This Dylan Matthews piece on the evils people perceive from deficits, and why they’re almost all wrong, is a must-read. I would quibble with a few points — in particular, it really doesn’t matter how much of our public debt foreigners own, what matters is our overall net international investment position (do we as a country owe more to foreigners than they owe to us). And I wish he’d made the no-crowding-out point in terms of the state of the economy, not just actual interest rates. But these are minor points, and the overall thrust of the piece is excellent.

One thing I was really glad he took on was the Reinhart-Rogoff 90 percent = disaster stuff. He lays out the right critique — mainly, poorly performing economies tend to have high debt rather than the other way around — and gets a remarkably weak response from Reinhart:

Reinhart dismisses these criticisms as wishful thinking. “We’re quite aware that you have causality going in both directions,” she says. “But please point out to me what episodes from 1800 to the present have we had advanced economies who carried high levels of debt growing as rapidly or more rapidly than the norm.” Belgium after World War I, she says, fits the bill, but that’s basically it. “It’s not about some exotic magic threshold where you cross the Rubicon,” she says. “But high debt levels are like a weak immune system.”

Gah. The fact is that there really aren’t a lot of episodes in which advanced countries had high debt, and many of those episodes — like Japan or Italy in recent decades — are clearly associated with growth slowdowns that were happening for other reasons.Why, exactly, would you expect to see countries doing well have high debt in the first place?

The main exceptions are wars and their aftermath — and those can be problematic too. The original R-R paper highlighted slow growth just after World War II in the US — but that wasn’t the burden of debt, it was the end of wartime mobilization, with Rosie the Riveter going back to being a housewife.

Look, here’s a picture of British debt and growth since 1950. I show the debt level on the left axis, the 10-year forward per capita growth rate — Britain’s rate of per capita growth in the 10 years after each date — on the right axis. If high debt were a huge problem for growth, you should have expected British performance in the first part of this figure to be terrible, since the country came out of WWII with debt twice as high as the R-R red line. You don’t:

Photo

So back to Matthews: this whole deficit fever has been based on bad logic and weak evidence. I could have told you that from the beginning, and actually I did. But it’s good to see the word getting out more widely.