The Great Reinhart-Rogoff War of 2013 rages on today with a brand new Reinhart-Rogoff salvo on the New York Times op-ed page and a brand new Reinhart-Rogoff rebuttal by New York Times op-ed columnist Paul Krugman.
I want to try to broker some peace.
It's true that Reinhart and Rogoff's initial paper was technically flawed. And it's also true that Reinhart and Rogoff were happy to be feted as tribunes of austerity even as their paper made more careful claims. But the debate between them and their detractors has covered up the more important fissures that separate both them and their detractors from the Republicans in Congress.
The real debate right now is with a Republican Party that won't permit any more stimulus, won't permit any more deficit reduction if it includes tax revenues, and won't even permit the federal government to make it easier for people to refinance their homes. That's a position that often gets called "austerity," and so cloaks itself in the work of more serious deficit hawks, but it's actually something very different, and much less coherent. And it's not the position of Reinhart and Rogoff, or Krugman, or even Joe Scarborough. In fact, it's not even obviously bridgeable with the positions of Reinhart, Rogoff and Krugman.
"Our consistent advice has been to avoid withdrawing fiscal stimulus too quickly, a position identical to that of most mainstream economists," write Reinhart and Rogoff in their op-ed. They also note that that they've favored "more radical proposals," including "reducing mortgage principal on homes that are underwater," "moderately higher inflation" and "write-downs of sovereign debt and senior bank debt in the European periphery."
This support hasn't just been private. In interviews with me, Reinhart, in particular, has repeatedly defended both fiscal and monetary stimulus, as well as argued that a core failure of policymakers today is their refusal to write down housing debt. “The initial policy of monetary and fiscal stimulus really made a huge difference,” she told me. “I would tattoo that on my forehead.”
This is not, to say the least, the Republican Party's position. And the idea that we should accept more inflation, and write down mortgage debt, puts them closer to Krugman than to Republicans or Democrats.
There's no doubt that Reinhart and Rogoff are more interested in austerity than Krugman. But like most economists, they've believed that the government could do much more to promote growth now, and have been open to policies that would extend short-term fiscal support if they're part of a framework with credible long-term deficit reduction.
Meanwhile, for all the insinuations to the contrary, Krugman has also been clear that he believes deficits are a problem over the long term. "I do get the premise that modern governments able to issue fiat money can’t go bankrupt, never mind whether investors are willing to buy their bonds," he wrote in 2011. "And it sounds right if you look at it from a certain angle. But it isn’t."
The more modest differences between the various participants in the broader austerity debate are covering up a real area of consensus: We could, and should, do more now, and we could, and should, couple that with policies that reduce deficits in the medium and, more to the point, long term.
The debate between most of the academic "austerians" and the "keynesians" is, in many ways, a fake debate: There's no serious economic model in which $400 billion in stimulus spending — plus some principal reduction — over the next two years would destabilize the bond markets if it was coupled with $4 trillion in deficit reduction over the next 12 years.
Reinhart and Rogoff could have been doing much more to call out the inanity of this position, which has blocked both more short-term support for the economy and more long-term deficit reduction. That, for them, should be a lesson of this debacle: They got in bed with politicians whose policy agenda had little to do with their actual research, and so now they're being blamed for that policy agenda. But on a purely analytical level, their arguments, properly understood, are much nearer to the policy preferences of Paul Krugman than John Boehner. That's also true for Joe Scarborough, oddly enough.
The problem in American politics today isn't that Krugman, Reinhart, Rogoff and even Scarborough couldn't go into a room and come out with a plan they're all happy with. It's that the Republican Party would never agree to it.