MANY of the arguments made in favour of austerity, circa 2010, no longer look particularly compelling. The suggestion that growth might slow sharply once the ratio of public debt to output tops a particular threshold is out of vogue. And recent experience has shown that "expansionary austerity", while perhaps a possibility under certain circumstances, is very unlikely to materialise when economies are operating below potential and interest rates are at very low levels.

But there is still some potency to one of the chief arguments for British austerity: that if the British government had not turned toward fiscal consolidation in 2010 markets might have lost their appetite for British government debt, leading to a fiscal crisis. Last week Kenneth Rogoff wrote that from the perspective of 2010 a turn toward consolidation made an awful lot of sense as an insurance policy against disaster:

I suppose one could argue that a collapse of the eurozone would have caused a stampede into gilts. Maybe. But this was a country that was still running twin current account and fiscal deficits. More likely, a euro collapse would have triggered a stampede out once investors realised that the UK banks and trade would be savaged, a flexible currency notwithstanding. In that scenario, UK leaders would have been forced to close massive budget deficits almost overnight. That would have been truly catastrophic austerity.

Was this a reasonable worry? Let's start with the special case considered here, in which there is an outright euro-zone collapse. To be perfectly honest, I'm not sure that any fiscal consolidation plan would have made much of a difference in that case. Given a euro break-up, Britain's economy would probably have contracted by at least 10%, and its banking system would have been insolvent. What the government's precise policy response would have been is difficult to know, but the experience of the Depression suggests that public debt would have soared, by at least an order of magnitude more than any short-term austerity programme might have achieved. Maybe Britain would have faced fiscal crisis of some sort or maybe not, but one gets the feeling that the outcome would have almost nothing to do with the fiscal choices made prior to the catastrophe of a euro collapse.

That is not Mr Rogoff's view, however. In a follow-up blog post he writes:

A calamity of the proportions we are talking about here would make it very hard to sustain credibility, and the UK government would have had to call on every ounce of its credibility reserve.

I don't know what this means. I don't know how one measures stocks or flows of credibility. I don't know whether there are critical credibility thresholds and how close or far away from them Britain was, and as a result I have no idea how to assess the cost-benefit trade-off associated with short-term austerity on the heels of a serious crisis with the aim of earning sufficient credibility to avoid...a loss of credibility? As far as I can tell Mr Rogoff is attempting to deploy a rhetorical totem that can't be proven, assessed or trumped.

If Britain was about to be confronted with an economic disaster like euro-zone collapse, can we be reasonably confident that an attempt to boost fiscal "credibility" as quickly as possible was a more sensible policy choice than, say, an effort to get the economy growing as strongly as possible as quickly as possible (if only to allow the Bank of England to raise its policy rate, to build up a cushion against the zero lower bound)? Would austerity have been more sensible than an effort to use the government's fiscal capacity (backed, as it is, by a printing press) to help the private sector and domestic banks to deleverage as rapidly as possible? If only we had a credibility dipstick to insert into the credibility reserve to check the credibility level, then we might be able to answer the question.

But I actually think that the utility of consolidation ahead of a euro-zone break-up is not the most interesting debate. It also wasn't the main argument made in 2010 in favour of British austerity. The worry, for the most part, was not that Britain needed to earn credibility before the euro zone blew up, but that Britain needed to maintain market confidence in order to avoid becoming Greece: in order to prevent an economically destabilising rise in borrowing rates.

So let's shift to the general case: should Britain, or should any government that can print its own money, worry about a debt crisis under the circumstances that prevailed in 2010?

As Paul Krugman and Brad DeLong note, it isn't clear that they should. An economy that is in a slump sufficiently deep to drive the central bank's policy rate to near zero is suffering from excess saving. There is much more desired saving in the economy than desired investment, such that the appetite for government debt is high even when the real return on that debt is zero or negative. So what if there is sudden stop in lending to the sovereign, sufficient to raise nominal interest rates on government debt? Well that implies that money is either being used domestically on other things—like purchases of goods and services—or is leaving the economy, and generating a stimulative depreciation as it goes. Rising interest rates mean that the economy has left its slump. As Mr DeLong points out, the resulting boom might not be the most comfortable of expansions. Inflation could rise to unpleasantly high levels, or the central bank, fearing inflation, could step on the boom and turn what might reasonably be an expansionary loss of sovereign credibility into a contractionary one. But in many ways the high-interest-rate, sinking currency, boom problem is an easier one to manage than the low-interest-rate, persistent slump morass.

Would this actually work in practice? A depreciation might result in a quick shift to current-account surplus, but that adjustment might initially rely on painful import compression rather than export growth. Very open economies with large tradable sectors may be able to shift toward reliance on external demand relatively seamlessly. Others may not. Where Britain is concerned, the experience following on the depreciation of 2007-8 is not that encouraging, though it may simply be the case that sterling did not fall enough. But again, it does seem to have been the case historically that austerity is less economically painful in economies where interest rates are high (and can fall as budgets are cut) and currencies can depreciate. I'll put it differently. Economists can argue until they are blue in the face over whether a central bank can offset fiscal contraction at all times and in all circumstances. Empirically speaking, they have not done so during slumps in which interest rates fall to near zero. So in Britain in 2010 one might have reasonably concluded that austerity would deliver very little fiscal improvement for the economic pain. But in a world in which lost confidence in the British sovereign led to rising interest rates and a falling currency one could expect quite a lot of fiscal gain at little economic pain from budget cuts.

That, of course, is provided that the rate rises don't occur catastrophically quickly. In an economy with relatively long average debt maturity that doesn't seem like much of a danger; in 2010, the weighted average maturity of British sovereign debt was nearly 14 years, more than twice that in most other rich economies. And as Simon Wren-Lewis notes, Britain already had a pretty good insurance policy against surging borrowing costs:

QE means that the monetary authority is committed to keeping long term interest rates low, so they will buy any government debt that cannot be sold to the financial markets. Rogoff says that, if the markets suddenly forsook UK government debt “UK leaders would have been forced to close massive budget deficits almost overnight.” With your own central bank this is not the case – you can print money instead. Now pretty well everyone agrees that printing money to cover unsustainable budget deficits is inflationary. But that is not what we are talking about here. We are talking about a government with a long term feasible plan for debt sustainability, faced with an irrational market panic. In those circumstances, printing money will be purely temporary, for as long as the panic lasts. As it is taking place in the depth of a recession, it will not be inflationary.

Or if it is temporarily inflationary, that's a good thing (as Mr Rogoff himself has argued).

Should Britain have been completely unconcerned about its borrowing? No; it would have been sensible to have a plan to stabilise public debt over the medium term: say ten years or so. But it is hard to see that Britain had much to fear from a sudden loss of market confidence. It had plenty to fear from a euro-zone break-up, by contrast, but little reason to think that a quick turn toward fiscal consolidation in the year or two before the blow-up would deliver any net benefits.