Some more apt studies would be at what percentage of GDP does government spending restrain growth; and at what point does income policy (taxation both direct and indirect through regulation) restrain growth. Perhaps another apt study might be, to answer an observation: why in economies with steep progressive tax policies is there wider differences in income gaps? Do progressive policies do the opposite of what they intend to do? Funny, any seasoned business person could answer every one of these questions without any advanced economics degree. What is needed here is a shovel and some horse manure. Perhaps then these folks might understand how wealth is created.
I read R&R's book and was a bit frustrated, as I had been hoping to see causality and economic explanations of the relationship between high public indebtedness and por economic performance. Instead, there was a lot of description and discussion of data manipulation methods, and not a lot of the explanations I hoped to see. To be fair to R&R then, they do not argue causality between high public debt and economic crisis. I believe readers can nonetheless make the logical leap that a polity that produces chronic budget deficits and high public debt is likely one that results in other factors harmful to sound economic growth, such as poor investment climates, high tolerance of rent-seeking groups and individuals, and negligent investment in physical infrastructure and human capital. As disappointed as I was by R&R's book, I wouldn't say they've been 'discredited'.
One very smart Twitter message said the main reason the US hasn't has Euro-style austerity is that the administration and its GOP opponents haven't been able to agree about how severe it should be. We have gridlock to thank for the sequester, without which economic conditions would very likely be worse.
Common sense indicates that the way out of any economic problem is more wealth, not less. And unless someone has found that famous tree that grows money, most wealth derives from more human activity, not less. Of course one can lose weight by deliberately fasting or involuntarily starving, but neither is recommended for healthy living. The same is true for the economy. The idea that austerity is a good remedy for deficits is not just counterintuitive, it's crazy.
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