Lame-ass response by Rogoff-Reinhart in today's NYT OpEd piece...

[markpkessinger]

22. It's not about "defending debt and deficits . . ."

. . . it is about when it is, and is not, appropriate to tackle debt and deficit, and when it is appropriate to run deficits. In a recession like the one we have been experiencing, and have still not entirely pulled out of -- that is, when individuals either can't or are too afraid to spend money, banks are reluctant to extend credit and businesses are hoarding cash rather than reinvesting it in the economy, the only institution remaining with the resources to stimulate demand sufficient to get the economy moving again is the government. If government tries to tackle deficits and debt now by cutting spending, the only result will be further contraction of the economy (and if you want a prime example of that, look at what happened to the U.S. economy in '37-'38, when deficit hawks caught Roosevelt's ear and convinced him to cut government spending before the economy was fully recovered). Krugman has argued that right now, when (a) the economy requires a strong injection of demand, (b) our borrowing costs are at or near zero, (c) unemployment is high and (d) we have an infrastructure that is falling apart -- that is precisely the time we <i>should</i> be running deficits and borrowing to invest in infrastructure projects that will provide jobs. He has further argued that the time to focus on reducing deficits and paying down debt is during flush times, during which government revenue automatically rises as a result of increased economic activity. And again, for a historical example of how this works, you can look at the record high debt to GDP ratio we had in 1945, which certainly didn't seem to hold back the post-war economy much!