A reader friend writes in with thoughts on the fallout from the discovery of major flaws in the research of Reinhart & Rogoff:
The Reinhart & Rogoff paper that has been ruthlessly critiqued in the past few days had long been cited as an example of how to make a “not crazy” argument about deficit reduction.
Their arguments made intuitive sense: it was not absurd to think that high debt could slow down growth, especially when you looked at countries like Japan and Italy. But now that Reinhart & Rogoff's standing in the fiscal debate is in doubt, we may soon discover that are very few "not crazy" deficit reduction advocates left to find.
Reinhart & Rogoff were not gripped by the pseudo-science-economics that has ensnared so many on the right. If we remove Reinhart & Rogoff from the scene, what’s left does not inspire a lot of confidence. Since 2008 we have had economists, pundits, and politicians argue:
1. That America needs to go back to gold.
2. That cutting spending stimulates growth, despite the evidence to the contrary.
3. That tax cuts must always create growth as a law of nature. (The Congressional Research Service disagrees.)
4. But that the Payroll Tax should not be cut because a tax cut that benefits the working class is just a “sugar high.”
5. That inflation is just around the corner, even though it is not.
These are just arguments about how to fix our present crisis. There is also the conservative economic revisionism which claims that FDR made the Great Depression worse (that debate summarized in chart form here) and that all of American economics has been an unmitigated disaster since advent of the Federal Reserve. (Read David Stockman if you want a rambling rant on that topic.)
The longer you look at it, the more you can’t shake the feeling that some economists treat their job like a never-ending #slatepitch with arguments like “income inequality is justified because it gives us better soda cans” (This is the thesis of Edward Conard’s book.)
Reinhart & Rogoff's entry into the debate was substantial (even Paul Krugman still approves of their book, This Time is Different). Since they will now have to exit the debate, the quality of who is left is frankly depressing. Sure there are sane cases for deficit reduction to be made, and there are bloggers and writers who will make them, but I bet they won't be dominating the debate going forward.