Commentator Robert Huebscher recently penned an article on what may be the "misreading" of the work of Carmen Reinhart and Ken Rogoff on economic growth and debt-to-GDP levels. The common interpretation of their work is that economic growth slows once a country's ratio of debt-to-GDP exceeds 90%. However, Huebscher notes that a careful reading of Reinhart and Rogoff indicates the following:
- Countries' vulnerability to crises and anemic growth seldom depends on a single factor such as public debt.
- While debt and growth are unquestionably linked on a theoretical basis, a complete theory would incorporate more than two variables, such as interest rates, the nature of the debt and currency.
- Any notion that 90% is a hard barrier imminently endangering the U.S. economy is not supported by the authors' research.
Click here for Huebscher's article, "The Misreading of Reinhart and Rogoff."