Does Economic Growth Automatically Slow with Higher Government Debt?
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."