the analysis is based on the most simplistic of correlations. And it's not even adjusted for the most widely-accepted of necessary corrections--"convergence" or the "catch-up effect"--the tendency of less-prosperous economies to catch up with their cohorts due to transfers of technology, expertise, trade, capital, etc. (Which effectively changes the question to something like, "Gee, these countries didn't catch up, when they should have. Why not?") That correction is actually impossible in absence of a lag period. But putting the convergence issue aside for a moment: Reinhart and Rogoff acknowledge their lag-blindness in a decidedly less-than-reassuring parenthetical: "(Using lagged debt should not dramatically change the picture.)" p. 7 "Should not." Now that's a convincing piece of robustly supported econometric evidence and argument, don't you think? The paper provides at least one perfect--downright eye-popping--example of this lag-blindness, and the false picture it paints. In Figure 3 (p, 10), they show their debt-to-growth correlations (broken into their "buckets" by debt/GDP ratio) for the U.S., purportedly demonstrating that debt/GDP levels above 90% result in far lower GDP growth levels. But note the footnote to this table: they have only 5 samples (years) out of 216 in which debt/GDP was greater than 90%. It's not hard to figure out what years those were: U.S. Federal Debt as a Percentage of GDP 1944 91.45 1945 116.00 1946 121.25 1947 105.81 1948 93.75 1949 94.60 http://www.usgovernmentspending.com/downchart_gs.php?year=1930_2015&view=1&expand=&units=p&fy=fy11&chart=H0-fed&bar=0&stack=1&size=l&title=&state=US&color=c&local=s I find six years to their five, but in any case. The growth figures for these years, obviously, are wildly distorted by the war imperatives: the profound effects of rationing, military spending, post-depression, wartime consumer savings versus consumption (reversed in the late 40s and 50s), etc. etc. While arguments can be made to the contrary, it's not insane to suggest that the debts of the late 40s--finally breaking the back of The Great Depression--were in fact the impetus (or at least enabler) for the Great Prosperity of ensuing decades. But whether or not you buy that argument, this example demonstrates that Reinhart and Rogoff's lag-blindness in this paper quite resoundingly undercuts that value of its conclusions. Their choice of correlations--year-X debt to year-X growth--exemplifies a dismaying tendency among U.S. growth econometricians, particularly those like Rogoff who display a predeliction for making political points: a tendency to concentrate on short-term results rather than long-term benefits. I think almost all will agree that the important question we need to be asking is, "What effect will debt levels have on our (country's) long-term prosperity and well-being?" Will our children and grandchildren decades hence be more or less prosperous as a result of Policy X, or Policy Y? (This also because we can actually have an effect on those long-term outcomes. Short-term fixes are always iffy...) In my amateurish way, I'd like to suggest that answers to those questions can be found more readily by looking at many lag periods for any given correlation. In particular--since many important economic effects (arguably the most important ones) play out over many years or decades, and it takes years or decades to implement significant policies--we should be looking at long lag periods to draw our conclusiosn. This also has the statistical benefit of smoothing out short-term blips and bleeps that serve only to confuse and pollute our judgments. Here is one example--comparing U.S. to EU15 GDP/capita growth rates for all the periods from 1970 to 2006. (I apologize that this is *not* corrected for convergence/catch-up.) http://www.asymptosis.com/europe-vs-us-who%e2%80%99s-winning.html And another example here, suggesting that wealth equality correlates with somewhat slower growth in the short term, but profoundly faster growth in the long term. (Again, not corrected for catch-up.) http://www.asymptosis.com/wealth-equality-and-prosperity.html Hendry's charts, by the way--essentially efforts to demonstrate correlation or lack of same but without a correlation matrix that lays it out for us--strike me as falling prey to many of the same types of failings, notably the concentration on a single country with nothing to compare it to. Steve http://asymptosis.com

The same thing happened in the great depression. “The Most Technologically Progressive Decade of the Century” Alexander Field, 2003 http://lsb.scu.edu/economics/faculty/afield/AER%20September%202003e.pdf The 1930s saw growth in “multifactor productivity” (largely technology-driven) surpassing anything before or since. This goes a long way to explaining why employment and employees were slow to feel the benefits of the recovery. Productivity was skyrocketing, so less workers were needed for each unit of output. Steve http://asymptosis.com

Lafayette: "seem to argue that growth is the raison-d'être of economic policy" The far greater trap: believing that there is a necessary either/or between equality and growth. When in fact they go together. In the longer term--and again, in prosperous countries: Countries with more generous social programs and redistribution regimes grow at least as fast as others. (See previous links.) Countries with more progressive tax systems grow faster than others. http://www.asymptosis.com/want-prosperity-tax-the-rich.html Countries with more wealth equality grow faster than others. http://www.asymptosis.com/wealth-equality-and-prosperity.html More-equal countries provide more opportunity for people to climb the economic ladder. http://www.asymptosis.com/republicans-create-opportunity-yeah-right.html

Bahko: >The key to any policy is its effect on velocity. I agree 100%--the economy being no more than a huge log-rolling exercise (with inputs of human energy, intellect, and natural resources)--and have been wondering for years why velocity is so little discussed these days. (Though I suppose you could say it is much discussed, under the moniker "multipliers.")

Mark, this is a lot of kind of useless post-hoc-ergo-propter-hoc cherry-picking. It’s just people trying to score with isolated data points, not trying to find reliable answers. The US-only analyses I've seen tend to seek out (or manufacture?) “natural experiments” to deduce the effect of tax changes. Romer’s recent “legislative intentions” paper was a classic–and to my mind profoundly misguided–example. These studies are generally pretty unconvincing to me because of their inherent statistical/observational/conceptual weaknesses. With all the legerdemain, they simply end up too far away from the data. A far better approach is to look less-processed results from many countries over long periods–especially 1. groups of countries that are largely similar, and 2. over long periods. These inherently eliminate much influence from A. confounding factors and B. random or undeducible influences. For instance, look at all the rich, prosperous countries and see what has occurred over decades. Nevertheless, single-country and cross-country analyses seem to concur on both short-term and long-term results: raising and lowering taxes seems to affect growth in the expected direction over the short term–one to three years. (Robert Barro in his latest: “we find that a one percentage point decrease in the first lag of the average marginal tax rate produces a 0.6% increase in the annual growth rate of real per capita GDP. Unfortunately, this effect is harder to pin down in longer samples” [they used one- and two-year lags]) http://www.voxeu.org/index.php?q=node/4144 The far more important question for our country (or any country) is long-term effects. And what is absolutely clear from looking at many prosperous countries (whose taxes range from 28% to 50% of GDP), over many decades, is that tax levels have little or no correlation to long-term growth. What correlation is apparent is slightly positive. (Higher taxes, faster growth.) http://www.asymptosis.com/an-open-letter-to-robert-barro.html http://www.asymptosis.com/europe-vs-us-who%e2%80%99s-winning.html So yes: tax changes have an effect. Briefly. Tax *levels*–at least within the ranges of prosperous, modern countries–don’t. Which leaves one with some rather obvious conclusions: o Tax enough to pay your bills. o Spend more/tax less to stimulate briefly in turndowns, spend less/tax more to put money in the bank during good times. o Tax and spend efficiently. As you have said, though not in these words, we are in the unfortunate position of having to dig out from thirty years of magical thinking and fiscal malfeasance (Republicans borrowing money abroad to buy votes here). We need to stimulate to get out of the resulting hole and avoid stepping on the recovery, while our long-term prosperity requires significant tax increases.

>Should I call it a preemptive counterattack or a preemptive strike instead? "Proleptic" perhaps? In any case, there is one line in the chapter that can only be labeled a complete falsehood: http://www.asymptosis.com/one-completely-false-statement-in-superfreakonomics.html

Yes, it is. http://www.asymptosis.com/republicans-create-opportunity-yeah-right.html

bob: " did barro ever respond to your open letter? " No, nothing yet...

Gates does mention economic development, but do you think he's saying what you're saying? Have you read Zakariah's The Future of Freedom? Or, for that matter, have you read Gates' book? Did you even read his article? I'm assuming you're one of those who think that Sarah--cause "she's like me!" (finger twirling in cheek)--would do a really sterling job. I'm sure you would too--far better than Gates. He's one of those pointy-headed effete intellectuals, right? Others aren't so presumptuous, and are pleased to find sense and competence (and are able to discern same) even in those from camps with which they profoundly disagree.