Economic Argument for Austerity Based on Excel Error?

[derspiess]

So as I suspected, it turns out that high debt is awesome, and we can just spend forever and ever without any concern.

Until the GOP is in power.  Then it will be bad again.

[The Minsky Moment]

It's also possible that high debt levels tend to increase growth rates.  It's not the most theoretically attractive proposition, but it is not implausible to think that high debt levels might cause a government to focus on concentrating continuing public spending on higher return projects, or increase pressure for micro reforms.  The UK after Waterloo would be a possible example.

[The Minsky Moment]

So as I suspected, it turns out that high debt is awesome, and we can just spend forever and ever without any concern.

Either you misread or I wasn't clear.
The fact that this particular causal relationship is unknown doesn't mean that  debt is "awesome" or "without any concern"

[Berkut]

So as I suspected, it turns out that high debt is awesome, and we can just spend forever and ever without any concern.

Either you misread or I wasn't clear.
The fact that this particular causal relationship is unknown doesn't mean that  debt is "awesome" or "without any concern"

Of course it does. Because the next time someone raises some concern over radically increasing debt, some other study or survery will come along to show that THAT concern is "unknown" as well.

[Sheilbh]

So as I suspected, it turns out that high debt is awesome, and we can just spend forever and ever without any concern.

That's nonsense though. Especially in the US where you've got large scale private sector debt cutting and a federal deficit that's currently around 4% of GDP and likely to fall to around 2% in the next year or two. I don't really get the problem, except that perhaps it's falling too quickly.

The choice at the minute is between spending more (or even reducing deficits more slowly) to try and promote growth, or to focus  more on deficits and debt at the expense of growth.

One of the arguments for the latter was that after debt of around 90% of GDP growth prospects are hurt in the long-term. That's not certain anymore. On the other hand I think there's more truth that taking a long-term hit in GDP growth has, as a side-effect, a tendency to increase debt quite rapidly.

Also to return to my earlier argument with Yi about what drives yields Italy and Spain are currently getting low yields, that are falling and have been for about a year. This is despite political chaos in Italy that's resulted in the government reversing some of Monti's austerity and both government's saying austerity's reached its limit (Barroso also said this). In Spain the deficit is just getting worse. If yields were driven by risk associated with government debt then surely they should be increasing if not going a bit mental now?

[Razgovory]

So as I suspected, it turns out that high debt is awesome, and we can just spend forever and ever without any concern.

Until the GOP is in power.  Then it will be bad again.

Good, then the deficit hawks that make up the GOP can fix it then.

[Sheilbh]

Of course it does. Because the next time someone raises some concern over radically increasing debt, some other study or survery will come along to show that THAT concern is "unknown" as well.

But isn't concern about radically increasing debt a bit like concern about being gored by a rhino? It's fair and entirely understandable, but in the current context not terribly relevant.

Unless you're Spanish, your Euro-banks are teetering (Slovenia, Malta) or you're French

[Admiral Yi]

Also to return to my earlier argument with Yi about what drives yields Italy and Spain are currently getting low yields, that are falling and have been for about a year. This is despite political chaos in Italy that's resulted in the government reversing some of Monti's austerity and both government's saying austerity's reached its limit (Barroso also said this). In Spain the deficit is just getting worse. If yields were driven by risk associated with government debt then surely they should be increasing if not going a bit mental now?

It is not entirely clear to me whether yields on Italian and Spanish bonds are being driven by market perceptions or central bank fiat.

[The Minsky Moment]

Of course it does. Because the next time someone raises some concern over radically increasing debt, some other study or survery will come along to show that THAT concern is "unknown" as well.

Most of the decisions made in the public policy arena are made on imperfect knowledge and with less than strict scientific or statistical certainty.  So to say that a particular economic claim is uncertain is not to say that we should act as if the claim is entirely untrue, and it absolutely, definitely does NOT mean that we should act as if the OPPOSITE of the claim IS true. 

The truth is that public debt, like private debt, can have useful economic effects and deleterious ones.  It all depends on context.  And because context is very complex and rich, it is very difficult to establish with certainty clear rules of action.  Instead one most fall back on that quality that is increasingly rare in our national legislature and public discourse:  reasoned, open-minded judgment.

[Sheilbh]

It is not entirely clear to me whether yields on Italian and Spanish bonds are being driven by market perceptions or central bank fiat.

Well the ECB hasn't intervened yet in the way the Fed and BofE have. They're far more orthodox. So Spain and Italy are still selling their debt on the market and their auctions are normally oversubscribed.

Though I think Draghi's comments that he'd do 'whatever it takes' to save the Euro and the potential use of OMT (still a holstered bazooka) has done a lot to restore confidence.

[Admiral Yi]

Is the ECB not buying sovereigns?  I thought it was.

[Iormlund]

A country has to ask for an intervention before the ECB can act, Yi.

[fhdz]

I'm pretty sure this was the original spreadsheet:

[MadImmortalMan]

Is the ECB not buying sovereigns?  I thought it was.

They are lending money to banks for the purpose of buying sovereigns, IIRC.

[The Brain]

I'm buying pieces of eight like crazy right now.