Great Stagnations do exist. Like great expansions

… another note on Reinhart and Rogoff (and Reinhart) – Published on Real-World Economics Review Blog, by merijnknibbe, May 27, 2013.

The discussion about the Reinhart (and Reinhart) and Rogoff (RRR) articles is flaring up again: they have finally written a coherent, systematic defence. Look here. It is important to discuss this because of the importance of their main finding:

monetary economies have been inherently unstable during (at least) the last 200 years, because of endogenous forces related to, among other things, money and debt.  

This clearly shows that the ’General Equilibrium’ characteristics of modern economies, assumed by main stream economists and a cornerstone of the main economic models, are not general at all. Debts and credit are totally endogenous to our economies and they are dangerous – surely when the main creditors and money creators, the banks, are unbridled. Alas, the whole discussion does not focus on such emergent properties of monetary economies but on the relation between growth and (public) debt. And RRR do not do a good job when it comes to this relation.

We do know that growth rates differ between periods, because of changes in the pace of technological development, population growth dynamics and a whole bunch of other variables, mentioned in for instance ‘The ‘Great Stagnation’  of Tyler Cowen. For one thing steamships and railroads in combination with the exploitation of ‘virgin’ land enabled a large increase of net grain imports in Europe in the nineteenth century, once the Crimean War and the USA Civil War had ended (see the graph, source and details here), enabling quite a bit of ‘economic growth’. You just can’t compare the growth experience of countries during the first part of the nineteenth century (until about 1865) with the growth experience of other countries during the second part of the nineteenth century (after 1865), or during the twentieth century. But that’s exactly what RRR do.

… (full text incl. table 1).


Public Debt Overhangs: AdvancedEconomy Episodes Since 1800, on, by Journal of Economic Perspectives, Summer 2012;

Don Quijones: The Financial Takeover Of Our Newspapers, on naked capitalism, by Yves Smith, MAy 28, 2013.

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