Friday, May 3, 2013

A Debt History

Browsing around some of the debate going on around the errors, criticisms and responses following the Reinhart-Rogoff controversy there is a link to their spreadsheet data including Australia: Debt-to-GDP Ratios.

The Australian data for gross central government debt has been compiled from back in the 1861 up until 2010. Promoted by shock-jock peddling and political spin there still seems to be a perception held by many that current debt is at record levels and some kind of anomaly. However Debt-to-GDP remains at historically low levels from a long term perspective.

I'm not sure about the continuity of the R-R data series here around WW2 where there is a 100% increase in a single year (1945), or the pre-federation data? However apart from the WW1 and WW2 periods there were two episodes of substantial debt accumulation relative to GDP in our earlier history. These are 1890-1895 and 1929-1934 which correlate with the two serious depressions in Australian economic history.

Much of the R-R controversy debate has been around correlation and causation of debt and growth rather than spreadsheet errors. The Australian history suggests that if one is averse to public debt it is best to avoid world wars and depressions.

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