Debt > 90% of GDP “associated with 1 percent lower median growth”

Reinhard and Rogoff again repeat this claim.

1. As I pointed out, out of 3,700 samples (country/years) they find five (I found six) years of U.S. debt at that level: 1944-1949. Which was followed, of course, by the best two decades of U. S. growth in living memory.

2. Krugman went deeper:


as best I can tell, all or almost all observations of advanced countries with gross debt over 90 percent of GDP come from four main groupings:

1. The US and the UK in the immediate aftermath of WWII
2. Japan after 1995
3. Canada in the mid 90s
4. Belgium and Italy since the late 1980s

We’ve already seen that (1) is a case of spurious correlation [see #1, above]. Surely (2) is largely a case of causation running the other way, from Japan’s slide into slow growth and deflation to its rising debt. As for (3), advocates of austerity have been using Canada in the mid-90s as an example of a success story; surely they can’t have it both ways. This leaves (4)

3. Now somebody (Dean Baker? Matthew Yglesias? For the life of me I can’t find the item I read just yesterday) points out that the debt of the British empire exceeded 90% of GDP for most of the eighteenth and nineteenth centuries — the very period in which it was establishing global hegemony and growing by leaps and bounds.

Here’s what that looks like:

UK National Debt As Percent Of GDP for United Kingdom 1692-2010

Krugman’s right: while their historical research is fascinating (yes I’ve read their book; great stuff), Reinhart and Rogoff’s “90% conclusion” is not up to their usual standards. Given the tiny and misrepresentative sample supposedly supporting that conclusion, judicious souls will ignore it.







12 responses to “Debt > 90% of GDP “associated with 1 percent lower median growth””

  1. The Arthurian Avatar

    Good graph, yeah. Keynes wrote of a 150-year period he called “the greatest age of the inducement to invest.” That age started probably halfway up that mountain you show, and lasted until World War I.

    Halfway up that mountain is when Adam Smith wrote. But he didn’t complain much about government debt.

    I am fascinated by the relation between Federal debt and Non-Federal debt in the U.S. I invite you to take a look at one part of a series on that topic.

  2. Dave Raithel Avatar

    Something about Dean Baker repeating this seems right, but I don’t know that he’s the source, since the objection is, I think, at least 2 years old… though when I first read of it, the analogy ‘tween our possibilities and the Brit history was salutatory …

    Which does remind me that the Brits running deficits ad nausea while “growing” IS possibly my empirical case for what worries me about MMT: Governments can run deficits over and over and do really bad things. In the case of the Brits, they export unemployment and ship home natural resources doing thuggish things all about. True, they put a stop to slavery in places, and I do recall V.S. Naipaul telling NPR that the Brits saved India from Muslim barbarism (hey, his sense if not his words, and I am only reporting)… but still, I wonder….

  3. Asymptosis Avatar

    @The Arthurian “the relation between Federal debt and Non-Federal debt ”

    Justifiably. I’ve been pondering it a lot as well, though admittedly not very systematically. I’ll spend some time with your posts.

    I’m especially interested/perplexed re: the MMT mantra that govt deficit spending (+/- the trade balance) = private savings/net acquisition of financial assets (are those last two synonymous? I think so but I’m not sure). But that mantra seems to ignore private credit issuance/money creation, hence the seemingly profound “credit impulse” effect that Steve Keen discusses so cogently.

    Again, I’ll dive into your posts; in the meantime, have you come across any especially insightful papers on this in your travels?

  4. Asymptosis Avatar

    @Dave Raithel Agreed that the moral valence of the British Empire’s growth is absent from my post; deep and decidedly muddy waters, those (at best). Mine is just a technical (and morally sterile) point.

  5. nanute Avatar

    “…..judicious soles will ignore it.” More than likely. The problem is that there are influential lunatics in the House that will exploit it for political expediency.

  6. Dave Raithel Avatar


    Yep, been wondering if Keen’s analysis does contradict MMT analysis myself, but I am not fluent in economics. I speak a pidgin form used by people like me who still think economics is a branch of moral philosophy …

  7. Asymptosis Avatar

    @Dave Raithel “think economics is a branch of moral philosophy”

    Yeah I want to rewrite the title of Steve Randy Waldman’s latest from “Accounting is Destiny” to “Accounting is Politics” or maybe “Accounting is Morality.”

  8. Asymptosis Avatar

    @nanute “influential lunatics in the House”

    Mmm hmmm.

  9. The Arthurian Avatar

    Symp, I hope you’re not asking me about MMT. I have enough trouble knowing what *I* think. But let’s see if I can step on their toe once or twice.

    You write: “[The MMT] mantra seems to ignore private credit issuance/money creation…”

    At Rodger Mitchell’s recently, Rodger wrote: “…private sector borrowing is only minimally sustainable. When it reaches its limits, it reverses, and we have a recession — unless federal spending picks up the slack.”

    So I agree with what you said. In what Rodger wrote, I see *nothing* about any attempt to reduce private sector debt, either before or after it “reaches its limit”. The MMT approach (assuming Rodger is a fair example) wants to offset the growth of private debt via the growth of public debt, or some variant on public debt that I don’t quite grasp.

    This is why people who don’t like MMT say it supports inflationary policies.

    But Rodger’s approach is not only inflationary. It misses the opportunity to avoid recession.

  10. Asymptosis Avatar

    Thanks for that Mitchell post, Art. Very useful. At the very least, it’s the first thing I’ve seen (except for your stuff) that really addresses the private debt/public debt issue, explained using MMT principles. Will be pondering much more…

  11. Dave Raithel Avatar


    “From a “social perspective”, what we want banks to do is to lend into enterprises whose interest payments reflect real value generation ….”

    Well, isn’t accomplishing that from all “investment” from all sources (shadow banking, stocks, whatever) the goal which has escaped capitalism, writ large?

    I guess the “contradiction” ‘tween Keen and MMT evaporates when one remembers the qualification “net” asset – that all money creation through loans in the private sector are still promises of future transfers between private sector parties.

    But that only provokes another thought on Keen/MMT synthesis, if you will: The sovereign issuer of money would not be only be the lender of last resort and the employer of last resort, but would be the capital guarantor of last resort….?

    More than ankle, but less than knee deep in this, thanks for the references back to Mitchell and Waldman.

  12. […] address one of my pet peeves: sample size and selection. Unlike Reinhardt and Rogoff, who make wild claims about government debt/GDP levels above 90% based on a mere handful of sample points (examples that mostly aren’t representative of our […]