The following is in response to Robert Huebscher’s article, The Misreading of Reinhart and Rogoff , which appeared January 10:
Dear Editor,
One thing that concerns me in Huebscher’s article is that, while he correctly points out the misuses and abuses that Reinhart and Rogoff make, what we don’t need is for articles like his to get misused by politicians to justify taking debt levels even higher than they are today. Huebscher also wrongly criticizes John Mauldin for his warnings on the global debt supercycle. There is little doubt that excessive leverage and deployment of sovereign borrowing into unproductive uses is a major contributor to the global financial instability that the world faces today. While Huebscher does not directly advocate more borrowing, he seems to imply that just because the US can borrow at near-zero interest rates today that it should.
He correctly distinguishes between “good” and “bad” deficits but this also part of the fundamental problem. The government is a lousy arbiter of what constitutes a good or a bad investment. The market does a far better job of capital allocation and governments should avoid wading into these areas, given the politicized nature of its allocation of resources. Thus, Huebscher glosses over the need for deficit reduction and implies that more deficit spending is a valid solution to current problems.
He significantly destroys his credibility by wading into an area he clearly does not understand with his comments on energy policy. Those of us in the energy industry or who follow the industry closely understand all too well how uneconomic so-called alternative energy schemes are and much of the folly surrounding policy solutions to so-called global warming. The data of the last decade actual indicates global cooling so the global “warmist” crowd has conveniently re-marketed their agenda as “climate change,” whatever that means. Even if we concede that climate change exists, there is still no clear evidence that any policy initiatives would work to slow, let alone reverse it. But we have policymakers and members of the public desiring to risk billions of taxpayer funds on untried and clearly unproven solutions, whose return is unknown or more likely near or below zero. No one with even a half-wits sense would take such risks in the private investment market. But I digress.
The bottom line is that the private sector ultimately supplies the capital for the public sector and as such policies should be pursued to nurture the private sector in as environmentally and socially responsible way as possible. Of course that is where the political wrangling lies – as the left and the right have different visions of what is an acceptable participation rate for the private versus public sector in the total economic pie.
I only wonder how long it will be before we see politicians relying on articles such Huebscher’s as justification for yet more deficit spending because it will be called “good” deficit spending in the eyes of that particular politician and special interest group. What folly that is and will be.
Yours truly,
John D. Edwards, CFA
First Vice President/Sr. Analyst, Equities Research
MLPs/Energy Midstream
Morgan Keegan & Company, Inc.
Houston, TX
