OK, I know that what’s happening in the debt debate is more complicated than a grad student found some mistakes in a spreadsheet and the spell that had bewitched the nation was broken. But that’s kinda what seems to be happening.
This Politico piece tells of some Democrats coming around to the view that “[t]here’s no short-term deficit problem…and there isn’t even an urgent debt crisis that requires immediate attention.”
…aided by a pile of recent data suggesting the deficit is already shrinking significantly and current spending cuts are slowing the economy, more Democrats…are coming around to the point of view that fiscal austerity, in all its forms, is more the problem than the solution.
This group got a huge boost this month with the very public demolition of a sacred text of the austerity movement, the 2010 paper by a pair of Harvard professors arguing that once debt exceeds 90 percent of a country’s gross domestic product, it crushes economic growth.
Turns out that’s not what the research really showed. The original findings were skewed by a spreadsheet error, among other mistakes, and it’s helping shift the manner in which even middle-of-the-road Democrats talk about debt and deficits.
“Trying to just land on the debt too quickly would really harm the economy; I’m convinced of that,” [Tim] Kaine, hardly a wild-eyed liberal, said in an interview. “Jobs and growth should be No. 1. Economic growth is the best anti-deficit strategy.”
Now, it’s surely the case that the spell isn’t as broken as all that–the force has been disturbed, the U-Mass team sprayed a heavy hose on the hair-on-fire austerions. But neither is Keynesianism about to break out all over.
Still, you gotta love the incredibly juicy irony of what’s going on. Nobel laureates, former Treasury officials, think tankers, yours truly and zillions of others have been trying to break through on this for years. Some bespectacled twenty-something comes along, and for a term paper–a term paper!–tries to replicate Rogoff and Reinhart’s study, he perseveres, gets some solid guidance from his profs, who happen not to genuflect at either the alter of austerity or the academic hierarchy (I’m afraid other profs might have shut the young man down)–and BOOM!
Somebody really needs to make a movie out of all of this someday.
With luck, it is the Katrina moment for the austerians, but I’m not incredibly optimistic. (Katrina as in the realization of the problems with Bush, not the damage done to New Orleans and its population.)
The trouble is that austerity is supported by a large number of powerful business interests (less spending means lower taxes, high unemployment means lower labor costs) and popular opinion (economics is somewhat counter-intuitive and there is a relentless campaign by business interests and their media enablers).
The first step is taking the focus off the deficit and spending in the abstract and communicate effectively how rational policy will actually help people. It would be nice if there were some right thinking politicians who could help move the agenda in the right direction.
Can’t wait for the movie either, but here’s a preview:
I’m surprised I haven’t heard calls to cut the UMass budget over this.
Hard to believe, but it’s true. Remaining question, of course, is why the Nobel Laureates et al didn’t replicate the “study” months ago. Were they, too, perhaps blinded by the Harvard credentials (although Princeton, etc., “ain’t chopped liver”?
I think it was more that we were ready to hear the message, finally, and this was the message that finally got through. A spreadsheet error is simple and relatively concrete, as opposed to modeling errors, which makes it persuasive.
But also I don’t think the austerians are fighting very hard. Austerity has been policy for some years, and it will take at least until the next election to walk it back. More likely, it will take longer. Meantime, the rich get richer and the poor get poorer.