Some people have contacted me about my assertion that high debt to GDP ratios can become a drag on growth. I realize the controversy around Rogoff and Reinhart and did not reference their numbers. Here is another paper outlining the concern. “The impact of high government debt on economic growth and its channels: An empirical investigation for the euro area.” If you happen to have Dinner Party Economics see page 181 for a more fulsome discussion.
When sorting out the costs and benefits of a project it is important to think about marginal costs and marginal benefits.
For example, the comments I made in the Globe and Mail about oil pipelines is very contingent on the fact that some oil currently goes to ocean tankers by train. This fact changes the analysis of benefits because we must include, as part of the benefits of a pipeline, the decrease in emissions and increased safety of not using trains. Furthermore, oil companies would save transportation costs on trains and gain capacity which are benefits.
On the cost side, we need to know the infrastructure costs of constructing or retrofitting pipelines which seems obvious but also the environmental and safety issues due to a pipeline.
The pipeline decision is not pipelines or nothing but rather pipelines or trains. You need the right margin to get to the right answer.
Rick and I are writing a sequel to Cocktail Party Economics! The opportunity cost for my time means that I won’t be posting much on this blog for a while. Sorry about that but there are only so many writing hours in a day 🙂
Just so you know, the new book is called Dinner Party Economics and it will be about macroeconomics.