Financial Repression
I’ve been getting questions about Carmen Reinhart’s new paper on financial repression (pdf) in the aftermath of large debt buildups, which asserts that said repression was a large part of the way the US and UK, in particular, dealt with their war debts.
On a first read, I have some problems with the methodology, which is based on lopping off any years in which the real interest rate on government debt was negative. It’s easy to think of ways this could go wrong, when you have fluctuating annual inflation and debt of relatively long maturity. But leave this aside, and look at broader economic performance during the period in which financial repression was supposedly a big factor: why are we supposed to think of what happened as a bad thing?