Another note on Reinhart and Rogoff (and Reinhart): Great Stagnations do exist. Like great expansions.
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.
Table 1 (!) in their 2012 article, which according to them is much better than their much maligned 2010 paper, does not take account of differences between economic epochs – it’s a prime example of the naive a-historical character of main stream economics. They mix up countries for which data are available only for the 1924-2011 period, like Ireland, with countries for which data are available for the 1816-2011 period like the Netherlands. Below is the list of countries in their table 1, which is very explicit in the use of the famous but arbitrary 90% government debt to GDP 90% threshold:
United States 1791–2011
United Kingdom 1830–2011
New Zealand 1861–2011
The table also includes 9 other countries which never crossed the 90% threshold, or which did not cross it long enough and which are not included in the debt/growth analysis. I suggest to take 1865 (1867?), 1921 and 1948 as dividing lines and to do a new analysis, using all the countries and all the debt levels – and focusing on stability and instability. If I remember well the authors discovered that there is no example of an ‘emerging economy’ which did not default at least once. Now that’s a ‘stylized fact’ which does make a difference, unlike the arbitrary 90% threshold.