Thursday, February 28, 2013

Are High Debt To GDP Ratios The Cause Of Slow Growth In Japan And Italy?

The answer to the rhetorical question raised by Paul Krugman is no.  They had many economic issues prior to the increases in their debt to GDP ratios above the 90% limit that has become widely accepted by "serious people".  It has become widely accepted because it is commonly repeated by "serious people".  Krugman reminds us that a weak economy can be the causal factor in the correlation that exists between the 90% threshold and a nation's economic problems.  Krugman is not surprised that serious people do not understand that correlation does indicate the direction of causality.  He is disappointed when trained economists accept the wisdom of serious people as an economic law.

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