Have you heard? Wonderful, wonderful news. The economic “austerians” have been defeated!

The deficit cutters and budget balancers have been routed in the field of economics. All those worries about government debts have been debunked. It turns out Kenneth Rogoff and Carmen Reinhart, the academics who provided the intellectual justification for cutting deficits, actually got their math wrong. Their 2010 paper, which said economic growth slows once debt hits 90% of gross domestic product, involved some spreadsheet errors (as the two have now acknowledged, most recently in an op-ed in today’s New York Times). Everyone on the left, from Paul Krugman to Stephen Colbert, has formed a massive conga line. Da-da-da-da-da-DA, da-da-da-da-DA…

We can now borrow, and print, all the money we need. Gold has collapsed. Happy times are here again …

Or so a lot of people are saying. Turns out, though, there is a lot more to the story. And you’re not hearing that side.

I should start, by the way, by declaring my own interest. I have none. I am neither a partisan Keynesian nor a partisan austerian. I’m not on a “team.” I subscribe to the quaint notion that I should judge each dispute on its own merits, rather than as a member of a “blue” or “red” team. (Yes, I know. Ridiculous, isn’t it?) Given that absolutely everybody else commenting on this story appears to be wearing a red or blue shirt, I have spent the week increasingly frustrated that I couldn’t get a clear picture of the truth. Many of you probably feel the same way.

So I thought I’d do some digging. Here are four key points that no one else seems to be making about this Reinhart-Rogoff scandal.

1. Both sides are misusing history.

Reinhart and Rogoff’s paper, in which they argued that economic growth slows once government debt passes 90% of GDP, was mostly based on data for advanced economies from 1946 to 2009. The academics who claim to have debunked them, and who argue high debt levels don’t hinder growth, are relying on the same data.

And the whole enterprise is fundamentally flawed.

You cannot, cannot, cannot deduce universal rules — let alone predict the future — based upon a limited set of data. I am constantly stunned at how many people, especially in this country, think that history (or economics) is like the natural sciences, governed by simple, universal mathematical rules that can be worked out by observation. (A friend jokes that the reason is that even though Americans speak English, they think like Germans. And to the Germans, everything is basically an engineering problem. Measure the data, build a spreadsheet, and, hey, presto, we have an answer.)

Any historian — particularly one with a good British education, such as Harvard’s Niall Ferguson, a leading champion of the Reinhart-Rogoff view — should have been more skeptical of the whole enterprise from the start. Even if Rogoff and Reinhart had calculated the numbers correctly, it still wouldn’t “prove” that economies slow once government debt hits 90%.

I once saw Hank Paulson, George Bush’s former Treasury secretary, explain why the housing collapse caught him and the administration by surprise. The reason, he said, is “we looked at the data since 1945, and it showed house prices don’t go down.” Note the language. He didn’t say house prices “didn’t” go down during that period. He said he deduced they “don’t” — the universal present. In other words, he claimed to derive a universal rule from a small snapshot in history: Water boils at 100 degrees Celsius, house prices “don’t” go down, economies “slow” or “don’t slow” at 90% debt.

Bah.

Next time someone tries this, imagine the year 1788, just before the French revolution. King Louis XVI is worried. He calls in his counselors (from the firm of Les Sacs de l’Homme d’Or). They assure him that he has nothing to worry about, because “a hundred years of data” and a spreadsheet “prove that the Bastille doesn’t fall.” Similarly, no spreadsheet would have predicted the industrial revolution, the first and second world wars, and so on and so on. History is littered with discontinuities and peculiarities. You can’t just “click and drag” from the past to the future.

Consider: One critique of Reinhart-Rogoff is that it doesn’t give enough weight to the case of New Zealand right after World War II. Apparently, New Zealand had high debts, yet grew very quickly in the late 1940s.

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Yet what does this prove? New Zealand was basically a giant farm floating in the Pacific, far away from all the fighting of the war. After 1945, everyone needed food and wool. Europe, Japan, and other places, struggling to get back on their feet after six devastating years of war, didn’t have much. New Zealand’s exports soared, and its economy boomed. What on earth does that tell us about debt levels and growth? What possible relevance does that have to our situation today?

This isn’t an isolated instance. Much of the critique of Rogoff and Reinhart is based on the early post-war era, a peculiar moment in human history. It tells us very little about the present. Are we just emerging from a devastating war? Will our economies be busy for the next few years, as we rebuild homes, roads and factories across Europe and Japan?

You cannot deduce universal rules for the future from a 63-year snapshot of history.

2. Anti-austerians aren’t counting costs.

Let’s focus on the U.S. economy after the Second World War. Critics of Reinhart-Rogoff, and defenders of big budget deficits generally, often cite this as Exhibit No. 1 in their case for deficits. The U.S. government ended the war heavily in debt, they say, yet the country then went through the biggest, broadest, longest period of growth and prosperity in history.

It’s true as far as it goes. Government debt rocketed to about 120% of gross domestic product in 1945. The subsequent U.S. expansion basically lasted till the early 1970s, with only brief recessions. This is taken, by the anti-austerians, as proof that debt doesn’t hold back the economy.

But here’s one thing they’re not saying. A major reason that debt wasn’t a crushing burden to the economy is that the taxpayers effectively repudiated a large chunk of it.

In the immediate post-war years, the country saw a big surge in inflation. From 1945 to 1951, the dollar lost 30% of its purchasing power. That slashed the value of the government’s debt in real terms. There was a huge cost borne by bondholders, which no one is counting.

From 1942 through 1945, investors lent Uncle Sam about $200 billion at very low interest rates. Even long-term bonds only paid about 2.5% interest. Many investors lent that money as their patriotic duty. After the war, those bondholders got stiffed. Their interest rates were lower than inflation.

This may have been the right thing to do in public-policy terms. If you have to choose between stealing from bondholders and raising unemployment, the former may be preferable to the latter. But it is nonetheless a cost, and it needs to be counted in the equation.

Something similar happened in the 1970s. The government ran huge debts, but effectively repudiated part of them every year through inflation. Holders of Treasury bonds lost money through the late 1960s and the 1970s. The situation got so bad that by the late 1970s, Treasury bonds became known as “certificates of confiscation.”

Is history about to repeat itself? The public has been pouring billions of dollars into Treasury bonds in recent years. According to the Investment Company Institute, the trade body of the mutual fund industry, the public now holds about $3.4 trillion in bond funds. Those investors may pay a vicious price if inflation surges again. Most of those investors are people nearing or in retirement, who are least able to weather significant losses.

Do the leading anti-austerians hold their own money in bond funds? If not, why not? And don’t you think they should have to disclose their holdings before saying this isn’t a problem?

3. Private-sector debt matters, too.

When people point out that U.S. government debts were a much bigger share of the economy in 1945 than they are today, they are making a grossly dishonest argument. It is far more egregious in many ways than any mistake Ken Rogoff and Carmen Reinhart made.

The reason? This time around, we also have massive private sector debts as well.

At the end of the Second World War, the balance sheets of U.S. corporations and households were in excellent shape. High savings rates during the war years, and the effects of war-time inflation, had wiped out the debt of the Depression. Households were almost unleveraged. Companies were almost as well-positioned. So their wealth to some extent offset the debts of the government.

Today? According to the Federal Reserve, U.S. households owe $13 trillion (about the same as the federal government), businesses owe another $13 trillion, and state and local governments owe about $3 trillion. The total amount exceeds $40 trillion, approaching three times gross domestic product. And this doesn’t include the gigantic future commitments embedded in Social Security and Medicare. Those are off-balance-sheet liabilities. None of these were the case in the 1940s.

The level of systemic debt in the U.S. today — and in many other advanced economies — has no real parallel in a modern world. Maybe this will turn out okay. Maybe it won’t. But don’t give me flawed comparisons with 1945 and then say that proves we’ll be fine.

4. Growth was still lower.

To hear some of the critics, you might think that Rogoff and Reinhart’s calculations were totally wrong. Actually, they weren’t. Even if you accept the full criticisms leveled by the anti-austerians, the data still show some correlation between debt levels and lower growth rates.

University of Massachusetts–Amherst economists Thomas Herndon, Michael Ash and Robert Pollin — the academics who revealed Reinhart and Rogoff’s errors — ran their own analysis. They avoided the errors of Reinhart-Rogoff, gave full weight to post-war New Zealand, and so on.

Their conclusion? Economies with government debt over 90% grew by just 2.2% a year on average, considerably more slowly than those with lower levels of debt.

Economies with medium-size debts, between 30% and 90% of GDP, grew by just over 3% a year, on average. Those with low levels of debt, below 30% of GDP, boomed by more than 4%, they found. In other words, according to Herndon, Ash and Pollin, high-debt economies (over 90% of GDP) grew at barely half the speed of low-debt economies (below 30%). So the Reinhart-Rogoff argument still has a lot of teeth.

And it’s worth adding here that while one criticism of Reinhart and Rogoff is based on an undeniable error they made, some of the other criticisms are just based on judgment.

As it happens, I’m a historian by training (see Point No. 1), and so I treat this entire enterprise with monumental skepticism. It’s not clear if high debt levels lead to slower growth, or are the result of slower growth, or that the two have only a loose connection. Some countries grew more slowly, or quickly, for other reasons. Was Japan’s boom from 1950 to 1990 due to its low debt levels, or its hard work and the innovation of companies like Sony, Canon and Nikon? Was Britain’s slow growth after the war due to debt levels, or bad management?

We may never know for certain. In the meantime, common sense may remain a useful tool. I remain skeptical that we can borrow and print money indefinitely with no consequences whatsoever. Call me crazy.