Robert Pollin and Michael Ash, who are co-authors of the paper challenging Reinhart-Rogoff, in the Financial Times write the following:
It is also not true that the large deficits have created an unsustainable burden on US government finances. In fact, since 2009, the US government’s interest payments on debt have been at historically low levels, not historic highs, despite the government’s rising level of indebtedness. This is precisely because the US Treasury has been able to borrow at low rates throughout these high deficit years.
This is related to a point that J.W. Mason has been making, that borrowing ≠ debt. Borrowing is just borrowing, but debt (as a fraction of income) is determined by four variables in combination: borrowing, income growth, interest rates, and inflation. And they do not all move unambiguously in one direction, as Ash and Pollin point out. Mason even argues that the latter three variables “often swamp any change in household borrowing.”
Like Mason, I look forward to a conversation about debt (including but going beyond economists) that moves on from talking just about borrowing and starts to think of debt in more “dynamic” terms, the same way we all do when considering whether to rent or take on a mortgage, to take the bus or finance a vehicle, or to use a debit card instead of a credit card.
Speaking of more sophisticated conversations about debt, I justed ordered Arnold Kling’s very short Kindle ebook The Three Languages of Politics. At $1.99, it’s a steal. I haven’t read it yet but I’m predicting that all three languages (progressive, conservative, and libertarian) will not appear to be very good for talking about debt.
From one of several papers that (kinda-sorta) replicated the Reinhart-Rogoff result. (Click here for the larger version.) It starts simply with the following two sentences: ”At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging.” What is the optimal level of indebtedness? The answer is not obvious.