Austerity Debate

A sensitive ideology has come after a couple of economists, named Reinhart and Rogoff, for concluding, in an academic study, that large government debt ratios impedes growth. Why would we have to confirm this proposition by facts and figures; would not common sense direct us to this result?  Maybe I forgot common sense is not so common anymore.

The study called, “Growth in a Time of Debt”, did establish perimeters on debt and growth. The study claims that gross public debt equaling 90% or more of the nations annual output was associated with lower rates of growth.

Of course, this whole dispute is more relevant to Europe and the course of austerity being administered to several countries is the European Union. Germany, whose debt ratio falls under the 90% is an advocate for austerity. Then, others says it is cruel to impose bread and butter cuts at a time of recession, which Europe continues to suffer through. They say the time for austerity plans and structural changes would be when the economy starts to heal.  The problem with that thinking is at a time of economic growth restoration, there appears little incentive to cut waste of repair structure. Politicians are especially lazy in the stable times and avoid any “unnecessary trouble.”  Our Congress abhors preventive maintenance.  We like to operate by deadline and sequester.

When we take any austerity action, we do so with a very gentle touch. So gentle in fact, it is hardly noticeable, such as the proposed entitlement adjustments. We prefer just piling on the debt ! Our debt to GDP is 106% and no doubt still growing as I write this post.  Some people think we will end up like the countries of southern Europe or worse.

I guess I am puzzled by all the fuss about the impact of debt. Of course, debt , at high levels restrain growth and mobility. It is no different for governments than private business or even households for that matter. If the head of a family owes money on the house, automobile, furniture, and boat; all this debt should indicate he might hold back before going in debt for the Winnebago.