Paul Krugman: How the Case for Austerity Has Crumbled

The Alchemists: Three Central Bankers and a World on Fire
by Neil Irwin
Penguin, 430 pp., $29.95

Austerity: The History of a Dangerous Idea
by Mark Blyth
Oxford University Press, 288 pp., $24.95

The Great Deformation: The Corruption of Capitalism in America d
by David A. Stockman
PublicAffairs, 742 pp., $35.00
In normal times, an arithmetic mistake in an economics paper would be a complete nonevent as far as the wider world was concerned. But in April 2013, the discovery of such a mistake—actually, a coding error in a spreadsheet, coupled with several other flaws in the analysis—not only became the talk of the economics profession, but made headlines. Looking back, we might even conclude that it changed the course of policy.

Why? Because the paper in question, “Growth in a Time of Debt,” by the Harvard economists Carmen Reinhart and Kenneth Rogoff, had acquired touchstone status in the debate over economic policy. Ever since the paper was first circulated, austerians—advocates of fiscal austerity, of immediate sharp cuts in government spending—had cited its alleged findings to defend their position and attack their critics. Again and again, suggestions that, as John Maynard Keynes once argued, “the boom, not the slump, is the right time for austerity”—that cuts should wait until economies were stronger—were met with declarations that Reinhart and Rogoff had shown that waiting would be disastrous, that economies fall off a cliff once government debt exceeds 90 percent of GDP.