mercoledì 24 aprile 2013

L'imbroglio dell'austerity

L'austerity non funziona, e lo sapevamo già. Ma ora, come scritto qualche giorno fa, sappiamo che anche le (debolissime) fondamenta teoriche dei tagli erano, in realtà, un gigantesco falso - non si sa quanto voluto. Tutti i lavori che cercavano di dare una spiegazione convincente sul perchè in tempi di crisi si sarebbe dovuto tagliare sono viziati da errori, omissioni, selezione ad hoc dei dati. Una pagina quasi oscena per gli economisti. In fondo sarebbe bastato studiare un po' di storia economica e vedere come si era evoluta la crisi del '29. O forse solo leggere Keynes. E nessuno si sarebbe bevuto la fanfaluca dei tagli che stimolano la crescita. Speriamo che ora se ne accorgano anche i governi!
Nei due articoli che proponiamo di sotto, Matthew Oà Brien di The Atlantic guarda alle possibile conseguenze della scoperta dell'imbroglio dell'austerity mentre Martin Wolf fornisce una prospettiva storica e spiega come non è sempre il debito a rallentare la crescita, quanto piuttosto la crescita lenta a provocare alti livelli di debito.

Who Is Defending Austerity Now?

di Matthew O'Brien
da The Atlantic

Austerians have had their worst week since the last time GDP numbers came out for a country that's tried austerity.

But this time is, well, different. It's not "just" that southern Europe is stuck in a depression and Britain is stuck in a no-growth trap. It's that the very intellectual foundations of austerity are unraveling. In other words, economists are finding out that austerity doesn't work in practice or in theory.

What a difference an Excel coding error makes.

Austerity has been a policy in search of a justification ever since it began in 2010. Back then, policymakers decided it was time for policy to go back to "normal" even though the economy hadn't, because deficits just felt too big. The only thing they needed was a theory telling them why what they were doing made sense. Of course, this wasn't easy when unemployment was still high, and interest rates couldn't go any lower. Alberto Alesina and Silvia Ardagna took the first stab at it, arguing that reducing deficits would increase confidence and growth in the short-run. But this had the defect of being demonstrably untrue (in addition to being based off a naïve reading of the data). Countries that tried to aggressively cut their deficits amidst their slumps didn't recover; they fell into even deeper slumps.

Enter Carmen Reinhart and Ken Rogoff. They gave austerity a new raison d'être by shifting the debate from the short-to-the-long-run. Reinhart and Rogoff acknowledged austerity would hurt today, but said it would help tomorrow -- if it keeps governments from racking up debt of 90 percent of GDP, at which point growth supposedly slows dramatically. Now, this result was never more than just a correlation -- slow growth more likely causes high debt than the reverse -- but that didn't stop policymakers from imputing totemic significance to it. That is, it became a "fact" that everybody who mattered knew was true.

Except it wasn't. Reinhart and Rogoff goofed. They accidentally excluded some data in one case, and used some wrong data in another; the former because of an Excel snafu. If you correct for these very basic errors, their correlation gets even weaker, and the growth tipping point at 90 percent of GDP disappears. In other words, there's no there there anymore. 

Austerity is back to being a policy without a justification. Not only that, but, as Paul Krugman points out, Reinhart and Rogoff's spreadsheet misadventure has been a kind of the-austerians-have-no-clothes moment. It's been enough that even some rather unusual suspects have turned against cutting deficits now. For one, Stanford professor John Taylor claims L'affaire Excel is why the G20, the birthplace of the global austerity movement in 2010, was more muted on fiscal targets recently.

The discovery of errors in the Reinhart-Rogoff paper on the growth-debt nexus is already impacting policy. A participant in last Friday's G20 meetings told me that the error was a factor in the decision to omit specific deficit or debt-to-GDP targets in the G20 communique.

For another, Bill Gross, the manager of the world's largest bond fund, and who, as Joseph Cotterill of FT Alphaville points out, used to be quite the fan of British austerity, made a big about-face in an interview with the Financial Times on Monday:

The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not. You've got to spend money. Bond investors want growth much like equity investors, and to the extent that too much austerity leads to recession or stagnation then credit spreads widen out -- even if a country can print its own currency and write its own checks. In the long term it is important to be fiscal and austere. It is important to have a relatively average or low rate of debt to GDP. The question in terms of the long term and the short term is how quickly to do it.

Growth vigilantes are the new bond vigilantes. Gross thinks the boom, not the slump, is the time for austerity -- which sounds an awful lot like you-know-who.

The austerity fever has even broken in Europe. At least a bit. Now, eurocrats can't say that austerity has been anything other than the best of all economic policies, but they can loosen the fiscal noose. And that's what they might be doing, by giving countries more time and latitude to hit their deficit targets. Here's how European Commission president José Manuel Barroso framed the issue on Monday:

While [austerity] is fundamentally right, I think it has reached its limits in many aspects. A policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.

That's not much, but it's still much better than the growth-through-austerity plan Eurogroup president Jeroen Dijsselbloem was peddling on ... Saturday.

Now, Reinhart and Rogoff's Excel imbroglio hasn't exactly set off a new Keynesian moment. Governments aren't going to suddenly take advantage of zero interest rates to start spending more to put people back to work. Stimulus is still a four-letter word. Indeed, the euro zone, Britain, and, to a lesser extent, the United States, are still focussed on reducing deficits above all else. But there's a greater recognition that trying to cut deficits isn't enough to cut debt burdens. You need growth too. In other words, people are remembering that there's a denominator in the debt-to-GDP ratio.

But austerity doesn't just have a math problem. It has an image problem too. Just a week ago, Reinhart and Rogoff's work was the one commandment of austerity: Thou shall not run up debt in excess of 90 percent of GDP. Wisdom didn't get more conventional. What did this matter? Well, as Keynes famously observed, it's better for reputation to fail conventionally than to succeed unconventionally. In other words, elites were happy to pursue obviously failed policies as long as they were the right failed policies.

But now austerity doesn't look so conventional. It looks like the punchline of a bad joke about Excel destroying the global economy. Maybe, just maybe, that will be enough to free us from some defunct economics.


Austerity loses an article of faith

di Martin Wolf
da Financial Times

In 1816, the net public debt of the UK reached 240 per cent of gross domestic product. This was the fiscal legacy of 125 years of war against France. What economic disaster followed this crushing burden of debt? The industrial revolution.
Yet Carmen Reinhart and Kenneth Rogoff of Harvard university argued, in a famous paper, that growth slows sharply when the ratio of public debt to GDP exceeds 90 per cent. The UK’s experience in the 19th century is such a powerful exception, because it marked the beginning of the consistent rises in living standards that characterises the world we live in. The growth of that era is the parent of subsequent sustained growth everywhere.
As Mark Blyth of Brown University notes in a splendid new book, great economists of the 18th century, such as David Hume and Adam Smith warned against excessive public debt. Embroiled in frequent wars, the British state ignored them. Yet the warnings must have appeared all too credible. Between 1815 and 1855, for example, debt interest accounted for close to half of all UK public spending.
Nevertheless, the UK grew out of its debt. By the early 1860s, debt had already fallen below 90 per cent of GDP. According to the late Angus Maddison, the economic historian, the compound growth rate of the economy from 1820 to the early 1860s was 2 per cent a year. The rise in GDP per head was 1.2 per cent. By subsequent standards, this may not sound very much. Yet this occurred despite the colossal debt burden in a country with a very limited tax-raising capacity. Moreover, that debt was not accumulated for productive purposes. It was used to fund the most destructive of activities: war. Quite simply, there is no iron law that growth must collapse after debt exceeds 90 per cent of GDP.
The recent critique by Thomas Herndon, Michael Ash and Robert Pollin of the University of Massachusetts at Amherst makes three specific charges against the conclusions of profs Reinhart and Rogoff: a simple coding error; data omissions; and strange aggregation procedures. After correction, they argue, average annual growth since 1945 in advanced countries with debt above 90 per cent of GDP is 2.2 per cent. This contrasts with 4.2 per cent when debt is below 30 per cent, 3.1 per cent when debt stands between 30 per cent and 60 per cent, and 3.2 per cent if debt is between 60 per cent and 90 per cent. In their response, profs Reinhart and Rogoff accept the coding errors, but reject the critique of aggregation. I agree with the critics for reasons given by Gavyn Davies. The argument that data covering a long period of high debt should count for more than data covering a short one is persuasive.
Nevertheless, their work and that of others supports the proposition that slower growth is associated with higher debt. But an association is definitely not a cause. Slow growth could cause high debt, a hypothesis supported by Arindrajit Dube, also at Amherst. Consider Japan: is its high debt a cause of its slow growth or a consequence? My answer would be: the latter. Again, did high debt cause today’s low UK growth? No. Before the crisis, UK net public debt was close to its lowest ratio to GDP in the past 300 years. The UK’s rising debt is a result of slow growth or, more precisely, of the cause of that low growth – a huge financial crisis.
Indeed, in their masterpiece, This Time is Different, profs Reinhart and Rogoff explained how soaring private debt can lead to financial crises that generate deep recessions, weak recoveries and rising public debt. This work is seminal. Its conclusion is clearly that rising public debt is the consequence of the low growth, itself explained by the crisis. This is not to rule out two-way causality. But the impulse goes from private financial excesses to crisis, slow growth and high public debt, not the other way round. Just ask the Irish or Spanish about their experience.
It follows that, in assessing the consequences of debt for growth, one must ask why the debt rose in the first place. Were wars being financed? Was there fiscal profligacy in boom times, which is almost certain to lower growth? Was the spending on high-quality public assets, conducive to growth. Finally, did the rise in public debt follow a private sector financial bust?
Different causes of high debt will have distinct results. Again, the reasons why deficits are high and debt rising will affect the costs of austerity. Usually, one can ignore the macroeconomic consequences of fiscal austerity: either private spending will be robust or monetary policy will be effective. But, after a financial crisis, a huge excess of desired private savings is likely to emerge, even when interest rates are very close to zero.
In that situation, immediate fiscal austerity will be counterproductive. It will drive the economy into a deep recession, while achieving only a limited reduction in deficits and debt. Moreover, as the International Monetary Fund’s Global Financial Stability Report also notes, extreme monetary stimulus, in these circumstances, creates substantial dangers of its own. Yet nobody who believes in maintaining fiscal support for the economy in these specific (and rare) circumstances thinks that “fiscal stimulus is always right”, as Anders Aslund of the Peterson Institute for International Economics, suggests. Far from it. Stimulus is merely not always wrong, as “austerians” seem to believe.
This is why I was – and remain – concerned about the intellectual influence in favour of austerity exercised by profs Reinhart and Rogoff, whom I greatly respect. The issue here is not even the direction of causality, but rather the costs of trying to avoid high public debt in the aftermath of a financial crisis. In its latest World Economic Outlook, the IMF notes that direct fiscal support for recovery has been exceptionally weak. Not surprisingly, the recovery itself has also been feeble. One of the reasons for this weak support for crisis-hit economies has been concern about the high level of public debt. Profs Reinhart and Rogoff’s paper justified that concern. True, countries in the eurozone that cannot borrow must tighten. But their partners could either support continued spending or offset their actions with their own policies. Others with room for manoeuvre, such as the US and even the UK, could – and should – have taken a different course. Because they did not, recovery has been even weaker and so the long-run costs of the recession far greater than was necessary. This was a huge blunder. It is still not too late to reconsider.


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