- A new visualization of the Reinhart and Rogoff data
- Focuses on the most important lever a government policy maker has at a single point in time – the deficit for the upcoming year
Recently there has been much controversy about the effects of high debt on growth. I covered this here last week. The controversy revolves around a data set put together by Carmen Reinhart and Ken Rogoff, their analysis of that data in their 2010 paper “Growth in a Time of Debt”, and subsequent analyses.
I have produced a new analysis – a visualization of the data for 20 leading economies since 1946. I believe it sheds more light on the interplay between debt and growth, through interactivity coupled with a slight change in focus.
A policy maker tasked with preparing a government budget does not have direct control over the current debt, nor does he or she have direct control over current growth. The main factor he or she does have direct control over is the deficit in the year being budgeted for.
In light of this, the visualization focuses on deficits chosen by policy makers in the past, rather than the total debt, over which each individual policy maker had limited control at each point in time.
When a policy maker aims for a particular deficit, he or she does so in the light of many factors, but two of the most important are the prior year’s level of GDP growth, and the current level of government debt level.
Accordingly, the visualization frames each choice of deficit in the context of a particular level of growth, or a particular level of government debt, as they were available to policy makers at the time they targeted a particular deficit.
The visualization is available here, and I welcome all comments. I will provide an interpretation of the visualization in a future post – for the time being I invite interpretations from others.