John A Bivens

Free exchange Debt R.A. | WASHINGTON When does debt drag down growth? Images: CARMEN REINHART and Kenneth Rogoff received widespread acclaim for their book "This Time is Different", which documents pattern of financial crisis, recession, and debt crisis over the past 800 years. A more recent collaborationa paper entitled "Growth in a Time of Debt"has not been received as warmly. As background, here's a bit of the abstract from that paper:Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more...This conclusion has provided some of the foundation for fledgling efforts to address long-run debt (such as President Obama's deficit commission), but it has also been used in pieces arguing that new fiscal stimulus might be a bad idea.Paul Krugman, in particular, has targeted the paper's results, using two main criticisms. First, it is difficult to determine causation when studying debt/growth dynamics. As the last few years have demonstrated, slow (or negative) growth rates hold down revenues, leading to ballooning deficits and higher debt levels. If causation primarily runs from growth to debt, then pro-cyclical austerity measures are a poor solution. And secondly, Mr Krugman has criticised the use of key datapoints in the paper, namely, those corresponding to the postwar years in America and Britain. At that time, debt levels were high due to war spending, and growth rates were extremely low thanks largely to military demobilisation. It would be a mistake to draw much in the way of a broader conclusion from this. In a new post, Mr Krugman cites a paper by John Irons and Josh Bivens which looks to refute the Reinhart-Rogoff conclusion. It includes this image:What we see here is a scatterplot of American growth rates and American debt levels, over the whole of the country's history. And the only years of low growth that correspond to debt levels above 90% are 1945, 1946, 1947, and 1949.So, is that settled then? Buttonwood offers his thoughts:This inspired me to re-read the Reinhart/Rogoff paper. The first point that jumps out is it's not all about America. Reinhart and Rogoff's data cover 44 countries. not just the US. The 90% figure relates to 20 advanced countries. So I recalculated the advanced country numbers (p12 of the paper) to leave out the US. The simple arithmetic averages are as follows; growth in countries where the debt-to-GDP ratio is less than 30% averaged 3.5%; at 30% to 60% levels, the growth rate averaged 3%; at 60%-90% levels, the rate was 2.8%; above 90%, the growth rate was 2.3%. As you can see, growth does get slower as debt levels rise.Of course, that still leaves the causality point. But think of the problem a different way. The best way of solving a high debt problem is economic growth. Clearly, however, countries have struggled to grow with a high debt level. So it seems best not to take the risk. As for the deficit/stock argument, governments with a high debt-to-GDP ratio will inevitably be paying a lot in interest payments; either these drive up the deficit or they would crowd out more useful forms of public spending such as roads or education.So while the general criticism, that there is no "magic" level of debt-to-GDP, is a fair one, the Reinhart/Rogoff paper can't be dismissed so easily.I'd just make a couple of points. One is that other things equal, a lower debt level is probably preferable, if only to keep dry powder on hand should recession or other emergencies arise. Another is that it's worth thinking about the mechanisms that are (potentially) involved here. High debt levels might slow growth by crowding out private investment. That process would ordinarily be associated with rising interest rates on government debt, which aren't currently a problem for America. That could change, of course, but it is worth pointing out that based on the analysis in the much-cited Alberto Alesina paper connecting austerity and growth, one of the key causal relationships is the effect of debt reduction on high interest rates. Meanwhile, Ms Reinhart and Mr Rogoff specifically cite the need to use growth-slowing tax increases and spending cuts to whittle down debt as a factor connecting high debt and slow growth. But as Buttonwood mentions, growth is one of the best ways to reduce debt. It seems feasible that a strategy of ignoring debt and focusing on growth could be as effective as ignoring growth and focusing debt in breaking the debt-growth relationship. This all seems strangely circular and confusing, but that's part of the problem in conducting this kind of analysis.Finally, I'd return to Michael Pettis' point, that debt-to-GDP ratios aren't necessarily the best indicator that trouble lies ahead. Type of debt, duration of debt, structural economic issues, expected growth rates, expected financial sector volatility, and many other factors are relevant.Debt matters, but the precise way that it matters isn't as clear-cut as Reinhart-Rogoff seem to indicate. And simple extrapolation from their results to demands for across-the-board austerity isn't a wise approach.

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Behind his showroom in a small office is Gary Bivens of Truth Trucking ... But then he transferred to Mooresville this spring when he saw that the John Deere building and showroom were available. He is working on getting a phone at the business ...

Family Bowl: Men — John Hall 300, Tod Sentz 296 ... Oak Ridge Bowling Center: Men — BJ Bivens 279, Jim Manis 279, Don Forrester 279, Gene Hickson 279, Mark Webster 279, Ronnie Cox 278, Greg Schlau 267, Cory Cox 267, Tommy Byrge 267, Doug ...

Bivens spoke at a symposium organized by the Center for Tax ... State lawmakers at the fiscal symposium like Rep. John Bradley (D-Marion), chairman of the House Finance and Revenue Committee, said they were open to a graduated income tax ...

Aniston, 43, could be interested in marrying on Crete, an island about 230 miles (370km) south of Greece, because her father, actor John Aniston ... his 14-year relationship with stylist Heidi Bivens.

M. Christine Kerstetter of Ayr, Scotland, daughter of the late John L. Snell and Margaret Shaw-Cook, entered into rest Saturday, March 3rd, 2012. She is survived by her brother, Anthony Bracher of London, England, a daughter, Lisa Bivens, and two sons ...

Third Grade Winners: Jordyn Bilz of Anderson, Johanna Leatherman of Pope John and Lundun Perry of Ryker's Ridge. Fourth Grade Honorable Mention: Veronica Whisman of Anderson, Zoe Ehlers of E.O. Muncie and Alexis Bivens of Ryker's Ridge. Fourth Grade ...

The following students were named to the Indiana Area Senior High School honor roll for the third nine-weeks grading period: Emily Ager, Daniela Alarcon, Fadil Ali, Marissa Allmendinger, Chelsey Astolos, Steven Bivens, Nathan Blose, Veronica Bujdos ...

She was the founding director of the Social Studies program at Middletown High School in Middletown, R.I. Barbara was most proud of her work as principal of St. John's Episcopal Day School of Chula Vista, Calif.  under her direction, St. John's added the ...

John Robinson finished with three saves for the Eagles ... with a 2-1 Western Valley District victory over George Washington in South Boston. Blake Bivens pitched 6 1/3 innings, scattering four hits and one walk, giving up one earned run ...