Economics by reflex

Out of context, from The risks of high public debt despite a low interest rate environment:

After the 2008 Global Crisis, the interest rate-growth differential (r-g) has turned negative in several economies and interest rates have remained low ever since (Teulings and Baldwin 2014). These two conditions offer strong arguments to pursue fiscal expansions to spur growth, as a negative long-run r-g implies a more sustainable public debt, and countercyclical fiscal policy is arguably more effective in a low rate environment (Blanchard 2019, Eggertsson and Summers 2016, Ubide 2016).

The article warns of problems with the view they express, which I refer to as "reflex".

Blanchard, Eggertsson, Summers, and Ubide could surely back up their reflex view.

My problem with it is that there must be something wrong with the thinking behind that view, because that same thinking has been getting us in trouble since, oh, since the 70s. 

Look at the two "strong arguments" that are presented:

• a negative long-run r-g implies a more sustainable public debt, and 
• countercyclical fiscal policy is arguably more effective in a low rate environment

Both of these are based on the assumption that "fiscal expansions to spur growth" are "effective". They are not.

After the financial crisis of 2007-08, economists paused to reflect and evaluate their thinking. That's nice. 

It seems they decided there was nothing wrong with their thinking. That's a problem. 

Their revaluation became an opportunity for them to reafffirm their views, take more entrenched positions, and expand the political divide that stretches between those positions.

If a disaster like 2007-08 doesn't cause more of a change in economic thinking than we have seen, there is little hope for improvement. And by the way, we are on the downhill slope. We need more than just a little improvement if we want any actual improvement.
 

Out of context, from  A Future with High Public Debt: Low-for-Long Is Not Low Forever:

... provided fiscal space remains ample, countries should not run larger budget surpluses to bring down the debt, but should instead allow growth to bring down debt-to-GDP ratios organically.

Yeah, absolutely, of course, sure. Except that plan no longer works. We don't get growth enough to bring down debt-to-GDP ratios. Fiscal expansion to spur growth is not effective.

Graph #1

The red line is an exponential curve -- a growth curve -- based on data for the years 1946 to 1974. The red line after 1974 shows how big the Federal debt would have been if the debt kept growing at that rate.

The blue line shows how big the Federal debt actually got. 2019 is the last year shown. The debt is even bigger now.

The plan was working in the 1950s and 60s and the early 70s.  But by the mid-70s we needed more and more and more debt. The plan became ineffective.

Graph #2

The red line on the second graph is also an exponential curve. It is based on Real GDP data for the years 1946 to 1974, same period as the first graph. The red line since 1975 shows how big Real GDP would have been if it kept growing at the rapid pace of 1946-1974. But it didn't keep up that pace. Economic growth fell behind.

The blue line shows how big Real GDP actually got. It falls behind the trend in the mid-70s. And it keeps falling farther and farther behind all the while the federal debt (shown on graph #1) is gaining on its 1946-1974 trend.

Now, Republicans tell you that the debt increase shown on graph #1 is the reason Real GDP keeps falling behind the trend. That's just bullshit. They don't know the reason. And their argument is that they could fix the problem but the other guys won't let them. That's pathetic.

And the other guys tell you that the debt increase shown on graph #1 was insufficient, and that we need the government to spend "whatever it takes" more to boost the economy. Bullshit. That plan no longer works. And they don't know the reason, either.

In fact, neither side is even looking for a reason. They're just going with what they think they know. A phrase comes to mind: When the facts change, I change my mind. I hear that phrase repeated too often. But nobody says it from the heart. They all want the "I" who changes his mind to be the other guy.

 
I'm not going to say I know, because I've not been to the future. I've not seen my plan enacted and successful. Instead of saying that, let me just say this:

Some of them think the problem is too much government debt. The rest of them think the problem is too little government debt. Between them, they consider only one thing: government debt.

The problem, however, is excessive private debt.