Cover of MoneyWeek magazine issue no 637

Winning hand

26 April 2013 / Issue 637

What our experts are betting on now

PLUS:

  • The world's cheapest stock markets
  • A huge retirement error to avoid
  • The Russian revolutionary feared by Putin

Excerpt

Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

You can’t dodge austerity

The world of economics got itself very wound up this week after a group of enthusiastic economists spent many hours trawling the work of some other economists and found they had made a mistake with a spreadsheet formula. Petty rows over statistics are not uncommon in economics, but this one was more important than most.

That’s because the mistake was discovered in a paper by US economists Carmen Reinhart and Kenneth Rogoff that explored the relationship between a country’s growth and national debt. It concluded that nations with public debt at 90% or more of GDP are destined to see low economic growth at best. The paper was often cited as one of the main justifications for the attempts across the UK and Europe to cut state spending.

The mistake (which doesn’t actually make that much difference to the theory) has given new impetus to the anti-austerity gang in the UK – a mixture of politicians, economists and union leaders who genuinely believe you can spend your way out of debt. And that if you do so, austerity will never be needed.

This is nonsense.

• Read the full editor’s letter here: You can’t dodge austerity.