The Myth of Austerity and Growth

Greg Mankiw, a Harvard economist and a respected voice in economic policy-making, recently wrote a New York Times article discussing five possible explanations for slow growth in rich countries. The final possibility he discusses is one that I haven’t seen much in recent years -- the notion that government deficits slow economic growth.

Five years ago, it was common to hear claims that too much government borrowing would hurt growth -- an idea known as expansionary austerity. Much of the research cited by the proponents of this theory was done by scholars at the International Monetary Fund. But during the past few years, there have been quite a few questions about the IMF’s past cheerleading for belt-tightening.