Professor Ken Rogoff, Professor of Economics at Harvard University, writes in Project Syndicate that both Keynesians and Austerians have got it wrong.
One extreme is the simplistic Keynesian remedy that assumes that government deficits don’t matter when the economy is in deep recession; indeed, the bigger the better. At the opposite extreme are the debt-ceiling absolutists who want governments to start balancing their budgets tomorrow (if not yesterday). Both are dangerously facile.
In the article, he does not provide a solution but states that in a series of academic papers with Carmen and Vincent Reinhart he found that high levels of debt put a ‘long-term secular drag’ on economic growth.
That is, after a quarter-century of high debt, income can be 25% lower than it would have been at normal growth rates.
What he did not mention is how normal growth would have been achieved if there was a recession? The whole idea behind the Keynesian approach is to address the problems emanating from a recession, which by definition means abnormal (negative) growth. If one assumes normal growth rates then there is no need for a Keynesian approach or assuming high-debt to address the recession.
Of course, there is two-way feedback between debt and growth, but normal recessions last only a year and cannot explain a two-decade period of malaise.
I don’t think he means that the recessions end all by themselves within a year without any redress or the current recession is normal? But he does not elaborate it in the article, perhaps his academic paper does. I haven’t read it yet. When I do I will post an update.