Effect of Debt on Economic Growth:

Is it positive or negative?

or

Is Austerity the Right Policy Response to High Debt Levels?

This article introduces Miles Kimball, a Harvard-educated macroeconomist. It also shows how current macroeconomic thinking is in flux.

(I recommend reading this blog post in its entirety before following any of the links. The links are intended to serve as supporting evidence and provide the opportunity to explore further.)

Around 2009, Harvard economists Carmen Reinhart and Kenneth Rogoff performed data analysis to conclude that high debt levels slow down economic growth. I happened to read about this in their 500-page book entitled "This Time Is Different", published in 2009 and reprinted in 2011, wherein they examined 8 centuries worth of historical evidence. 

Later, in 2013, Reinhart and Rogoff's conclusion was refuted through further data analysis by Amherst researchers and also by Harvard-educated economist Miles Kimball and colleagues. (Link to Kimball's profile on Wikipedia; link to his home page; link to his blog.)

The controversy itself is described in Wikipedia here.  At the end of this Wikipedia article, there's a quote from Nobel Prize-winning Princeton economist Paul Krugmann indicating that he agrees with Kimball's and others' refutation of Reinhart and Rogoff's assertion.

• Kimball's first blog on this matter. (This was the starting point for my article. Before that, I stumbled upon Miles Kimball through the following Tweet and listened to him firsthand in this podcast dated May 9, 2016. There, I found out that he had recently spoken at the Bank of England along with Kenneth Rogoff who had sided with him, apparently.)

• Kimball's second blog on this matter. 

• Kimball's blog home page containing both blogs. This home page is a subset of his blogs and is confined to "short run fiscal policy".

My summary of Kimball's analysis is the following.

Although low economic growth causes high debt levels, it's not true that high debt levels cause low economic growth. 

Policy implication: austerity is not the right policy response to high debt levels.

Kimball isn't all out in favor of debt either. He ends his second blog with the following:

"It is painful enough that debt has to be paid back (with some combination of interest and principal), and high levels of debt may help cause debt crises like those we have seen for Ireland and Greece. But the bottom line from our examination of the entrails is that the omens and portents in the Reinhart and Rogoff data do not back up the argument that debt has a negative effect on economic growth." [emphasis mine]

Author is also on Twitter