Perhaps my declaration of the death of austerity was a bit premature.
Yesterday I noted that both Jim O'Neil at Goldman Sachs and Bill Gross at Pimco have become publicly critical of both the theory and practice of austerity. This seemed to me to be at least the beginning of the end of the economic program that has gripped so much of the world since the end of the financial crisis.
The theory behind austerity was roughly grounded in the work of Kenneth Rogoff and Carmen Reinhart, whose 2010 paper "Growth in the Time of Debt" seemed to demonstrate that economies sharply slow when a nation's debt-to-GDP ratio hits 90 percent.
I say "roughly" because Rogoff and Reinhart weren't austerity's creators—they simply provided a convenient economic justification for what is in fact a political program.
That theory, of course, now lies in tatters. A much talked about paper by three researchers at the University of Massachusetts found serious errors in the Reinhart-Rogoff paper. There appears to be no magic debt ratio that automatically triggers an economic slowdown. Indeed, the causation probably often runs the other way: Nations with slowing economies build up public debt as tax revenues fall, and public spending rises because of automatic stabilizers and stimulus attempts.
Intellectually, then, austerity should be dead. But like a character from the "Walking Dead," brain death is apparently no obstacle to the march of austerity.