Friday, 27 July 2012

Why "this time IS different": Martin Wolf, the Reinharts and Rogoff


Martin Wolf's polite rebuttal of the Reinharts (Carmen and Vincent) and Rogoff thesis of public finances based on their sardonic reprise of the "this time is different" theme is as encomiable as it is principled. I remember that two years ago, even before Paul Krugman embarked on his "confidence fairy" pieces in The New York Times, I wrote a lengthy piece at the Wolf Exchange with the title: "This Time IS Different", wherein I argued that the end of easy profits from Chinese investment growth and the reflux of capital back to the US (the end of "the Great Moderation") meant that "this time was truly different" because the usual "capital strike" or "sudden stop" of spendthrift governments would not occur in the US - for the simple reason that the profits coming out of China had "absolutely nowhere to go!", except into US treasuries, that is, to finance the US public debt.
With less politeness than Wolf, I suggested at the time that the Reinharts and Rogoff were doing nothing less than inappropriately regurgitating the repressive economic credos that the Western bourgeoisie has now turned into...."economic science"!


http://www.economics.harvard.edu/faculty/rogoff/files/Debt_Overhangs.pdf

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