No Spending tipping points --- empirically disproven

(David, Ph.D. in Economics from the University of Michigan, Senior Economist, “pg online @ https://cepr.net/the-washington-posts-debt-cult/ //um-ef)

The Washington Post is always telling us that debt, especially government debt is bad, very bad. It’s not quite sure why or how, but debt is definitely bad. We got the latest confused entry from the Post’s debt cult today, warning us about some “tipping point” that we are at risk of passing. The notion of a tipping point on government debt had its shining hour when a paper by Harvard professors Carmen Reinhart and Ken Rogoff purported to show that when a country’s debt-to-GDP ratio crossed 90 percent, it led to sharply slower growth. While this paper was used to justify austerity in countries around the world, it turned out that the result was driven by an Excel spreadsheet error, as shown in a paper by University of Massachusetts economists Thomas Herndon, Michael Ash, and Robert Pollin. When the error was corrected, the data showed no 90 percent tipping point. This piece acknowledges that the United States is not likely to see a tipping point, where it can’t sell its debt: “That scenario has afflicted numerous smaller economies. But such an outcome seems less likely for the United States, given the primacy of the dollar in the world economy and the country’s long track record of relative economic stability.” While the U.S. dollar is still the preeminent currency in transactions and as a reserve currency, this is not a necessary condition for it being able to issue large amounts of debt without creating a crisis. Japan’s debt to GDP ratio is more than twice as high as in the U.S. and it had near zero interest rates and near zero inflation, just before the coronavirus crisis.