The following are in response to Robert Huebscher’s article, The New Challenges to Reinhart and Rogoff, which appeared last week:
Dear Editor,
Let us agree that there are proponents of tax-and-spend who have found Reinhart and Rogoff to be a thorn in their sides. Let us further agree that Paul Krugman and his ilk have a vested interest in destroying their credibility.
With this in mind, let me stipulate that errors exist in the work of the two authors. But do the errors give the would-be destroyers the right to assume that the errors are so significant that they prove the opposite – to wit that the more you borrow and spend the better the economy will be?
Even if it did, the onslaught of publicity given to this negation of years of work, based on the discovery of statistical errors make one wonder why the same destroyers so eager to discredit Reinhart and Rogoff were so rarely heard from during the East Anglia controversy, when outright lies and deceit were uncovered with respect to the trumped up man-made global warming scare. Those were not statistical errors buried in a spreadsheet; they were instead e-mails outlining procedures to be used to hide some findings and trump up other “findings” in support of their lies.
So, please direct me to the article you wrote disclaiming the validity of man-made global warming and your ongoing work that assumes the opposite.
Clearly there is hypocrisy in the media and perhaps you would like to avoid it in your work.
Fred Goodman
Dear Editor:
This was a very interesting review. Thank you for keeping watch over this debate. It appears that the errors cited have indeed led to a change in the amplitude of the slowing of economic growth caused by high debt, though perhaps not of the fundamental trend found by Reinhart and Rogoff. I agree that it weakens their argument, but I would not go as far in that direction as you did.
But, the issue is not strictly economic. It is ultimately political. Democratic politicians will jump on this to buttress their claims that we need not worry our pretty heads about debt and deficits. While that is not the precise conclusion you came to (given your last paragraph), it is what the Democrats in Congress and their media friends will trumpet, as they are fond of keeping old voters and buying new ones with ever more government spending and bureaucracy. That in turn will influence many voters who, taken as a whole, tend not to be as interested in such fine points of economics as you and I are.
Gregg Schuler
Dear Editor:
I am a fan of your site and its wide content. I read much on it.
Robert Huebscher provides a nice examination of what the shortcomings and findings of Reinhart and Rogoff mean, but I have a very serious question in regards to his conclusion that infrastructure spending must be undertaken even if it must be financed. He bases his assumption on projects that exceed their cost-of-capital – all well and good – but there are a few problems with this. I wonder if he has he considered, for purposes of his conclusions, some or all of the following:
Actual government spending almost always exceeds projected spending. This fact alone clearly reduces the attractiveness of any project.
Secondly, past large infrastructure projects that are oft-cited (highways, for example) are of a much different sort than new projects. Maintaining something or upgrading something is in no way the same thing as creating a new efficiency or a new growth driver.
Highways, for example, created permanence. They were not going away. Hotels, gas stations, malls, and other amenities were built because of a new route to move goods, services and people more efficiently. It opened markets where there were none, facilitated speedier deliveries, and allowed rural areas to compete for and gain access to services that never would have been cost efficient to get to them. This also allowed housing to expand and new and growing communities to be formed around them. This is not to mention the lights, metals, concrete, aggregates and paint used for road maintenance, and of course, plowing and sweeping. Then there are the highway police patrols, towing services, trucking, and even car crashes that this infrastructure created a service need for from nothing. All of these things are at least semi-permanent – perhaps waxing and waning – but always increasing long run as populations expand. This was the real growth created in the U.S.
Now, however, we are not providing any new resources, roads, expedience or lanes of travel. We are not providing a new permanence by improving bridges, roads and the like. Only modest and incremental efficiencies will be created, and very few gas stations or other things will ever be built because the local bridge is a little nicer or wider. In other words, we are expecting permanent result from a transient spending project. Sooner or later that spending will end, and it will likely cause far more in pain for the taxpayer than advertised, without any lasting effect – except continual and never-ending calls for more spending to replace the old spending that has died off.
We aren’t building many new roads, are we? No. We just maintain and improve the infrastructure – but we do that anyway, don’t we? What is the incremental – and permanent, gain in jobs from a highway that’s one lane wider? From a bridge that’s more sound? I’d argue not much. We will not get the long lasting and knock-on effects that building, say, I-95 from Florida to Maine did. And there isn’t a new electrical grid that will bring electricity to the masses and create a permanent need for power and expanding use. Electricity is everywhere and any improvements will go unnoticed by the vast majority, whilst their costs are passed along to their consumers.
Smart use of some debt can be meaningful – but do you want to use the government as an example of a smart user of debt? A government that routinely flouts constitutional federal limits and usurps powers meant for the states and their representative governments to deal with? Don’t you think there is a good reason that people don’t get mortgages when their personal debt-to-GDP ratios exceed 41%? Don’t you think too much leverage is what caused problems in internet companies, LTCM, Latin America, Asia, real estate, and financial corporations? Is it not valid to be rightly concerned and vigilant against such imprudence? Is this improved vigilance not what our financial institutions are enduring currently – and that which we laud and call for once things go awry?
We are also living in a technologically marvelous age – from medicines that allow longer lives (creating medical inflation and more demand for services) to efficiencies and information flow created by the internet. With technology, however, comes a vast deflationary pressure. These two competing forces have combined along with demographics and political weakness to ensure a tough slog. This does not even mention that we have powerful new competitors, like China, that didn’t meaningfully exist just 30-40 years ago.
A change in tax, energy and regulatory policies that would allow for new entrepreneurial spirit, and hence, innovation and invention, is what we need – not some tired old bridge getting a facelift or an extra lane on a highway.
Best Regards,
Christopher M. Ratineri, CFM
Dear Editor,
I'm frequently impressed by your insights and writing. Your Reinhart and Rogoff article is another outstanding example. It is a well-written exposition, covers the right territory and comes to what I humbly think is the right conclusion based on the theory and evidence. Excellent work once again!
Eric Stubbs
Dear Editor,
This was a wonderful article summarizing the debate in a concise way, and then providing your views, which I find very persuasive. Thanks for the article on this important subject.
Stan Richelson
Scarsdale Investment Group, Ltd.
Blue Bell, PA
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