Reply to Reinhart and Rogoff’s NYT Response to Critics

Warren Mosler
(Cross-posted with permission of the author from
The Center of the Universe)

The intellectual dishonesty continues. As before, it’s the lie of omission.

R and R are familiar with my book ‘The 7 Deadly Innocent Frauds of Economic Policy’ and, when pressed, agree with the dynamics.

They know there is a more than material difference between floating and fixed exchange rate regimes that they continue to exclude from their analysis.

They know that one agents ‘deficit’ is another’s ‘surplus’ to the penny, a critical understanding they continue to exclude.

They know that ‘demand leakages’ mean some other agent must spend more than its income to sustain output and employment.

They know federal spending is via the Fed crediting a member bank reserve account, a process that is not operationally constrained by revenues. That is, there is no dollar solvency issue for the US government.

They know that ‘debt management’, operationally, is a matter of the Fed simply debiting and crediting securities accounts and reserve accounts, both at the Fed.

They know that if there is no problem of excess demand, there is no ‘deficit problem’ regardless of the magnitudes, short term or long term.

They know unemployment is the evidence deficit spending is too low and a tax cut and/or spending increase is in order, and that a fiscal adjustment will restore output and employment, regardless of the magnitude of deficits or debt.

Carmen’s husband Vince was the head of monetary affairs at the Fed for many years, serving both Alan Greenspan and Ben Bernanke. He knows implicitly how the accounts clear and how the accounting works, to the penny. He knows the currency itself is a case of monopoly. He knows the Fed, not ‘the market’ necessarily sets rates. He knows that, operationally, US Treasury securities function as interest rate, and not to fund expenditures. He knows it all!

Carmen, Vince, please come home! I hereby offer my personal amnesty- come clean NOW and all is forgiven! As you well know, coming clean NOW will profoundly change the world. As you well know, coming clean NOW will profoundly alter the course of our civilization!

Carmen, Vince, either you believe in an informed electorate or you don’t!?

46 responses to “Reply to Reinhart and Rogoff’s NYT Response to Critics

  1. Hear hear! I echo this sentiment in its entirety!

  2. With all due respect to Warren Mosler, I don’t see any evidence that R&R know any of this. Maybe they OUGHT to know these things, but then they OUGHT to not make mistakes in Excel that any Grad student could fin. They OUGHT not to confuse averages with medians. They OUGHT not to have spent most of the last three years defending their strongly implied, even outright stated, conclusion that “excessive debt” as defined by the 90% threshold slows down growth (yes, they did, read Krugman, or for that matter, direct quotes from them from readers who commented on their editorial in the NYT).
    BTW, why is Mosler writing here – or on his blog, which doesn’t even allow comments – where few NYT readers will see it, instead of submitting his own editorial to the Times?

  3. Joe Firestone

    Scott, you can’t just submit an editorial to the NYT and get in there. If you could I’d be in there every week. In any event, Warren’s post is now at his blog, here, at DailyKos, at Correntewire, and at MyFDL. It may well be at HuffPo soon too, since he frequently can get his posts in there.

    As for all due respect to him. Warren’s telling you in this post that he’s had personal exchanges with them and that they understood the various things he’s mentioned. So, if you’re serious about due respect for him, then you’ll take his word for it. His reputation is as good as it gets around here, in Italy, in certain quarters in Australia, and among many other people as well. Also, I’ve never known Warren to be anything but generous and scrupulously honest. If he says that something happened, then you can take it to the bank.

  4. Lets call it like it is. These two are frauds and dangerous ones.


    The above article by Tadit Anderson explains very clearly how economists have been bought off to do the bidding of the economic elite.

    “It is a blunt fact that most of the economics profession as well as our politicians have been bribed into believing that it is in their personal interest to support the same economic principles and policies no matter how they are repackaged. Perhaps this faith-based allegiance to bribery is beginning to wear off, because the pain has finally become very real and very personal for many people who once believed that they were somehow protected.”

  6. Who paid for the NYT space? rsp,

    • Joe Firestone

      There’s no explicit quid pro quo, I’m sure. It’s all implicit. The neoliberals create the trough and all the press pigs feed on it, all the while squealing: “a free press is essential to the survival of democracy.”

  7. Perhaps he has told them these things and they don’t agree with him. This is not the “mainstream” thinking in economic circles. Also, why does it appear that only left-leaning websites/radio stations are promoting this information? This all sounds quite convenient, and seems quite popular with those who hold the world view that “the Government owes me”. It feels to me that this is designed to keep the gravy train rolling rather than achieving”full employment” with all able to find and work at a job.

    • Joe Firestone

      That’s not the issue. The issue is whether or not Reinhart and Rogoff distorted their work to support a political position when they know better about the banking and fiat currency system work? If you want to discuss that you’re welcome at this post. If you’re just looking to hijack the discussion to discuss other issues. Then I won’t approve any more of your comments. Get it? Got it? Good!

    • Charles Fasola

      That weak argument you put forth, that “government owes me” crap you attribute to those not ambitious enough as you would like, is complete BS. You must be a true rugged individualist who needs help from no one, especially the big ole’, evil gubment.

    • My impression of the Progressive view is that the government “owes” all of us in equal measure, and that the unequal results we have today are due to government bias in how it distributes its largess. “You didn’t build that.”

      MMT fits well with Progressive political objectives.

      MMT can also fit well with Conservative and Libertarian political objectives, but it hasn’t been presented in that sort of light.

  8. So, when is an MMT economist going to publish such a study showing correlations between private sector surpluses and growth, that refutes RR? Seems likely to me that when debt/GDP in a non-monetarily sovereign situation such as a gold standard gets high, deficits are managed downward, and that, not the high debt, causes the low growth. Why can’t someone publish an academic paper with a spreadsheet that shows that correlation? Low and rising debt/GDP (the RR high-growth time periods) means large deficits. Falling debt/GDP, like going or trying to go back below 90%, means relatively low deficits.

    There’s got to be a correlation also with the start of the country. All start out with a debt/GDP of zero, don’t they? To get to 90%, there has to be lots of deficit spending over long periods. If those periods are the high growth periods, is it because the debt is necessarily low or because the deficits are high? What happens if you study only mature economies, where the debt has been over 90% at some time, so as to exclude the “outliers” generated by young countries?

    If the RR study is like studying baseball teams, and saying that teams with more left-handed bat boys have better records, while ignoring the batting average of the starting lineups, then isn’t that an easy thing to discredit using data? Why does there have to be name-calling and threatening emails?

    • Agreed. If private sector surpluses are better for the economy, demonstrate it with actual economic data.

      From the graphs in the Herndon, et al response to Reinhart and Rogoff, public debt is a relatively minor factor in determining economic growth. There are also very few data points for debt over about 120% of GDP. This minor effect seems to say that public debt levels are not a major factor in growth rates. Of course, they also say that higher debt does not promote growth, which is similar to (but not identical to) the MMT assertion.

      So I would love to see data demonstrating the MMT assertion.

      • Another nail in the R&R coffin is how this article describes yet ANOTHER finding that debt does not constrain growth – though it may work the other way around, low growth causes high debt:
        If you exclude outlier Japan it’s not clear that debt has any relation at all to growth, and let’s remember that Japan is still the world’s third largest economy with several measures of lifestyle above the United States’ including longevity and economic well-being. Their debt-to-GDP ratio is well over 200%, but they have greater economic sovereignty than the U.S., as illustrated by new Prime Minister Abeonomics ( quest to re-inflate the economy by money-pumping. It’s hard to even imagine president Obama suggesting putting more money into the real economy, let alone the Austerian/deficit hawks both in Congress and at the FRB letting him carry such a plan out. That’s why Japan is more monetarily sovereign, at least in practice, than America. Ditto for China (there, they might even execute a bank president who doesn’t toe the line!).

    • The high government debt to GDP ratios should not be the issue. In any case, correlation does not prove cause and effect. Greater government debt actually creates a positive stimulus to the economy.

      The real problem is high private debt to GDP ratios, not government debt, since a sovereign government can always create more money at will. On the other hand, private citizens cannot do this. They are either maxed out on their credit cards or they may not be willing to incur more debt in an uncertain employment situation.

      It is the concentration of income and wealth in too few hands, particularly the $30 trillion stashed offshore in tax haven banks, which has robbed the economy of spendable dollars. Until this is addressed by such means as higher wages or government infrastructure spending into the private sector nothing will change.

    • Joe Firestone

      John, I suspect that the type of study you’re proposing is in the works now that the data’s been released. Remember, that UMKC people did try to acquire the RR data to replicate their work back in 2010, but RR refused to distribute their spreadsheet and have continued to refuse to disclose it until a few weeks ago. Of course, an attempt could have been made to gather the data again, but then the situation would have been a he said, she said deal with the name of Harvard and the money of the austerians in back of R and R, so that kind of refutation would have received little attention.

      MMT economists were very active in criticizing the RR study in 2010 and since on design and theoretical grounds. Those criticisms were decisive. The simple point that RR didn’t distinguish between fiat sovereign nations and, more generally among nations based on their type of currency system was enough to convince me that the study was BS. When people continued to take it seriously after critiques from Randy and Yeva Nersisyan and also Bill Mitchell appeared told me in 2010, that the mainstream didn’t care about the validity and would not listen to obvious critiques.

      It was also plain to me that the study was junk economic science because it included so few variables. That is, if you’re basically producing two variable correlations over all nations you can’t be interested in really explaining economic growth while highlighting the role of debt levels in that process. The reason why is that you’re not including the variety of variables and measures you need to partial out spurious correlations. For example, if you’re looking at economic growth as the dependent variable, then many other factors can impact that such as levels of unemployment, educational quality, levels of private investment, the proportion of an economy occupied by the FIRE sector, attributes of the health care system, price stability, crime rates, cultural factors, etc. You also need to investigate reverse causation and mutual causation, and of course do that across differing currency regimes.

      I can go on and on, but my point here is that, based on its design, and failure to include data that would test alternative theories and explanations of gowth, it was evident to me, and should have been evident to the econometricians working for the world’s major institutions that the R-R reported results, even without calculation errors, or leaving out relevant data points, could not say possibly say anything about causal relations that would be useful in arriving at policy recommendations. It was empty of policy relevance unless people wanted to believe in austerity. It was, in other words, a pure “junk science” fig leaf for the oligarchs to prosecute their war against everyone else.

      The press and MSM media played along with the fig leaf because they are owned and dominated by the oligarchs, not because there was ever anything worthwhile about the RR work, the level of which is so amateurish as an example of econometrics work that it would boggle the mind of an observer if that observer didn’t know that the academic system at the big schools had been corrupted by the grants/think tank system funded by the oligarchs.

      I think, finally, that the RR study is an example of the corruption of social science in modern times. I believe that one can show that the study was not just guilty of calculation errors and errors of omission, but that these must be seen as part of a pattern of systematic bias that permeated their whole process of inquiry beginning with their selection of the problem, moving through every decision point in implementing the study, and ending with their evaluation of their evidence and their writing of the result. They made no attempt to do a scientific study maximizing fair comparison of alternative theories having policy relevance, but instead prepared what was essentially a legal brief supporting austerity policies and the Pete Peterson line. The social costs of what they did are strewn all over the globe. See this recent post at DailyKos.

      • Joe

        This is an interview with Thomas Herndon, the young economist who detected the errors in Reinhart and Rogoff’s slipshod work.

        • Joe Firestone

          Interesting post. I think we can read between the lines and suspect that the UMass department agrees with the mainstream that debt can be big a problem even for fiat sovereigns. Temperamentally, they’re opposed to neoliberalism; but they still buy into neoliberal premises about long-run deficit reduction.

      • Well, the type of study I envision is going to need different inputs. Deficits, not debt. And capital account balances. It will have to be new work, not a simple review of RR as HAP has done. Criticizing RR and their results simply because their theory doesn’t agree with yours is not a convincing argument. It’s even less convincing when you didn’t know what data they were looking at, or how they did their calculations. Even if you had said “they must have a bug in their spreadsheet”, and you turned out later to be right, you still didn’t have a convincing argument.

        Even now, even after correcting all the supposed errors in the RR study, there is not a positive correlation of growth to debt. Even if there were, just look at Japan for the last 20 years, and the US and Europe for the last 4. That would be enough to convince anyone that correlation is not causality. Debt to GDP data simply cannot be used to justify your policy initiatives. Yes, it’s good that it cannot be used to justify theirs either, but austerity policies were in place before the study was released, having been justified by other means.

        One can easily imagine that governments managing their economies using neoliberal theory would be more reluctant to run adequate deficits when the debt ratio is high than they would with a lower debt ratio. That alone could cause the negative correlation that RR observed (even absent the spreadsheet error). You must show that any correlation, positive or negative, of debt levels to GDP growth is due to other factors, not the debt level itself.

        What you need to show is that it is low and/or falling private sector surpluses, under conditions of both high and low government debt levels, that cause lower growth, probably not in the coincident time period but in a future one. A peer-reviewed academic study like that would put MMT on the map, at least in academia.

        • Joe Firestone

          I agree with your comment, John. But this:

          “Debt to GDP data simply cannot be used to justify your policy initiatives.”

          I would never use the debt to GDP data to justify anything. But I would have it in the study to test alternative theories that state its importance and other alternatives that do not. I’d also have a lot more variables in the study because I believe causality relating to achieving MMT’s “public purpose” is complex.

          • Yes, and my vision won’t work either. The last two periods of growth have been accompanied by, even fueled by, private sector deficits. Unsustainable, bubbles, but high growth. There is the correlation of recessions following private sector deficits, though. It’s not clear to me what should be done to prevent them, though. Maybe the cycles will always be with us, and the best we can do is react to them.

            • Economic bubbles are caused by too rapid an expansion of the money supply by the private banks, who have an incentive to do this since more loans generate more interest income. At some point the bubble is unsustainable and the banks then contract the money supply to cause a collapse, which can also can be profitable for insiders and astute traders.

              The solution is to gear the money supply to the needs of the real economy of production rather than speculation.

        • A peer-reviewed academic study like that would put MMT on the map, at least in academia. Good ideas, would be nice, that’s the way it should be, but you are seeing academia, and not just economics academia, through rose-colored glasses. And how the money is spent, whether it is for a good deficit or a bad deficit matters a lot, and complicates such broad comparisons, as Joe indicates.

  9. BTW, thanks for posting here so that people can comment. I understand Warren’s reasons, but I miss the opportunity to ask questions, and I really miss his responses and explanations.

    • Joe Firestone

      Sure. I’ll probably be doing more of that in the future, since Warren’s work rellay needs dissemination and discussion. I’ve also put it up at DailyKos, Correntewire, and FireDogLake.

  10. Trish Flanagan

    Yes and they ought to know that private sector debt and public sector debt are not one and the same as one is a problem and the other is not. Yet they wrote a academically flawed paper highlighting the negative impact of high public debt on economies and when they were challenged, they defended themselves by saying we stand by our findings but we never said that there shouldn’t be debt relief for the private sector. Its just that they didn’t want to see that relief coming from public sector deficit spending. If you want to cast something as a poison, you can’t let it be seen as an antidote. R&R paper was not about describing reality but shaping perceptions, creating a narrative. It is a cat and mouse game and very dishonest.

    • The unspoken subtext behind the financial crises of recent years is precisely that the real economy of goods and services is no longer growing enough to support the immense financial economy that parasitizes it.

      • Joe Firestone

        Yes, as Warren often says “the financial sector is more trouble than it’s worth.”

  11. What proof do you or anyone else have they purposely distorted their research? To what “political” ends? Not looking to hijack, just questions that run through my mind as I look into MMT and how it is presented. Is their another forum where these questions/concerns have been addressed?

    • Joe Firestone

      What would you take as proof? There have been a number of posts at DailyKos, MyFDL, Naked Capitalism, Nation of Change, Economonitor, Mile Norman Economics, and many other places that have suggested a lack of professional integrity and ethics in this work. Look it up!

      They’ve discussed the background of the authors. Their ignoring major issues at the time their work first appeared. Their treatment of criticisms since. The nature of the mistakes they made pointed out by Thomas Herndon. Their failure to do other analyses that would have illuminated the question of causation further. In short, there’s a pattern of practice here showing bias and distortion on their part, not just one or two innocent errors.

  12. Mark Robertson

    I’ve seen a lot of criticisms of Reinhart and Rogoff along different lines. I’m waiting to see someone point out simply that for Monetarily Sovereign governments, debt is irrelevant in the first place. Thus, the debt-to-GDP ratio is meaningless. Thus, Reinhart and Rogoff are charlatans from square one.

    As we all know, for Monetarily Sovereign governments, the “national debt” simply represents the amount of T-securities sold. The “debt” is also an asset, and the “debt” is mainly owed to ourselves. Interest on this debt is paid by crediting accounts. Thus, the money comes from nowhere. The Fed could effortlessly pay off the “national debt” today with no inflationary effect. Thus, there is no truth WHATSOEVER in the Reinhart-Rogoff “studies.” Why chatter about “errors in causality,” Excel goofs, and so forth? Quite simply, Reinhart-Rogoff denied the objective facts of Monetary Sovereignty.

    These two are as bad as Paul Krugman, who claims that any European nation that dumps the euro currency will automatically be in “default” — as though paying one’s sovereign debt in one’s sovereign currency is a “default.” (Krugman also says the UK and USA can “borrow very cheaply,” as though they are forced to borrow, and as though their central banks do not set their own interest rates.)

  13. “They know unemployment is the evidence deficit spending is too low and a tax cut and/or spending increase is in order, and that a fiscal adjustment will restore output and employment, regardless of the magnitude of deficits or debt.”

    I’m sure that they do ‘know’ this, but, I think, their ‘analysis’ relies upon monetary policy, ‘supply side’ policies and the ‘new’ voodoo economics – the Barro/Ricardo equivalence proposition?

    The loss in aggregate demand bought about by ‘austerity’ is supposed to be offset by increases in consumption and investment expenditures.
    Of course, this appeals to certain sections that believe that a country’s resources are used more efficiently if allocated by the private sector.

    It is the ineffectiveness of these ‘policies’ that has to be pointed out.
    It is expansionary fiscal policy that is required eliminate any involuntary unemployment?

    Thanks to B. Mitchell.
    “It was opportune that about that time the US Congress gave out large tax cuts (in August 1981) and this provided the first real world experiment possible of the Barro conjecture. The US was mired in recession and it was decided to introduce a stimulus. The tax cuts were legislated to be operational over 1982-84 to provide such a stimulus to aggregate demand.
    Barro’s adherents, consistent with the Ricardian Equivalence models, all predicted there would be no change in consumption and saving should have risen to “pay for the future tax burden” which was implied by the rise in public debt at the time.
    What happened? If you examine the US data you will see categorically that the personal saving rate fell between 1982-84 (from 7.5 per cent in 1981 to an average of 5.7 per cent in 1982-84).
    In other words, Ricardian Equivalence models got it exactly wrong. There was no predictive capacity irrespective of the problem with the assumptions.”

    • “The loss in aggregate demand bought about by ‘austerity’ is supposed to be offset by increases in consumption and investment expenditures. Of course, this appeals to certain sections that believe that a country’s resources are used more efficiently if allocated by the private sector.”

      Somebody is confused about this efficiency argument. Transferring a function between the public and private sectors doesn’t necessarily involve austerity or stimulus. Whatever government spending is involved in the transfer should be offset by taxes in order to preserve aggregate demand. Simply to have government stop doing something without an offsetting tax reduction is austerity, but no possible efficiency gains (they are limited to 100% of spending, after all, unless the government operation caused more harm than benefit) can offset the loss of aggregate demand.

  14. One point from Reinhart & Rogoff’s article ( I don’t want to look carefully at all of this mess): “financial repression” —pushing down inflation-adjusted interest rates, which effectively amounts to a tax on bondholders.

    Amazing. My inflation-adjusted interest rate on my perpetuity bonds has been pushed down to 100%/year, from the 200%/year I used to get in the Good Old Days. Therefore, I’ve been taxed. Rentiers deserve an eternally non-decreasing real interest rate. Otherwise, they’re being taxed! I think this refutes Warren’s implicit assumption that these are sane people, at least when it comes to economics. Using the words “financial repression” or “tax” for “not being given an increasing proportion as much money as last year, for doing nothing , just because I have a lot of money already” is a pretty good diagnostic sign for a Thorazine prescription.

    That they (pretend to) support this “financial repression” is besides the point. The point is what they think, as matter of course unquestionable axioms. To wit: If the rich don’t get richer in real terms, AND even by a BETTER percentage each year in real terms, courtesy of the public treasury, absolutely risk-free, for doing nothing at all, well, then they’re being taxed.

    To be more concrete: Suppose inflation is zero. They are saying that if bondholders don’t get say, 1% the first year, 2% the second year, 3% the third year, etc, always increasing, never decreasing – then the bondholders are being taxed. (Even if the bondholders themselves are the ones pushing down these rates by their demand for bonds!) These aren’t people to whom words actually mean anything. They just toss and serve salads that their masters like.

    • Since all money under the fractional reserve banking system is created as interest bearing debt, no matter what the interest rate above zero, the growth of the debt will still be exponential due to the magic of compound interest. My untested theory is that the degree of inflation of a particular currency is equal to the average interest rate prevailing. This must be so in my view, because more money must be created as debt in order to cover the interest. This assumes no defaults and the reason there is great pressure to avoid defaults or the writing off of debt.

      The very wealthy do not usually spend more than they make and therefore their assets keep appreciating, but this is at the expense of the less well paid workforce, since their incomes are not growing exponentially to match the increased cost of living. Since money is more or less a zero sum game, the rich get richer and the rest get poorer as time goes by.

      • Joe Firestone

        Unless there are debt jubilees and/or redistribution to limit economic inequality.

        • Suggesting this type of approach tends to get one labeled as a communist by the main stream media.
          However, the current system cannot go on just as it is with real unemployment at 18% forcing lower real incomes on the workforce. Things have to be changed otherwise there might be mass revolt. I think that the US government already realizes this, which is why we seem to be heading to a repressive police state.

          There are better solutions, which include:
          1. Reform of the monetary system.
          2. Policies to create near full employment.
          3. Raising the minimum wage.

    • Excellent points Cal

      Its like these guys think that all money the govt is spending is really THEIR money. Its their accumulated savings in the form of bonds which gives all of us money to do any kind of public works program, so they demand a return, a healthy one. That money should never lose anything to inflation in their minds or else the govt is ripping them off. Never mind that they arent lifting a finger to do anything other than answer cell phone calls,they are necessary to the welfare of our nation!!

      • Frank Wolstencroft


        The irony is that it is the interest payments on all debt that cause inflation of the currency. Since the formation of the federal reserve banking system in 1913, the US dollar has lost 97% of its purchasing power.

    • Joe Firestone

      Cal, you probably meant ” toss and serve word salads” just above. And you’re right. They are incoherent word salads.

  15. I found the following comment on

    and I think it is well worth repeating. “The idea that creating too much money causes that money to lose its value is intuitive and the basis for most gold buggery….better that poor people starve than money be debased.

    ….. at some point investment tips over into hoarding. All that money Ben and Alan made and yet we teeter on the brink of debt deflation. It seems obvious that this is because the money is being hoarded but the hoard has taken, in the absence of gold to stack in caves, the form of financial instruments that are clearly not really understood by anyone.

    … on earth with our apparently Constitutionally mandated equivalence between money and speech, can we hope that our Government can lead our business culture to actually invest in the old fashioned sense of making new THINGS that mutually benefit households, governments and businesses themselves, and might even be of interest to foreign buyers? …. but has anyone seriously looked at when “financial investment” tips over into hoarding or rent seeking?

  16. Pingback: Like heterodox economists, Semmelweis was ignored… | Think Left

  17. Causality the reverse of that claimed by R seems plausable. Low growth and accelerating public debt are symptoms of a financial crisis. They are not the cause.