There Is a Substantive Analytical Point at Issue Between Reinhart-Reinhart-Rogoff and Krugman (and Me) That It Would Be Nice to Thrash Out…
Can't we all get along?
Can't we all agree that in a better world than this the R-Team would never have written that 90% was an "important marker", and reacted much more aggressively to distance themselves from people who claimed that 90% was some sort of gross debt line of death? And can't we all agree that we have learned a lot from This Time It's Different and from SB on financial repression in historical perspective?
And can't we all agree that a considerable portion of the abuse directed at the R-Team should be redirected to Alberto Alesina (for Alesina and Ardagna) and Greg Mankiw (for his claims that it is easy and straightforward to summon the inflation-expectations imp via QE)?
And can't we move on to issues of macro substance?
In their open letter to Paul Krugman, the R-Team writes:
We don’t see your attraction to fiscal largesse as a substitute. Periphery Europe cannot afford it and for Germany, which can afford it, fiscal expansion would be procyclical. Any overheating in Germany would exert pressure on the ECB to maintain a tighter monetary policy, backtracking some of the progress made by Mario Draghi. A better use of Germany’s balance sheet strength would be to agree on faster and bigger haircuts for the periphery, and to support significantly more expansionary monetary policy by the ECB…
Since I joined Team-K on March 20, 2008, when I saw the liquidity trap cometh, Team-K has been for more of:
- Zero short-term safe nominal interest rates,
- Higher inflation targets,
- Bank recapitalization,
- Other forms of loan forgiveness to assist in deleveraging, and
- Quantitative easing,
- Expansionary fiscal policy
The R-Team have been members in good standing of Team-K, with the exception of (7), on which they have exercised a major line wobble. Unfortunately, the political and central-banking processes have frozen (1)-(5) over the past three and a half year, leaving the R-Team's impact on the policy process as one that is objectively pro-austerity.
But the interesting questions to me right now are: What is it about the R-Team's basic model, orientation, and understanding of the economy that has caused this line wobble on their part vis-a-vis the rest of us on Team K? And are they right?