A chara, – Fintan O'Toole's economic analysis is usually impressive for someone with no formal background in the subject; however Tuesday's column was sadly lacking ("US proves EU disciples of austerity wrong", Opinion & Analysis, March 4th).
It is always difficult to judge whether macroeconomic measures such as fiscal stimuli were justified, but what one should not do is judge on the outcome. To see why, consider the fact that the US consistently missed its own employment recovery targets for the first two years after the fiscal stimulus was implemented, targets which had been set by the architects of the stimulus. This could lead one to argue that the stimulus was a bad way to increase employment, but could also be seen as an argument that the stimulus was not big enough. Given that we cannot rewind time and test the economy again under a different stimulus package, there is no way of knowing for sure which is the case (although one can make reasoned arguments either way). What it does mean is that the wisdom of macroeconomic policy decisions should be judged on the information that was available at the time, and not by subsequent information.
One of the lessons of the crisis has been the role of central banking policy in keeping government bond yields under control. Paul Krugman expressed concern under George W Bush that the deficits the Bush administration was running would prove disastrous for the American economy. He has since admitted he has learned from the crisis that a central bank which is always willing to print money to buy government debt has the ability to keep yields on government bonds under control, even with debt and deficits ballooning. Such central banking policy is illegal in the euro zone, and so comparing the macroeconomic effects of high deficits and debts in Europe versus America is a case of apples and oranges.
Finally, the Reinhart-Rogoff paper that Mr O’Toole references did indeed contain an analytical error, but this error made a negligible difference to the result with which so many on the left have taken issue. It is disappointing that this fact has not been publicly acknowledged. One can legitimately argue about the methodology that Reinhart and Rogoff used, and it has been shown that a different methodology leads to quite a different result. However both both methodologies can be considered valid. The analytical error, while unacceptable, made little difference when the original Reinhart-Rogoff methodology is employed. – Is mise,
MUIREANN LYNCH,
Wyattville Park,
Dún Laoghaire, Co Dublin.