Austerity mistake not the first

The debate on austerity rages on.  If you don't know the story, here's a summary.  At the height of the recession, two respected Harvard Professors published a paper that basically suggested that: (a) high debt-to-GDP ratio basically depresses growth, and (b) there is a magic ratio of 90% debt-to-GDP ratio where growth goes off a cliff and becomes negative.  The problem was that no other economist appeared to be able to replicate their results using largely similar data.  Recently, three economists got hold of the original analysis and they discovered that there were numerous Excel mistakes - ranges incorrectly specified and the data had been massaged in a way that enabled the conclusion.  You can read more about what happened here and here.

Paul Krugman, who is undoubtedly gloating, has a piece pointing out just how wrong the analysis was.  Bill Gross meanwhile is slamming the UK and EU strategy of austerity.

OK, so this was a one of mistake and there are other very serious economists who support the view that austerity is good, right?  Well, it turns out that this isn't the first error to occur in connection with the whole austerity argument.   Wonkblog has a piece that breaks down the argument.  Essentially, you can think of the argument for austerity as being one of two things:  Here's Mike Konczal on the subject:

The counter-Keynesian arguments fell into two broad categories. The first is that the economy has no short-term, demand-driven cyclical problems that the government can address and that the real problems come from the supply constraints of our economy. The second focuses on the discovery of serious limits to how much debt a country can carry, as well as evidence that austerity can create enough growth to offset itself.

As Mike Konczal points out these are two very different arguments.  And the data supporting both has largely proved to be incorrect or has not validated in the last few years.  He doesn't exhaustively address the question, but he does point out that numerous data points supposedly suggesting "structural unemployment" or supply side constraints have proven to be wrong.  Meanwhile, the case that austerity is the cure because public borrowing is crowding out private borrowing is just not there.  In fact, the current US austerity measures will likely cause a mini slow down because there will be no offsetting private spending increases when the government pulls back.

Remember, the argument is not that austerity is never good or that austerity is necessarily bad.  The argument here is that conditions or circumstances that are causing the current economic malaise appear to be caused more by factors Keynesians are focusing on and so austerity is probably not the appropriate cure.