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by gruseom
4807 days ago
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Dean Baker's critique of this response is typically incisive: [Herndon, Ash, and Pollin] found growth was slower in periods with debt levels above 90 percent of GDP than below, but the gap was relatively small and nowhere close to statistically significant. Furthermore, they found a much bigger gap in growth rates around debt-to-GDP ratios of 30 percent. If we think that [Reinhart and Rogoff's] methodology is telling us something important about the world then the take-away should be that we want to keep debt-to-GDP ratios below 30 percent. http://www.cepr.net/index.php/blogs/beat-the-press/quick-tho... |
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Note there is no entry in a debt-to-GDP ratio for assets, just liabilities. So if we believe the R&R story, then we can increase the growth rate through [auctioning off the California coastline].
People are fixated on the lurid detail of the story; do the Google search and see the "bad numbers! Excel spreadsheet! bad numbers!" roll by. The real issue, which Matt Yglesias pointed out last year, is that the purported result is hard to square with reality. Japan has the highest debt ratio in the world. If they disposed of it tomorrow, they would not suddenly be the fastest growing economy.