Grad Student Who Shook Global Austerity Movement

Here is Andrew Gelman's comment on this issue:

http://andrewgelman.com/2013/04/16/memo-to-reinhart-and-rogo...

Impressive that his two professors took 1 whole month to finally believe him, even though the article gives the impression that the error was obvious (a bad formula).

Summary of the article: http://tldr.io/tldrs/5171189e1a18dac804000170/meet-the-28-ye...

So what is the alternative to lowering "consistently high public debt"? Monetize it? Default on it?

Debt in itself is not a problem if the growth rate is the same or decreasing as a proportion of the economy. At the current rate, some obligations would have to be forfeited, either to the direct creditors, or to those promised social services. Strangling the economy further with high taxes only makes the problem worse.

I think most of the damage from so-called "austerity" has been decisions taken with little warning and at the very last possible moment.

The real problem is by the time a county has big debts there so used to deficit spending defaulting = austerity. The US borrowed enough money to avoid a significant economic melt down. Long term avoiding pain from borrowing is not sustainable be cause you always want lower taxes and faster growth.

For austerity to work before your forced into it you need a multi decade commitment to gradual spending reductions or significant external stimuli. The US could for example cut military spending by 75% today and still be just as safe. The problem is simply flooding the job market with such people. However cut 3% a year and you have few short or long term problems as people naturally leave jobs and you just avoid highering. Increase the retirement age slowly and the personal impact is minor, cut benefits directly and you destroy lives.

PS: Also slowly cutting back government like that withought reducing taxes reduces short term economic growth. The advantage is keeping a good credit raiting and avoiding default but it's still painful.

Isn't monetizing it exactly what we're seeing today? Looks an awful lot like a currency-war to me. Everyone is trying to debase their currency and export their way to prosperity. The US accuses China, and vice versa (QE 1,2,3, etc). Japan just promised to effectively double their monetary base last week. What is the alternative to lowering debt? I don't know but all this printing will surely cause money to flow to otherwise less productive parts of the economy won't it? If anyone could make some sense out of this, I'm listening.