Reinhart & Rogoff finally get it right!

11 Mar, 2015 at 08:39 | Posted in Economics | 5 Comments

Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging-market counterparts. The current phase of the official policy approach is predicated on the assumption that growth, financial stability, and debt sustainability can be achieved through a mix of austerity and forbearance (and some reform).a62edf0f39de560a219b7262163b0d45 The claim is that advanced countries do not need to resort to the more eclectic policies of emerging markets, including debt restructurings and conversions, higher inflation, capital controls, and other forms of financial repression. Now entering the sixth or seventh year (depending on the country) of crisis, output remains well below its pre-crisis peak in ten of the twelve crisis countries. The gap with potential output is even greater. Delays in accepting that desperate times call for desperate measures keeps raising the odds that, as documented here, this crisis may in the end surpass in severity the depression of the 1930s in a large number of countries.

Carmen Reinhart & Kenneth Rogoff

This time it seems as though it is — really — different. At last the light at the end of the austerity tunnel seeps through.


  1. The only real ‘eclectic’ reform we need is to ensure that everybody who wants one has a job and sufficient income. People need to be able to buy stuff if anybody else is going to bother making it.

  2. I’m baffled as to exactly what R&R have “got right”. Far as I can see they continue to get everything wrong. Can we have an expanded version of the above post explaining exactly what R&R have got right?

  3. No need for being baffled. R&R (2010) soon became one of the main texts cited in defense of austerity policies (admittedly a little unfair considering some of the qualifications the authors themselves made to the conclusions drawn). In the new text there is no sign of an austerity interpretation of the message.

    • I do not think that that is unfair, given the fact that they preached austerity in a meeting with US Senators. It is good that they have changed their tune.

  4. “At last the light at the end of the austerity tunnel seeps through.”

    Far too optimistic, except it seems true for two former supporters of austerity, Mr. Rogoff and Ms. Reinhart.
    But policies haven’t really changed and I don’t see any prospect that they will. I hope I’m wrong.

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