Glenn Hubbard's New Book Cites Discredited Reinhart-Rogoff Study

Glenn Hubbard, chief economic advisor to Mitt Romney, reacts to a question during a Bloomberg Television interview inside the
Glenn Hubbard, chief economic advisor to Mitt Romney, reacts to a question during a Bloomberg Television interview inside the Bloomberg Link during the Republican National Convention in Tampa, Florida, U.S., on Tuesday Aug. 28, 2012. Mitt Romney secured enough delegates to officially win the Republican presidential nomination at the party's convention in Tampa. Photographer: David Paul Morris/Bloomberg via Getty Images

Would it be too embarrassing to rush out a second edition of a new book before the first edition has even hit the shelves?

That is something Glenn Hubbard, Columbia economist and a former adviser to President George W. Bush and Mitt Romney, might want to consider. His new book Balance, due for release on May 21, approvingly cites the recently discredited research of Harvard economists Carmen Reinhart and Kenneth Rogoff in its opening argument, on page 5.

Hubbard and co-author Tim Kane of the Hudson Institute, a conservative think tank, don't just repeat Reinhart and Rogoff's assertion that economic growth suffers when government debt crosses 90 percent of gross domestic product. They take that claim a step further, fitting it into their broad thesis that America is DOOMED if it can't get government spending under control. A 90 percent debt ratio is associated not only with slightly slower growth, they suggest, but also with just maybe the very collapse of America:

Recent research by Harvard economists Carmen Reinhart and Kenneth Rogoff suggests that countries with a total debt to gross domestic product (GDP) ratio that exceeds 90 percent face a tipping point of decline. (Emphasis added.)

Hubbard and Kane declare this "a consensus" of economists. Except it really hasn't been, not before the revelation that Reinhart and Rogoff's research was built on errors and omissions, and certainly not now.

Even beyond Reinhart and Rogoff, there are problems with Balance, an occasionally fascinating and always affable study of the declines of Great Powers of the past, from Rome to the Ming Dynasty to the state of California. Hubbard and Kane argue that a common theme in these stories is the stagnation of political institutions -- causing economies, and then military might, to rot.

In America's case, they suggest, politicians are afraid of making tough decisions to deal with government spending, namely on Social Security, Medicare and Medicaid. That should be sweet music to the ears of Alan Simpson and Erskine Bowles, who perpetually roam the countryside like Diogenes, in search of a "Grand Bargain" on the deficit that mainly involves gutting the welfare state.

Hubbard argues that the nation drifted onto the path of fiscal doom in the 1970s, with the rise of Medicare and Medicaid. He brushes off or ignores other factors that have contributed to budget deficits and rising debt levels since then:

"What changed?" he asks. "Entitlement spending."

Hubbard produces a chart showing the U.S. government's debt-to-GDP ratio is indeed higher today than in 1970. But rather than a steady rise, the chart shows two big spikes since the 1970s. The first occurred in the 1980s and early 1990s, under the presidencies of Ronald Reagan and George H.W. Bush, partially the result of tax cuts and defense spending. The second began in the presidency of George W. Bush, and is capped by the terrifying spike coinciding with the financial crisis and Great Recession.

Among the most glaring omissions in Hubbard's analysis of our fiscal state are two contributing factors in which he personally had a hand:

The Bush tax cuts of 2001 and 2003, which Hubbard helped design as Bush's first chairman of the Council of Economic Advisers, are not mentioned in the book as a contributor to deficits. These blew a $1.8 trillion hole in the budget. Hubbard has already publicly stated that he didn't think the tax cuts should be made permanent. Mentioning that fact again in his book would have been a low-risk way to help build his case for bipartisan action. He could have set an example with the ceremonial sacrifice of a sacred cow.

The book also fails to mention the budget-wrecking costs of the crisis and recession, both in terms of increased spending and lower economic growth. Hubbard helped enable the crisis, in part, by writing soothing research about the wonders of credit derivatives -- while he was getting paid by the financial-services industry, the reminder of which made him entertainingly furious in the documentary "Inside Job."

Hubbard also does his case no favors by reducing the Global War On Terror and the wars in Afghanistan and Iraq to a parenthetical aside:

The U.S. debt level is alarming today because the pattern of ballooning budget deficits is occurring during peacetime (although two wars are winding down), an unprecedented departure from historical norms.

If War Is Peace, then two (wars) equal peacetime, apparently. Those two (wars) have set U.S. finances back by roughly $2.2 trillion and could ultimately cost up to $6 trillion, according to a recent study by another Harvard professor, Linda Bilmes.

Another thing about Hubbard's "peacetime" statement: This is not actually unprecedented at all. And even Hubbard grudgingly admits that fact on the next page: A similarly huge spike in the government's debt-to-GDP ratio happened during the Great Depression, when America really was at peace.

Hubbard and Kane try to distance themselves from the cottage industry of doom-mongering that helps keep Glenn Beck in krugerrands. They sound notes of optimism, and they certainly don't see another Great Power on the horizon to challenge American hegemony. But they do warn that America is on the path to destruction, and observe that Rome's collapse was followed by a thousand years of darkness. Just saying!

Fortunately, their message of doom is mostly falling on deaf ears: Americans don't want to gut the welfare state, which is not quite as doomed as you might have heard.

Hubbard and Kane cheer the Supreme Court's decision in Citizens United, suggesting that more corporate spending in politics will end partisan bickering and bring about the Grand Bargain they seek. The complete failure of corporate America's Fix The Debt campaign and of Simpson and Bowles to get Americans interested in gutting the welfare state argues otherwise. Though Balance will offer some scholarly ammunition to the doomsayers, it is hard to imagine it being any more effective than Fix The Debt.

And that is indeed reason for optimism.