Reinhart – Rogoff and the center- left economists
There’s a great deal of jubilation among center-left economists these days ever since the demolishing of the Reinhart – Rogoff proposition that horrible things happen when public debt exceeds 90% of GDP. And, of course, I’m quite pleased whenever a hack for oligarchy is cut down to proper size.
But the conclusion being drawn – that yes, we can now expand our debt to well over 90% and we have no reason to fear it – is completely off kilter and assuredly destined to fail as long as we remain stuck in the current paradigm. Reinhart – Rogoff were wrong on the details but they’re living comfortably in the orthodoxy that permeates our world.
Those of us who aren’t wedded to the individualist liberal / neoliberal cannons of orthodoxy take comfort in the insights of Abba Lerner, the MMT economists, and simple common sense that there truly can’t be such a thing as public debt, in the way we normally understand debt, in a fiat currency regime. But we need to remember this is true only in a universe in which a collectivist paradigm rules. In the actual paradigm that’s existed since the beginnings of the industrial age through to today, though, public debt is quite definitely debt and has a positive interest cost attached to it. And its level is clearly a cause for concern because it will require future interest transfers between the average citizen and wealthy bond holders. Interest rates are low today, but let’s not forget that our central bankers are firmly cemented into orthodoxy and are chomping at the bit to raise rates as soon as conditions allow. Deep down, they’re all German, and all this money printing will stop dead in its tracks as soon as things look less dire.
Only in a collectivist paradigm are we assuredly correct that debt fears are nonsense. The main center-leftists, though, are falsely assuring us that we can comfortably fit collectivist ideas into the orthodox paradigm. It’s completely irrational to claim debt shouldn’t be feared in our current state, and it’s highly unlikely any majority would ever support them. It fails on the merits and it fails on the politics. And we see it demonstrated today.
Without a much wider critique, completely absent from our mainstream center-leftists, there’s a very high risk we’ll have another eventual repudiation of Keynesianism on the same scale as in the 1970’s, and Reinhart – Rogoff and the forces of conservatism will emerge fully renewed and proudly victorious.