Recent comments by J. Bradford DeLong

• Paul Krugman, The Ungracious Ideologue (And Loser)

  In my view, RR did a disservice to the debate--made us, collectively, less smart--when they began writing about how a 90% debt-to-annual-GDP level was an "important marker". Countries with >100% ratios have slower growth rates than countries with less. Countries with >150% ratios have slower growth rates than countries with less. Countries with >75% ratios have slower growth rates than countries with less. There is nothing special about 90%.
  
  And you, Michael, I think are succeeding in making us, collectively, less smart with this piece. The point is not to issue a "vital warning [to]... policymakers under ideological siege from Keynesians" nor to claim that RR are "meticulous researchers"--a claim by you that now is triggering howls of laughter from UMass, the Roosevelt Institute, the CEPR, and so forth--but to assess what the benefits and risks of fiscal expansion vs. fiscal consolidation are right now.
  
  As I see it, from the "Understanding Our Adversaries" evolution-of-economists'-views talk that I have been giving for the past five months now:
  
  The argument for fiscal contraction and against fiscal expansion in the short run is now: never mind why, the costs of debt accumulation are very high. This is the argument made by Reinhart, Reinhart, and Rogoff: when your debt to annual GDP ratio rises above 90%, your growth tends to be slow.
  
  Let me start by referring you to Owen Zidar, who points out--and note this well--that there is no cliff at 90%.
  
  Let me go on to tell you that RRR present a correlation--not a causal mechanism, and not a properly-instrumented regression. Their argument is a claim that high debt-to-GDP and slow subsequent growth go together, without answering the question of which way causation runs.
  
  And note is how small the correlation is. Suppose that we consider a multiplier of 1.5 and a marginal tax share of 1/3. Suppose the growth-depressing effect lasts for 10 years. Suppose that all of the correlation is causation running from high debt to slower future growth. And suppose that we boost government spending by 2% of GDP this year in the first case. Output this year then goes up by 3% of GDP. Debt goes up by 1% of GDP taking account of higher tax collections. This higher debt then reduces growth by… wait for it… 0.006% points per year. After 10 years GDP is lower than it would otherwise have been by 0.06%. 3% higher GDP this year and slower growth that leads to GDP lower by 0.06% in a decade. And this is supposed to be an argument against expansionary fiscal policy right now?….
  
  And this isn’t the relationship that you were looking for. You want the causal one. That, worldwide, growth is slow for other reasons when debt is high for other reasons or where debt is high for other reasons is in this graph, and should not be. Control for country and era effects, and Owen reports that the -0.06% becomes -0.03%. As Larry Summers never tires of pointing out, (a) debt-to-annual-GDP ratio has a numerator and a denominator, and (b) sometimes high-debt comes with high interest rates and we expect that to slow growth but that is not relevant to the North Atlantic right now. If the ratio is high because of the denominator, causation is already running the other way. We want to focus on cases of high debt and low interest rates. Do those two things and we are down to a -0.01% coefficient.
  
  We are supposed to be scared of a government-spending program of between 2% and 6% of a year's GDP because we see a causal mechanism at work that would also lower GDP in a decade by 0.01% of GDP? That does not seem to me to compute. The risks associated with incrementally larger debt are small. The benefits associated with the current-year government purchases funded by an incremental increase in debt look to be large.
  
  If, Michael, you wish to raise rather than lower the level of the debate, show us some number: show me a calculation suggesting that the risks are large, the costs are expensive, and the benefits small...

• Europe’s Lost Keynesians

  There are two ways to think about why North Atlantic economies are depressed. The first is that would-be spenders (including people and businesses that buy durable capital goods) want to spend less than income earners would earn if there were full employment. The second is that would-be lenders want to lend more than would-be borrowers would want to borrow and than financial intermediaries would be willing to let them borrow if there were full employment. These two ways of thinking about it are, in the math, identical. But they highlight different aspects of the situation.
  
  Ken Rogoff tends to naturally think in the debtors-creditors framework. I tend to think in the spending-income framework. Although the math of each is consistent with the math of the other--in fact, you can turn one into the other via algebra--this does, I think, drive a difference in our orientations.
  
  From my perspective, if the German government spends on Germans, it produces a boom and inflation in Germany. If the boom continues long enough and is strong enough, German internal prices and costs rise--and southern Europe's and France's competitiveness problems melt away as the burden of the outstanding debt is reduced as well. Yes, it would be very nice if France and southern Europe as well were to undertake thorough-going pro-productivity pro-competitiveness social reforms, and Germany should demand them as the price of its raising its debt and borrowing to spend on Germans and so create a moderate-inflationary boom. But those reforms are not of the essence of the current short-term problem, which is too much debt in the periphery and too-high wage levels in the periphery and in France relative to Germany.
  
  By contrast, if the German government borrows to spend making Spanish creditors of Spanish banks whole--well, that does not generate the inflation in Germany that is the easiest path to eliminate Europe's internal structural wage imbalances, and it does generate a massive defeat for the government that adopts it in the next elections in the Bundesrepublik.
  
  As I see it, fiscal expansion in Germany is a stone that kills four birds: the boost-general-European-demand bird through directly boosting spending so that it matches full-employment incomes, the eliminate-structural-wage-level-imbalances bird through inflation, the through-inflation-impose-haircuts-on-creditors bird, and the make-the-German-electorate-happy bird. By contrast, as I see it at least, Ken's stone is a much more efficient stone, but it only hits two birds: the impose-haircuts-on-creditors bird, and the boost-general-European-demand bird as reductions in debt burdens diminish the desire of those on whom haircuts have been imposed to lend in the future and also increase the desire of those who were underwater to resume normal borrowing patterns. To hit four birds with one stone is, I think, better than to hit two.
  
  But I may be wrong: Ken is one of those people whose judgment is significantly more likely than not to be better than my own.