Rogoff and Reinhart have given more academic credibility to the pro-austerity brigade over the last few years than almost anyone else. And their spreadsheet error has not dampened their ardour. So what’s the secret of their success?
Well an important element in their armoury involves a trick (or maybe it’s a mistake) which I noticedsome time ago and which Simon Wren-Lewishas recently noticed in a Financial Timesarticle by Rogoff. It involves erecting an argument based on the bizarre assumption that a monetarily sovereign government cannot or won’t print money – or “do QE” if you like.
Now if you are particularly innocent, you might think that an assumption that absurd can’t be slipped into an argument without anyone noticing. Well the truth is that is the easiest thing in the world to slip a false assumption into ABSOLUTELY ANY moderately complicated argument and get away with it. Slip the right false assumption into an argument, and you can prove whatever you like. (In fact Nick Rowe and John Cochrane in reviewing the above FT article failed to spot the above assumption.)
Just to take a simple example, if you want to prove that it’s easy to make cars fly, you can assume that the average car weighs about 10kg rather than something nearer 1000kg. Just knock a couple of noughts off the “Kg” figure – easy!
But supposing someone DOES SPOT your false assumption? You’re scuppered aren’t you? The answer is: “not at all”. And this is where the Hitler “big lie” trick comes in.
Hitler and his propaganda minister Goebbles made the point, which is obvious to anyone who understands human beings, namely that if you tell a big enough lie, hardly anyone notices it.
In fact the big lie trick is exactly the same as the “emperor with no clothes” phenomenon. That is if you say something sufficiently absurd, about 95% of the population will believe you because most people are well meaning and hence don’t like accusing others of saying something totally absurd. Or in the case of emperors with no clothes, no one believes the emperor would go around in public naked, so they just refuse to believe their own eyes when they see a naked emperor.
In fact the above process of rejecting an absurd assumption that seems to be in what you are reading may easily be subconscious or semi-conscious: that is you read the passage where the assumption is made, and SORT OF SPOT IT. But you immediately realise the assumption is absurd, plus you know you are reading something by a well-qualified individual, so you immediately reject the idea that the absurd assumption is there.
Or perhaps Rogoff and Reinhart are stupid?
The above “big lie” is a POSSIBLE explanation for what R&R do. But there’s actually another equally plausible explanation, namely that it’s quite common for so called “professional” economists to set out arguments which make the above absurd “governments can’t print money” assumption. I listed a few of them here.
That bears repeating. I.e. bizarre as it might seem numerous so called professional economists write articles making the absurd assumption that governments cannot print money.
But professional economists aren’t that stupid are they? Well Lars Syll thinks they are! Lars has published several articles etc suggesting that a significant proportion of “professional” economists are charlatans, e.g. here.
What’s the attraction of the “no printing” assumption?
Hopefully you’ll have noticed the attraction of the “governments can’t or won’t print money” assumption. But if not, the big attraction (at least for R&R) is that deficits can become much more serious if a government cannot print (think Greece). That is, if a government wants to do stimulus, they have to run a deficit which initially increases the debt. Now that doesn’t matter if the interest rate paid is negligible. But if the rate reaches Euro periphery proportions, the country has a problem – unless it can print money and buy back debt.
So if you’re of an R&R frame and mind and you want to impose austerity or you’ve got a phobia about debt, the “can’t print” assumption suits you down to the ground.
Incidentally, as regards the above idea that R&R are motivated by debt-phobia and nothing else, I’m not the only one to make that suggestion. Paul Krugman said:
“So where does Ken’s call for short-run austerity come from? As best I can tell, it comes from a generalized sense that debt is dangerous…”.
So, are R&R liars or incompetents?
It’s honestly hard to tell. Certainly Rogoff is not a stickler for the truth according to this Huffingtonarticle. Plus he is in the pay of Pete Peterson, the multi-billionaire anti deficit propagandist. Those two points make him look like a liar.
But against that, the above “governments can’t print” assumption or mistake seems to be a common one. Plus if you Google “Rogoff” and “Mario's Entangled Bank” you’ll find various blog posts were I’ve set out the flaws in other material penned by Rogoff.
My guess is that Krugman is right. That is, R&R are basically incompetent: a common characteristic amongst so called professional economists, as pointed out by Lars Syll. And that intellectual sloppiness results in their writing stuff that includes any old convenient assumption, even if the assumption is patently absurd.