It is not easy to be a centrist economist in this polarized, social network-dominated world, where every idea is immediately forced into one ideological camp or another. To paraphrase a phrase often attributed to Leon Trotsky, centrist economists may not be interested in war, but war interests them.
A good example is my 2016 book The curse of cashwhere I explore the past, present and future of money. After its publication, I received more than twenty death threats, some clearly attributable to drug dealers and gun owners outraged by my call to phase out the hundred-dollar bill, and others from crypto-evangelists who considered my advocacy of regulation an act of treason.
Curiously, the threats didn’t bother me as much as I would have expected. As deranged as some of these people were, they at least understood the book’s arguments; Except they disagreed with them very vehemently.
The same cannot be said about the scandal that erupted in 2013 due to some research I did with Carmen M. Reinhart. That episode began when three economists at the University of Massachusetts Amherst argued that our six-page paper Growth in the time of debt (2010), which was not submitted for approval, contained multiple “errors” that allegedly confused European and US authorities, leading them to adopt harmful austerity measures after the global financial crisis. The ensuing outrage fueled a false narrative that still persists.
In reality the article contained only one error. More importantly, that error no longer appeared in the official unabridged and edited version published in 2012 based on a much larger and more complete data set. As Michael J. Boskin (Stanford) noted at the time, it is not entirely unusual for a preliminary investigation to be corrected during the review process.
Both versions of the article reached the same general conclusion: Periods of very high government debt in advanced economies have generally coincided with lower economic growth. Of course, that doesn’t mean deficits are bad for short-term growth, any more than borrowing to buy something you like will make you unhappy. It only implies that long-term debt burdens can influence future prosperity.
Our analysis divided countries into two groups: those with debt levels above 90% of GDP and the rest. But we never assumed that the 90% threshold was a “threshold” beyond which there would be a sudden collapse in growth; This was just a dividing line to show that highly indebted countries, taken as a whole and on average, fared worse. As we have explained several times, the fact that debt reaches 90% of GDP does not mean that growth will collapse, just as someone who drives a little faster than the speed limit or whose cholesterol level is a little above the recommended values will not suddenly have a marked increase in risk.
There are strong theoretical arguments for how high debt can slow growth. Large government debt can discourage private investment, and the taxes needed to meet its payments often have distorting effects. And with high debt levels, governments will have less fiscal space to respond to crises or invest in infrastructure.
Once the controversy died down and researchers began examining our (and more recent) data, the evidence that emerged generally supported our original conclusions. It should be noted that we never claim a causal relationship (although with the addition of further research, this issue is likely to be resolved as well).
The most pernicious misrepresentation was to say that we were somehow defending austerity, when neither the concept nor the word appears in our article. In reality, our real sin was to insinuate the possible existence of a tension between debt and growth. Stimulating the economy during a recession is important, but the size of the stimulus needs to be calibrated, especially if the result will be very high debt.
In fact, our 2009 book This time it’s different (which we wrote before addressing the issue of debt and growth) shows that financial crises almost always require a large increase in public debt, a finding that many economic policymakers used to argue for more stimulus after the 2008 crisis. We argue that governments facing a debt crisis have often resorted to unorthodox solutions, rather than simply applying conventional monetary and fiscal measures. I have also supported partial debt relief (swaps) for high-risk US debtors and heavily indebted Southern European economies.
In the early stages of the 2008 crisis, I even proposed that central banks temporarily ease inflation targets as a less painful way to deleverage economies, an idea that was considered blasphemous at the time but has since gained favor. Do these ideas and proposals amount to the promotion of austerity, or do they imply recognition that there is a more diverse menu of policies than the simplified Keynesianism that generally continues to dominate the debate?
Maybe this time it will be different. After becoming accustomed to misrepresentation as the price of adopting centrist positions in the era of cancel culture, I was pleasantly surprised by the reception given to my latest book, Our dollar, your problem. Reviewers, interviewers, and commentators across the ideological spectrum have read it seriously and appreciated its analysis of the strengths and vulnerabilities of the dollar-based global financial system.
And it should be noted that this open-mindedness has also extended to some critics within the austerity camp. This makes me think that perhaps there is hope for a more reasonable debate in the future (though without deluding myself).
