IMF Study Illustrates Flawed Leftist Thinking

     Harvard economists Carmen Reinhart and Kenneth Rogoff recently penned a research paper for the International Monetary Fund on the debt crisis facing advanced and emerging economies around the world. Their conclusions were that advanced economies like the United States will necessarily have to restructure their debt far beyond the extent to which many countries did after World War I. Much of the world's debt crisis is in advanced economies, where central banks have blindly implemented monetary policies that will only make deleveraging of their debt more difficult, according to Reinhart and Rogoff.
     Emerging economies deleveraged over a decade ago before the financial crisis of 2008, and as the authors of the study rightly point out, the world's advanced economies reached a peak in their debt to Gross Domestic Product ratios not seen since the end of World War II. In fact Reinhart and Rogoff suggest that levels of debt carried by advanced economies like the U.S. are at a two hundred year high. Certainly the seventeen trillion dollar debt of the United States reached under the spend thrift Obama administration, is more debt than mankind has seen in the history of the world. And that does not even count the unfunded liabilities of entitlements like Social Security, Medicare, Medicaid, and other programs of government promises to the citizens, which currently stands at a staggering 90 trillion dollars.
     One of the most disturbing aspects of the Reinhart/Rogoff study is the cold, hard reality that the debt to Gross Domestic Product ratio will reach 95.3% for the Eurozone and a whopping 109.2% for the United States in 2014. Emerging economies will reach a measly 33.6%. These levels of debt to GDP have taken the U.S. and other advanced economies into uncharted waters, thereby making austerity measures and central banks' artificial liquidity programs a moot point to economic recovery.
    While I do agree with Reinhart and Rogoff about the dire debt predicament many advanced economies are facing in the new year and beyond, their solutions seem to be more of what created the problem, i.e., more government intervention in private sector economies. Part of the Reinhart/Rogoff remedy is government taxation of savers. These two brilliant Harvard economists miss the obvious lesson of history that less government involvement in private economies is the solution, not more.
     Deleveraging of government debt can only occur with a deleveraging of government involvement in business, with lower taxes and less regulations to restrain the engine of growth that is the free market. Reinhart and Rogoff seem to have allowed their brilliance in economics to become dulled by exposure to Leftist thought in the world of academia. It is only through less government and more private sector growth that public debt can be mitigated and eliminated. But once again well-meaning economists under the spell of Leftist thought believe that government is the answer, a thought process that is analogous to pumping water into a sinking ship.