Kenneth Rogoff’s recent piece “The Failure of Anti-Austerity Populism” declares the post-2008 critique of austerity economics dead, killed by inflation and rising interest rates. The anti-austerity movement, he argues, was a “dangerous illusion” peddled by economists who ignored the iron laws of debt dynamics.

The argument began with the essay (now paper) Growth in a time of debt Rogoff and Reinhart published in 2010 in the American Economic Review. The paper examines data from over 200 years to find a seemingly critical threshold for public debt. The paper claimed to find a critical threshold: countries with public debt exceeding 90% of GDP experienced sharply lower growth; median growth fell by about one percent, while average growth plummeted to -0.1%. This finding became the intellectual foundation for austerity policies worldwide, cited everywhere from Paul Ryan’s budget to European Commission speeches.

Then in 2013, graduate student Thomas Herndon found serious errors in the underlying analysis. The Reinhart-Rogoff paper contained a spreadsheet error that excluded five countries from the analysis, selectively omitted available data and used an unconventional weighting scheme that gave New Zealand’s single worst year equal weight to the UK’s nineteen years of data. When corrected, the results changed dramatically. Average GDP growth with debt above 90% was actually 2.2%, not -0.1%. The revelation triggered an academic shitstorm. Paul Krugman wrote in an New York Times Op-Ed:

What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses. For three years, the turn to austerity has been presented not as a choice but as a necessity.

To err is human. But Rogoff has never truly reckoned with the deeper problems in his work. He admits the Excel error while dismissing it as minor, insists his broader thesis remains intact, and now points to post-pandemic inflation as vindication. The corrected data exposed a problem Rogoff still won’t address: the relationship between debt and growth could just as easily run in reverse. Weak economic growth leads to high debt levels through reduced tax revenue and increased public expenditures. A country in recession naturally sees its debt-to-GDP ratio rise as the denominator shrinks and the numerator grows. This makes Rogoff’s core claim, that high debt causes low growth, fundamentally unproven. He acknowledges this obliquely, writing that “the precise causal channels are still the subject of debate among economists” but then immediately insists “the evidence is overwhelming”.

When you actually look at the corrected data, the supposed 90% threshold disappears entirely. This graph from Herndon, Ash, and Pollin’s paper shows what the relationship really looks like:

Herndon et al. scatter plot

Unable to defend his original empirical claims, Rogoff has shifted ground. His new argument in “The Failure of Anti-Austerity Populism” rests on three pillars:

First, he characterizes the anti-austerity position as believing in consequence-free borrowing:

“In the aftermath of the crisis, anti-austerity advocates began arguing that the so-called ‘government budget constraint’ is less of an economic necessity than a malign intellectual construct […]. In their view, governments – at least in advanced economies – could almost always issue more debt at minimal long-term cost.”

Second, he claims post-pandemic inflation exposed this as a dangerous fantasy:

“The anti-austerity movement has lost both momentum and intellectual credibility in recent years, partly owing to post-pandemic inflation but more fundamentally because real interest rates appear to have normalized. As a result, the free-lunch logic underlying anti-austerity economics has been exposed for what it always was: a dangerous illusion.”

Third, he points to rising debt service costs as proof governments can’t borrow freely:

“After the COVID-19 pandemic, as interest rates returned to more normal levels, US debt-service costs more than doubled, and they continue to climb as older bonds mature and must be refinanced at higher rates.”

This sounds compelling. It’s also wrong. Rogoff attacks a straw man. He claims “anti-austerity” advocates believed in consequence-free borrowing, but the actual argument was that context determines appropriate policy. His core error is using post-pandemic inflation, driven by supply shocks, to discredit the anti-austerity position developed for the Great Recession, a demand crisis. These require different solutions. The Great Recession featured collapsing demand, mass unemployment, and deflation risk. The correct response was fiscal stimulus. The post-pandemic period brought supply chain disruptions, energy shocks, and production constraints. COVID stimulus served a different purpose: preventing economic collapse during lockdowns.

Furthermore Rogoff implies fiscal stimulus caused inflation. But a 2025 study by former Fed Chair Ben Bernanke and Olivier Blanchard found that most inflation resulted from price shocks, not labor market tightness. The primary culprits were external supply shocks: energy prices, sectoral shortages, and disrupted supply chains. Tight labor markets contributed “quite small early on”. Supply shocks, not fiscal excess, drove post-pandemic inflation.

Yes, debt service costs have risen as interest rates normalized. But this doesn’t vindicate austerity during the Great Recession. Higher rates today reflect central banks combating supply-driven inflation, not markets rejecting fiscal policy. More importantly, expensive borrowing now doesn’t mean fiscal stimulus was wrong when rates were at zero and monetary policy was exhausted. Different economic conditions require different responses. Rogoff conflates two distinct questions: whether to spend during crises (which he endorses) and whether to implement austerity during weak recoveries (which he defends despite contrary evidence). Fiscal consolidation may well be appropriate during strong, sustained recoveries when monetary policy has room to operate. But that’s the opposite of what happened in 2010-2012.

During the Great Recession, many economies were in liquidity traps. With interest rates at the zero lower bound, monetary policy had exhausted its traditional tools. When monetary policy is constrained, direct government spending becomes the primary tool to boost aggregate demand. From 2010 onward, major economies implemented fiscal consolidation while still in weak recoveries. Olivier Blanchard and Daniel Leigh found in a 2013 study that fiscal multipliers during the Great Recession were substantially higher than assumed. Countries implementing austerity experienced significantly worse growth than projected. Output losses were 2-3 times larger than official forecasts because those forecasts assumed low multipliers that proved wrong during a liquidity trap.

The long-term damage was worse. Antonio Fatás and Lawrence Summers found in a 2018 study that fiscal consolidations produced permanent damage to GDP levels. Their conclusion: “Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output”. Austerity was self-defeating by its own metric. Rogoff warns that crisis spending reduces capacity to respond to future crises. But the evidence shows the opposite: premature austerity during recovery destroys fiscal capacity. By suppressing growth, austerity raised debt-to-GDP ratios and left economies weaker when the next crisis hit. The eurozone’s drawn-out recession meant that when COVID arrived, many countries had lower GDP and higher structural unemployment than they would have with sustained fiscal support. That’s self-imposed fragility, not flexibility.

Fiscal sustainability obviously depends on the relationship between growth, interest rates, and what the debt financed, not debt levels in isolation. Japan maintains fiscal flexibility despite debt exceeding 260% of GDP. Germany maintains its AAA rating not despite substantial fiscal spending but because markets recognize that productive spending strengthens fiscal capacity. The US could borrow at negative real rates throughout 2010-2020 even as debt/GDP rose. Markets were signaling that governments should borrow and spend.

Rogoff endorses crisis spending but warns that accumulated debt constrains future fiscal space. Yet he elides the crucial question: when to consolidate. That borrowing is more expensive today, because central banks raised rates to combat supply shocks, doesn’t retroactively vindicate consolidation during a demand crisis with constrained monetary policy. The record is clear. Fiscal consolidation during weak recoveries raised debt ratios through its destructive impact on growth. Sustained fiscal support during crises enabled faster recoveries that expanded future fiscal capacity. Rogoff uses supply-driven inflation to vindicate austerity during a demand-driven recession. The conflation fails. The question isn’t whether debt matters, both sides agree it does, but whether we apply the right remedy at the right time. Rogoff’s framework, applied in practice, has consistently led policymakers to consolidate too early, with self-defeating results.