People better versed in economics can perhaps confirm or debunk this, but apparently the primary academic and data-based argument for austerity and against a high debt-to-GDP ratio was based on an excel error. There are some arguments against the methodology as well.
Link to argument here: http://www.nextnewdeal.net/rortybomb/researchers-finally-replicated-reinhart-rogoff-and-there-are-serious-problems#.UW147o4A23o.twitter
Summary:
QuoteIn 2010, economists Carmen Reinhart and Kenneth Rogoff released a paper, "Growth in a Time of Debt." Their "main result is that...median growth rates for countries with public debt over 90 percent of GDP are roughly one percent lower than otherwise; average (mean) growth rates are several percent lower." Countries with debt-to-GDP ratios above 90 percent have a slightly negative average growth rate, in fact.
...
They find that three main issues stand out. First, Reinhart and Rogoff selectively exclude years of high debt and average growth. Second, they use a debatable method to weight the countries. Third, there also appears to be a coding error that excludes high-debt and average-growth countries. All three bias in favor of their result, and without them you don't get their controversial result.
Been following this since this morning. Basically, it's a nipick that alters the numbers slightly due to four or five countries' data from the immediate post-ww2 years not being included in the sample data. Canada, Australia, New Zealand..I forget the others. It's pretty insignificant.
Edit: http://www.businessinsider.com/carmen-reinhart-table-counters-critique-2013-4
Here's the original critique:
Quote
Selective Exclusions. Reinhart-Rogoff use 1946-2009 as their period, with the main difference among countries being their starting year. In their data set, there are 110 years of data available for countries that have a debt/GDP over 90 percent, but they only use 96 of those years. The paper didn't disclose which years they excluded or why.
Herndon-Ash-Pollin find that they exclude Australia (1946-1950), New Zealand (1946-1949), and Canada (1946-1950). This has consequences, as these countries have high-debt and solid growth. Canada had debt-to-GDP over 90 percent during this period and 3 percent growth. New Zealand had a debt/GDP over 90 percent from 1946-1951. If you use the average growth rate across all those years it is 2.58 percent. If you only use the last year, as Reinhart-Rogoff does, it has a growth rate of -7.6 percent. That's a big difference, especially considering how they weigh the countries.
Dunno if you'd count those years as an anomaly or not. I guess it was just the three countries.
From Jacob's source, this doesn't seem really insignificant in the context of their paper:
QuoteSelective Exclusions. Reinhart-Rogoff use 1946-2009 as their period, with the main difference among countries being their starting year. In their data set, there are 110 years of data available for countries that have a debt/GDP over 90 percent, but they only use 96 of those years. The paper didn't disclose which years they excluded or why.
Herndon-Ash-Pollin find that they exclude Australia (1946-1950), New Zealand (1946-1949), and Canada (1946-1950). This has consequences, as these countries have high-debt and solid growth. Canada had debt-to-GDP over 90 percent during this period and 3 percent growth. New Zealand had a debt/GDP over 90 percent from 1946-1951. If you use the average growth rate across all those years it is 2.58 percent. If you only use the last year, as Reinhart-Rogoff does, it has a growth rate of -7.6 percent. That's a big difference, especially considering how they weigh the countries.
Unconventional Weighting. Reinhart-Rogoff divides country years into debt-to-GDP buckets. They then take the average real growth for each country within the buckets. So the growth rate of the 19 years that England is above 90 percent debt-to-GDP are averaged into one number. These country numbers are then averaged, equally by country, to calculate the average real GDP growth weight.
In case that didn't make sense let's look at an example. England has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for England.
Now maybe you don't want to give equal weighting to years (technical aside: Herndon-Ash-Pollin bring up serial correlation as a possibility). Perhaps you want to take episodes. But this weighting significantly reduces the average; if you weight by the number of years you find a higher growth rate above 90 percent. Reinhart-Rogoff don't discuss this methodology, either the fact that they are weighing this way or the justification for it, in their paper.
Coding Error. As Herndon-Ash-Pollin puts it: "A coding error in the RR working spreadsheet entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis. [Reinhart-Rogoff] averaged cells in lines 30 to 44 instead of lines 30 to 49...This spreadsheet error...is responsible for a -0.3 percentage-point error in RR's published average real GDP growth in the highest public debt/GDP category." Belgium, in particular, has 26 years with debt-to-GDP above 90 percent, with an average growth rate of 2.6 percent (though this is only counted as one total point due to the weighting above).
Being a bit of a doubting Thomas on this coding error, I wouldn't believe unless I touched the digital Excel wound myself. One of the authors was able to show me that, and here it is. You can see the Excel blue-box for formulas missing some data:
This error is needed to get the results they published, and it would go a long way to explaining why it has been impossible for others to replicate these results. If this error turns out to be an actual mistake Reinhart-Rogoff made, well, all I can hope is that future historians note that one of the core empirical points providing the intellectual foundation for the global move to austerity in the early 2010s was based on someone accidentally not updating a row formula in Excel.
I'm not clear how the coding errors slipped by, I thought this sort of data was available when reviewing academic articles?
Their response:
QuoteWe literally just received this draft comment, and will review it in due course. On a cursory look, it seems that that Herndon Ash and Pollen also find lower growth when debt is over 90% (they find 0-30 debt/GDP , 4.2% growth; 30-60, 3.1 %; 60-90, 3.2%,; 90-120, 2.4% and over 120, 1.6%). These results are, in fact, of a similar order of magnitude to the detailed country by country results we present in table 1 of the AER paper, and to the median results in Figure 2. And they are similar to estimates in much of the large and growing literature, including our own attached August 2012 Journal of Economic Perspectives paper (joint with Vincent Reinhart) . However, these strong similarities are not what these authors choose to emphasize.
The 2012 JEP paper largely anticipates and addresses any concerns about aggregation (the main bone of contention here), The JEP paper not only provides individual country averages (as we already featured in Table 1 of the 2010 AER paper) but it goes further and provide episode by episode averages. Not surprisingly, the results are broadly similar to our original 2010 AER table 1 averages and to the median results that also figure prominently.. It is hard to see how one can interpret these tables and individual country results as showing that public debt overhang over 90% is clearly benign.
The JEP paper with Vincent Reinhart looks at all public debt overhang episodes for advanced countries in our database, dating back to 1800. The overall average result shows that public debt overhang episodes (over 90% GDP for five years or more) are associated with 1.2% lower growth as compared to growth when debt is under 90%. (We also include in our tables the small number of shorter episodes.) Note that because the historical public debt overhang episodes last an average of over 20 years, the cumulative effects of small growth differences are potentially quite large. It is utterly misleading to speak of a 1% growth differential that lasts 10-25 years as small.
By the way, we are very careful in all our papers to speak of "association" and not "causality" since of course our 2009 book THIS TIME IS DIFFERENT showed that debt explodes in the immediate aftermath of financial crises. This is why we restrict attention to longer debt overhang periods in the JEP paper., though as noted there are only a very limited number of short ones. Moreover, we have generally emphasized the 1% differential median result in all our discussions and subsequent writing, precisely to be understated and cautious , and also in recognition of the results in our core Table 1 (AER paper).
Lastly, our 2012 JEP paper cites papers from the BIS, IMF and OECD (among others) which virtually all find very similar conclusions to original findings, albeit with slight differences in threshold, and many nuances of alternative interpretation.. These later papers, by they way, use a variety of methodologies for dealing with non-linearity and also for trying to determine causation. Of course much further research is needed as the data we developed and is being used in these studies is new. Nevertheless, the weight of the evidence to date –including this latest comment -- seems entirely consistent with our original interpretation of the data in our 2010 AER paper.
The critique completely misses the point of austerity.
You don't reduce your deficit because doing so improves your growth (although the crowding out effect should have that effect); you reduce your deficit because if you don't people will start charging you more interest and eventually stop lending to you altogether.
Quote from: Admiral Yi on April 16, 2013, 06:32:46 PM
The critique completely misses the point of austerity.
You don't reduce your deficit because doing so improves your growth (although the crowding out effect should have that effect); you reduce your deficit because if you don't people will start charging you more interest and eventually stop lending to you altogether.
If that's the argument, why are people arguing for austerity given the record low levels of interest right now? Should we wait until rates start moving up a bit first?
Quote from: Jacob on April 16, 2013, 06:39:57 PM
If that's the argument, why are people arguing for austerity given the record low levels of interest right now? Should we wait until rates start moving up a bit first?
There are a lot of good reasons to wait later for austerity. In fact, it's counter-productive for the economy to apply austerity measures right now as it is slowing growth.
However, we've been there before.
We had a period of low interest rates and economic growth, we (occidental countries) spent even more money instead of paying back our debt.
We had a perdiod of high interest rates following a recession, we spent even more money on interest rates and all kinds of social programs instead of paying back the debt.
So if we don't do it now, when we are forced to do so, when are we going to do it? When things start to get better and nobody really worries about our debt to gdp ratio? Of course not, it won't be a problem then. We'll wait for the next crisis, when lenders don't want to lend money, and things are gonna be even worst than now.
I think that this research is overstated. Austerity or not's an ideological and political argument and I think studies like this have been really more rhetorical weapons than anything.
If this paper's been key to someone's economic thinking and argument over the last few years (Osborne springs to mind) then this is a problem. But I don't think that covers many people.
But even that's an example of what I mean. When Osborne started he cited this paper a lot and the IMF's advice (and praise) for his fiscal consolidation plan. Now this paper's not so solid and the IMF have recently named Britain as a country with 'fiscal space' that should slow the pace of consolidation. That won't make him change his policy because it's as much about politics as economics and he can't be seen to u-turn, especially when prioritising rapid deficit reduction was the key idea that held the coalition together.
QuoteYou don't reduce your deficit because doing so improves your growth (although the crowding out effect should have that effect); you reduce your deficit because if you don't people will start charging you more interest and eventually stop lending to you altogether.
Nonsense. That explains - to some extent - some peripheral nations in Europe. It doesn't explain the US, the UK, the Netherlands, France or even Germany. I'd be willing to bet the majority of austerity over the last 3 years has been in countries with historically low interest rates.
Just to be clear, the original paper does not advocate austerity.
Quote from: Sheilbh on April 16, 2013, 06:45:35 PM
I think that this research is overstated. Austerity or not's an ideological and political argument and I think studies like this have been really more rhetorical weapons than anything.
It's a constructed argument that aligns very well with the destruction-of-big-gubbmint types, that's all it is.
Quote from: Jacob on April 16, 2013, 06:39:57 PM
Quote from: Admiral Yi on April 16, 2013, 06:32:46 PM
The critique completely misses the point of austerity.
You don't reduce your deficit because doing so improves your growth (although the crowding out effect should have that effect); you reduce your deficit because if you don't people will start charging you more interest and eventually stop lending to you altogether.
If that's the argument, why are people arguing for austerity given the record low levels of interest right now? Should we wait until rates start moving up a bit first?
Cause it didn't work.
Quote from: Jacob on April 16, 2013, 06:39:57 PM
If that's the argument, why are people arguing for austerity given the record low levels of interest right now? Should we wait until rates start moving up a bit first?
People are arguing for austerity now because of very high debt/GDP ratios. And because of the moral argument of spending money that someone else will have to pay off in the future.
Rates don't move up a bit. Investor perception of credit worthiness is flat until it reaches a tipping point, when things go all to shit.
Quote from: Sheilbh on April 16, 2013, 06:45:35 PM
Nonsense. That explains - to some extent - some peripheral nations in Europe. It doesn't explain the US, the UK, the Netherlands, France or even Germany. I'd be willing to bet the majority of austerity over the last 3 years has been in countries with historically low interest rates.
What do historically low rates have to do with anything at all? Do you think those countries you mentioned were granted exemptions from sovereign risk analysis?
Quote from: Admiral Yi on April 16, 2013, 07:02:42 PM
What do historically low rates have to do with anything at all? Do you think those countries you mentioned were granted exemptions from sovereign risk analysis?
I don't think rates are generally reflecting risk.
Quote from: Sheilbh on April 16, 2013, 07:03:56 PM
I don't think rates are generally reflecting risk.
I don't know what you mean.
There's no relationship between risk and return?
I find it very hard to believe that austerity drive was pushed by an Excel error. There are two possibilities: either the error is blown all out of proportion, or that the paper is of such low quality that it couldn't be legitimately used as justification. If someone uses a very crappy paper to support their point, they are looking for a pretext, not a justification.
Not no relation but that's not all rates reflect. As the IMF put it 'fiscal indicators such as deficit and debt levels appear to be weakly related to government bond yields for advanced economies with monetary independence.' I think that growth and inflation expectations matter far more, at least in countries with independent, national central banks.
In my view I think that if austerity was to be eased any increase of interest rates would reflect either expected growth or the fear of tighter monetary policy. So if you've got a change in the pace of austerity with a stated monetary position - like Carney or Bernanke have set out - then yields should rise because of higher short-term growth expectations. But they won't rise because of risk and they won't rise in a mad, damaging way as you'd expect if market's genuinely thought there wasn't a medium term the US or the UK wouldn't pay their debts.
Low interest rates isn't a good thing, so we can spend like mad. Low interest rates are a bad thing because they suggest the markets expect depressed growth for some time and we should work to address that because unemployment and subdued growth have long-term consequences.
I mean I can't think of a downgrade that's had any effect on those countries, which doesn't make sense if you think it's about risk.
And once again I ask you to take a look at yield on Greek, Spanish, and Italian debt before the crisis began. One could have drawn the exact same conclusion about a weak relationship between fiscal situations and yields.
Quote from: Admiral Yi on April 16, 2013, 07:33:57 PM
And once again I ask you to take a look at yield on Greek, Spanish, and Italian debt before the crisis began. One could have drawn the exact same conclusion about a weak relationship between fiscal situations and yields.
This time it's different.
Spain shouldn't be on that list.
Aside from that I said I think things are different for countries without a national central bank, especially when their currency union central bank is so suspicious of extraordinary measures. In addition I'd add that the cause for increased sovereign risks there - as in the US during the debt ceiling fights - is fundamentally political. I think before the crisis the markets believed European rhetoric, now they don't.
Quote from: Sheilbh on April 16, 2013, 07:38:52 PM
Spain shouldn't be on that list.
Aside from that I said I think things are different for countries without a national central bank, especially when their currency union central bank is so suspicious of extraordinary measures. In addition I'd add that the cause for increased sovereign risks there - as in the US during the debt ceiling fights - is fundamentally political. I think before the crisis the markets believed European rhetoric, now they don't.
Default risk is *always* political. Countries default when they don't want to pay, not when their debt service surpasses their GDP.
And technically you're right, a sovereign that controls its own central bank and issues debt denominated in domestic currency can always inflate away its debt. But has also been pointed out before, a country that does this will be in much the same position as a country that defaults: neither are able to borrow further at reasonable rates.
Quote from: Admiral Yi on April 16, 2013, 06:56:49 PM
Quote from: Jacob on April 16, 2013, 06:39:57 PM
If that's the argument, why are people arguing for austerity given the record low levels of interest right now? Should we wait until rates start moving up a bit first?
People are arguing for austerity now because of very high debt/GDP ratios. And because of the moral argument of spending money that someone else will have to pay off in the future.
It's called investment. As long as growth outpaces the interest paid on the debt, it doesn't matter.
And since austerity causes the exact opposite of growth, the debt/GDP ratio just gets worse, along with a lot of human suffering that will severely damage future generations--since future generations depend desperately upon the generation being devastated by austerity measures. Or is it actually old people taking the pain in Spain, Greece, Europe in general and even America, sacrificing bravely for their children and grandchildren? If so, why is it their children and grandchildren don't have jobs, will never buy houses, and will either choose not to have children of their own or raise them in squalor?
If austerians were honest it would be about greed and dismantling all but the parts of the welfare state that benefit the Olds.
QuoteRates don't move up a bit. Investor perception of credit worthiness is flat until it reaches a tipping point, when things go all to shit.
Except when aggregate demand is so depressed so that it is literally better to hoard money than to invest, what do you do? Shoot the fucking hostage and use Keynesian stimulus. NOT HARD. Just politically unpopular with the rich and the new anarchists, and supported by their foolish fellow travelers by false moral arguments such as advanced above.
Well that's why you need a credible central bank. I think the IMF bit on the UK addresses this:
QuoteThough such simple relationships are only suggestive, they indicate that a moderate increase in the UK's debt-to-GDP ratio may have small effects on UK sovereign risk premia (though a slower pace of fiscal tightening may increase yields through expectations of higher near-term growth and tighter monetary policy). This conclusion is further supported by the absence of a market response to the easing of the pace of structural adjustment in the 2011 Autumn Statement. Bond yields in the US and UK during the Great Recession have also correlated positively with equity price movements, indicating that bond yields have been driven more by growth expectations than fears of a sovereign crisis.
If there is a trend towards higher inflation (as opposed to what we have in the UK which is higher than expected inflation, but everyone believing it should fall) then it's right for the central bank to act.
Given that that's not currently a credible worry or policy for the US and UK, I think the Bernanke-Carney approach is more helpful.
Edit:
QuotePeople are arguing for austerity now because of very high debt/GDP ratios. And because of the moral argument of spending money that someone else will have to pay off in the future.
But that can be flipped on its head. A prolonged slump and high unemployment - such as in the Eurozone - will cause permanent damage to an economy. It will increase the output gap and can knock an economy off the sort of growth they should be achieving. Surely it's as morally troublesome to make the future poorer as it is to make them pay more?
Though I don't think that's how the debt situation will play out. I'm confident we'll end up stabilising and reducing debt over the next decade - assuming there's no more shocks and, again, the Eurozone may be an exception.
Disclaimer: I'd love a year or so 10,000% inflation. I don't think any reasonable moneyprinting scenario right now would actually do that, but I would literally win either way. :P
Quote from: Ideologue on April 16, 2013, 07:52:53 PM
It's called investment. As long as growth outpaces the interest paid on the debt, it doesn't matter.
What do you mean by the interest paid? The rate? The dollar amount.
The formula is that you're OK as long as the growth rate is higher than the deficit as a % of GDP. Then the denominator in debt/GDP is growing faster than the numerator.
QuoteAnd since austerity causes the exact opposite of growth, the debt/GDP ratio just gets worse, along with a lot of human suffering that will severely damage future generations--since future generations depend desperately upon the generation being devastated by austerity measures. Or is it actually old people taking the pain in Spain, Greece, Europe in general and even America, sacrificing bravely for their children and grandchildren? If so, why is it their children and grandchildren don't have jobs, will never buy houses, and will either choose not to have children of their own or raise them in squalor?
Very stirring. Now who's going to lend Greece money?
Quote from: Sheilbh on April 16, 2013, 07:53:18 PM
But that can be flipped on its head. A prolonged slump and high unemployment - such as in the Eurozone - will cause permanent damage to an economy. It will increase the output gap and can knock an economy off the sort of growth they should be achieving.
Neither of those things are permanent damage.
Quote from: Admiral Yi on April 16, 2013, 08:18:44 PM
Neither of those things are permanent damage.
In the long-term we're all dead. I think an economy growing at a lower rate than they otherwise would have for a prolonged period of time then that is as permanent and morally problematic as passing on debt.
Quote from: Sheilbh on April 16, 2013, 08:24:52 PM
In the long-term we're all dead. I think an economy growing at a lower rate than they otherwise would have for a prolonged period of time then that is as permanent and morally problematic as passing on debt.
:hmm: As permanent? What?
Quote from: Ideologue on April 16, 2013, 07:56:30 PM
Disclaimer: I'd love a year or so 10,000% inflation. I don't think any reasonable moneyprinting scenario right now would actually do that, but I would literally win either way. :P
Why? You're a lawyer. We'd kill you.
At any rate, why is austerity capitalized in the thread title? I keep reading it as either Auschwitz or Austerlitz.
Quote from: Admiral Yi on April 16, 2013, 08:27:04 PM
:hmm: As permanent? What?
It can affect future generations just as much.
Quote from: Admiral Yi on April 16, 2013, 08:09:33 PM
Quote from: Ideologue on April 16, 2013, 07:52:53 PM
It's called investment. As long as growth outpaces the interest paid on the debt, it doesn't matter.
What do you mean by the interest paid? The rate? The dollar amount.
The actual dollar amount, I think, in order to reduce the ratio--which is what you want to do with stimulus in the short-to-medium term. Obviously, in the long term, some austerian measures may be good. Debt is not a good thing obviously, but depression is very much worse, is my point.
QuoteThe formula is that you're OK as long as the growth rate is higher than the deficit as a % of GDP. Then the denominator in debt/GDP is growing faster than the numerator.
Exactamundo. But contractionary policy isn't going to reduce the debt/GDP ratio anyway.
QuoteAnd since austerity causes the exact opposite of growth, the debt/GDP ratio just gets worse, along with a lot of human suffering that will severely damage future generations--since future generations depend desperately upon the generation being devastated by austerity measures. Or is it actually old people taking the pain in Spain, Greece, Europe in general and even America, sacrificing bravely for their children and grandchildren? If so, why is it their children and grandchildren don't have jobs, will never buy houses, and will either choose not to have children of their own or raise them in squalor?
Very stirring. Now who's going to lend Greece money?
[/quote]
The European Union, obviously, meaning in practice Germany. They have the moral obligation to do so. They took in a poor country, attempted an uplift and failed due to greed on either side. As the adults, it's their responsibility.
My kobolds would eat Ide in his inflationary economy.
Quote from: Ideologue on April 16, 2013, 08:37:43 PM
The actual dollar amount, I think, in order to reduce the ratio--which is what you want to do with stimulus in the short-to-medium term. Obviously, in the long term, some austerian measures may be good. Debt is not a good thing obviously, but depression is very much worse, is my point.
Growth is a rate, a dollar of interest is a dollar. How can one be higher than the other?
Maybe I'm misspeaking.
If the rate of debt growth is lower than the rate of GDP growth, the ratio of debt/GDP will be lower than at T-0, even though the numerator will rise in absolute terms. Rate/rate and absolute amount/absolute amount are different ways of expressing the same mathematical idea here.
That's why measuring debt in terms of GDP is problematic.
Quote from: MadImmortalMan on April 16, 2013, 09:00:24 PM
That's why measuring debt in terms of GDP is problematic.
Nonsense. It's the only meaningful way you can measure it.
Quote from: Sheilbh on April 16, 2013, 09:09:55 PM
Quote from: MadImmortalMan on April 16, 2013, 09:00:24 PM
That's why measuring debt in terms of GDP is problematic.
Nonsense. It's the only meaningful way you can measure it.
Why?
Quote from: MadImmortalMan on April 16, 2013, 09:35:47 PM
Why?
Because the bigger your GDP, the easier it is to pay off a given amount of debt.
Quote from: Admiral Yi on April 16, 2013, 10:13:50 PM
Quote from: MadImmortalMan on April 16, 2013, 09:35:47 PM
Why?
Because the bigger your GDP, the easier it is to pay off a given amount of debt.
Yes. But a component of the thing you're measuring is going into the standard against which you're measuring it. Government spending is part of the GDP equation. So it will necessarily skew the debt to gdp ratio toward 100% in an amount relative to the total size of the public sector.
If Greece borrows a quadrillion euros this year and spends it, the Greek GDP will be over a quadrillion. And their debt to GDP ratio will go down to 99%.
In order to get a non-skewed number, it would be better to measure debt in a ratio with, say tax receipts.
Quote from: MadImmortalMan on April 16, 2013, 10:47:35 PM
Yes. But a component of the thing you're measuring is going into the standard against which you're measuring it. Government spending is part of the GDP equation. So it will necessarily skew the debt to gdp ratio toward 100% in an amount relative to the total size of the public sector.
If Greece borrows a quadrillion euros this year and spends it, the Greek GDP will be over a quadrillion. And their debt to GDP ratio will go down to 99%.
In order to get a non-skewed number, it would be better to measure debt in a ratio with, say tax receipts.
Well yeah, assuming no leakage through the external accounts. Typically countries don't get to borrow an infinite multiple of GDP in a given year.
Yeah, that wouldn't happen but it makes the math easy to understand. Some of these guys had been borrowing ten or fifteen percent of their GDP (spending included) annually. The skew is significant enough not to trust it at that level I think.
Quote from: MadImmortalMan on April 16, 2013, 06:49:58 PM
Just to be clear, the original paper does not advocate austerity.
Correct. It is not (pace thread title) an economic argument for austerity. The authors aren't making any causal claim, as they note again in their response:
QuoteBy the way, we are very careful in all our papers to speak of "association" and not "causality" since of course our 2009 book THIS TIME IS DIFFERENT showed that debt explodes in the immediate aftermath of financial crises. This is why we restrict attention to longer debt overhang periods in the JEP paper., though as noted there are only a very limited number of short ones.
Others have taken the RR results out of context and attempted to make broader conclusions but not RR themselves.
The answer to our problem of spending way too much money is surely to spend a lot more.
Quote from: Admiral Yi on April 16, 2013, 08:09:33 PM
Very stirring. Now who's going to lend Greece money?
We've been here before and the answer is still the same: that's where the ECB comes in.
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
Yes. Spending your way out of a spending problem seems quite logical.
Nah, it would be much easier to reverse-engineer markets back to the days when bread was 15 cents a loaf or a car only cost $1,600.
Quote from: derspiess on April 17, 2013, 09:35:53 AM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
Yes. Spending your way out of a spending problem seems quite logical.
The logical solution is to have the Fed print money to buy all of our debts then print more money to pay it all off. Problem solved.
Quote from: derspiess on April 17, 2013, 09:35:53 AM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
Yes. Spending your way out of a spending problem seems quite logical.
Is spending too much money really what caused the problem? :yeahright: I thought it was over-leveraged speculation.
Besides, even if we buy into the BS premise that spending caused our problems, it still doesn't follow that spending more is such an obviously idiotic solution. In many dynamic system, reaching one extreme can crash you right into the other extreme (which is when the crisis actually comes to a head), and pushing things back into the direction of the original extreme is a path towards regaining stability.
Quote from: Valmy on April 17, 2013, 09:41:04 AM
Quote from: derspiess on April 17, 2013, 09:35:53 AM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
Yes. Spending your way out of a spending problem seems quite logical.
The logical solution is to have the Fed print money to buy all of our debts then print more money to pay it all off. Problem solved.
:hmm: Yes!
Quote from: DGuller on April 17, 2013, 09:49:13 AM
Quote from: derspiess on April 17, 2013, 09:35:53 AM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
Yes. Spending your way out of a spending problem seems quite logical.
Is spending too much money really what caused the problem? :yeahright: I thought it was over-leveraged speculation.
Besides, even if we buy into the BS premise that spending caused our problems, it still doesn't follow that spending more is such an obviously idiotic solution. In many dynamic system, reaching one extreme can crash you right into the other extreme (which is when the crisis actually comes to a head), and pushing things back into the direction of the original extreme is a path towards regaining stability.
That could all be correct - but there really isn't any compelling reason to think it is.
I am sticking with common sense. If your problem is that you are spending much, much, MUCH more than you are bringing in, and hence running up a ridiculous amount of debt, the solution probably has something to do with not spending so much.
I know it seems crazy.
Quote from: Berkut on April 17, 2013, 10:30:09 AM
I am sticking with common sense. If your problem is that you are spending much, much, MUCH more than you are bringing in, and hence running up a ridiculous amount of debt, the solution probably has something to do with not spending so much.
I know it seems crazy.
It is crazy when you don't address the "more than you are bringing in" part as part of the solution.
The cause of the recession has nothing to do with whether you should try to limit deficit spending or not. We're 5 years into the "recovery" now and still spending significantly in excess of GDP growth. A deficit that is larger than GDP growth is not sustainable long term, and must eventually be wound down.
Quote from: CountDeMoney on April 17, 2013, 10:35:13 AM
Quote from: Berkut on April 17, 2013, 10:30:09 AM
I am sticking with common sense. If your problem is that you are spending much, much, MUCH more than you are bringing in, and hence running up a ridiculous amount of debt, the solution probably has something to do with not spending so much.
I know it seems crazy.
It is crazy when you don't address the "more than you are bringing in" part as part of the solution.
Happy to do so, but that wasn't part of the discussion - discussion was about the apparent faith that the solution to the problem of too much debt has nothing to do with spending OR income...or rather, it has to do with spending...a lot more. And more. And more. And more forevermore more more more more more.
Who cares about income? According to the "ZOMG austerity is bad!" people it doesn't even matter. Hell, if anything we should slash taxes, since debt doesn't matter. Why just spend more when we could spend more and take in less?
Quote from: CountDeMoney on April 17, 2013, 10:35:13 AM
It is crazy when you don't address the "more than you are bringing in" part as part of the solution.
Indeed. Austerity measures generally have to include both.
Quote from: Berkut on April 17, 2013, 10:30:09 AM
That could all be correct - but there really isn't any compelling reason to think it is.
I am sticking with common sense. If your problem is that you are spending much, much, MUCH more than you are bringing in, and hence running up a ridiculous amount of debt, the solution probably has something to do with not spending so much.
I know it seems crazy.
I'm not sticking with common sense. Relying on common sense when facing a complicated problem may or may not be crazy, but it is definitely silly.
Common sense is sufficient if you're facing the question of whether trimming your pubic hair with a blow torch is the best approach. I would not rely just on common sense if I wanted to know how to perform brain surgery, launch a rocket, or move the economy out of recession.
Quote from: DGuller on April 17, 2013, 11:05:15 AM
Quote from: Berkut on April 17, 2013, 10:30:09 AM
That could all be correct - but there really isn't any compelling reason to think it is.
I am sticking with common sense. If your problem is that you are spending much, much, MUCH more than you are bringing in, and hence running up a ridiculous amount of debt, the solution probably has something to do with not spending so much.
I know it seems crazy.
I'm not sticking with common sense. Relying on common sense when facing a complicated problem may or may not be crazy, but it is definitely silly.
Common sense is sufficient if you're facing the question of whether trimming your pubic hair with a blow torch is the best approach. I would not rely just on common sense if I wanted to know how to perform brain surgery, launch a rocket, or move the economy out of recession.
You make a good point.
But instead of relying on common sense, you just go with your political view that spending is good, and hence more spending is better. Under any and all circumstances.
That doesn't strike me as superior to common sense.
Quote from: Berkut on April 17, 2013, 11:14:41 AMYou make a good point.
But instead of relying on common sense, you just go with your political view that spending is good, and hence more spending is better. Under any and all circumstances.
That doesn't strike me as superior to common sense.
I don't think that's an accurate description of DGuller's position.
Quote from: Berkut on April 17, 2013, 11:14:41 AM
You make a good point.
But instead of relying on common sense, you just go with your political view that spending is good, and hence more spending is better. Under any and all circumstances.
That doesn't strike me as superior to common sense.
:hmm: That doesn't strike me as my stance either.
My view has been very consistent: Keynes had it mostly right. Deficits should be counter-cyclical. More spending is better when the economy is bad, and less spending is better when the economy is doing well.
Quote from: Valmy on April 17, 2013, 10:38:14 AM
Quote from: CountDeMoney on April 17, 2013, 10:35:13 AM
It is crazy when you don't address the "more than you are bringing in" part as part of the solution.
Indeed. Austerity measures generally have to include both.
I agree with that, but that still doesn't make Berkut wrong.
the PIIGS, and some other countries I am sure (khm, Hungary) has been, or at least were, spending much more than their income was. They spent a significant portion of that overspending not on temporary economy-boost projects, but pretty standard permanent runnings costs, like welfare, healthcare, and pensions.
They were able to do that for decades, because on the scientific basis of "what could happen", they were granted low enough interests rates and/or people kept lending them money no matter what their books looked like.
The trouble is, when you get into an economic environment where people do not give blank checks to crackwhores, willingness to lend to these people dry up. So they end up with an entire nation and economy adopted to the influx of borrowed money, with no money left to borrow.
That's bad, and NOT a long term model for any country.
Keynes was dead by '46 and his opinion was on on how to handle major depressions/panics which were the typical form of economic problem in his lifetime. Any reasonable person would define deficit spending, where the deficit as a % of GDP is higher than GDP growth, as stimulative. We've engaged in such stimulative deficit spending for some time now, we are no longer in recession and have not been for some time. It's not really a textbook example of where Keynes advocated deficit spending. He advocated deficit spending during depressions under the knowledge that high GDP growth following a depression would make it all okay some day. But we had a large contraction and then basically the recession ended and we're now in what looks to be a generational "mild growth" period. The economy can only grow so fast, and there is no reason to expect anything will return us to 5-7% quarters of economic growth like we've had at times in the past, other than some unprecedented technological advancement.
I don't necessarily agree that 0% growth is the magical threshold. That's a bit too simplistic. What matters is whether economy is doing the best it can, or whether there is a slack in output that doesn't fill up on its own. We have a lot of long-term unemployed, so my guess is that we're still wasting a lot of potential.
Quote from: DGuller on April 17, 2013, 11:41:22 AM
I don't necessarily agree that 0% growth is the magical threshold. That's a bit too simplistic. What matters is whether economy is doing the best it can, or whether there is a slack in output that doesn't fill up on its own. We have a lot of long-term unemployed, so my guess is that we're still wasting a lot of potential.
We may be wasting some, but there are structural realities with growth and unemployment. The U.S. is an aging society and barring another large stimulative technology advance it isn't necessarily realistic to think our economy "should" be growing too much faster than it is. In the past large recessions were followed with high growth quarters, sometimes 7-15+%, but in part some of the reasons we entered the recession related to an asset bubble which distorted the underlying "real value" of the economy.
I was looking at a home price chart awhile back, that shows where home prices "should" be if not for the massive bubble we had, and it ends up being about where they are now, with "normal" growth in prices not producing valuations like we had during the bubble for 15-20 years. That's just one market of the whole economy, but I guess what I'm saying is if you enter a steep recession for some transient reasons like a traditional panic then you should expect those follow-up high growth quarters to make up for an economic retraction that was harsher than the underlying value of the economy should have produced. But if the recession and following malaise is just a reflection of economic reality there is no reason to expect those "wonder quarters" that "get you back to where you were."
Average GDP growth since 1947 has been around 3.2%, the last few quarters where we've had 4.1, 2.0, 1.3, 3.1 and .4 GDP growth don't seem that out of the norm. Plus, that average includes a lot of years of fantastic growth, that in our world today with an ascendant China/India, much of the rest of the developing world becoming far more productive, an aging population in traditional economies and slowed population growth I actually
doubt our average GDP growth will necessarily be 3.2% going forward. I think there is a fantastic chance we are not going to be a high growth economy going forward whether you drink Kool-Aid with Keynes or Friedman, that means the most prudent thing to do is manage our long term liabilities in a way that we can sustainable service them with the assumption that high growth periods from the past are going to stay in the past.
Quote from: DGuller on April 17, 2013, 11:41:22 AM
I don't necessarily agree that 0% growth is the magical threshold. That's a bit too simplistic. What matters is whether economy is doing the best it can,
So as long as the economy is not "doing the best it can" we should spend, spend, spend, spend some more!
How handy, especially with such rigorous criteria as "is the economy doing the best it can? Nope? I guess we need some more stimulus so it can do the best it can! More social spending for everyone!"
All this talk about GDP is bullshit anyway; the only metric that matters is the DJIA. As long as the wealthy are winning, America is winning.
Seedy's not wrong. Although I would say that the main reason the stock market is doing well right now is just that there isn't any better alternative place to put anything.
Also, my house has gone up in value about 30% in the last year. That's a bit excessive. In fact it's about the same as 2006-7.
Quote from: MadImmortalMan on April 17, 2013, 12:07:28 PM
Seedy's not wrong. Although I would say that the main reason the stock market is doing well right now is just that there isn't any better alternative place to put anything.
Also, my house has gone up in value about 30% in the last year. That's a bit excessive. In fact it's about the same as 2006-7.
I have no faith in any of those kinds of metrics.
I think most metrics that amount to the aggregate of public opinion about the value of much of anything are very poor indicators of the actual health of anything. There are just too many examples of bubbles in modern economic history to put much stock in those things as indicators of overall anything, except human gullibility.
Quote from: Berkut on April 17, 2013, 12:03:57 PM
Quote from: DGuller on April 17, 2013, 11:41:22 AM
I don't necessarily agree that 0% growth is the magical threshold. That's a bit too simplistic. What matters is whether economy is doing the best it can,
So as long as the economy is not "doing the best it can" we should spend, spend, spend, spend some more!
How handy, especially with such rigorous criteria as "is the economy doing the best it can? Nope? I guess we need some more stimulus so it can do the best it can! More social spending for everyone!"
All I was saying is that the zero point is not as simple as 0% GDP growth. An economy with a positive growth rate can still be wasting a lot of its productive potential without being on the path to making use of it. Let's say that GDP grows by 1%, while the workforce grows by 3%, and half of it is unemployed. I'm sure everyone would agree that this is not a well-functioning economy, even though it's not technically in a recession. There is no need for histrionics here.
Quote from: Berkut on April 17, 2013, 12:11:53 PM
Quote from: MadImmortalMan on April 17, 2013, 12:07:28 PM
Seedy's not wrong. Although I would say that the main reason the stock market is doing well right now is just that there isn't any better alternative place to put anything.
Also, my house has gone up in value about 30% in the last year. That's a bit excessive. In fact it's about the same as 2006-7.
I have no faith in any of those kinds of metrics.
I think most metrics that amount to the aggregate of public opinion about the value of much of anything are very poor indicators of the actual health of anything. There are just too many examples of bubbles in modern economic history to put much stock in those things as indicators of overall anything, except human gullibility.
The DJIA is nothing more than the value of make-believe money based on levels of confidence. Unfortunately, it's the main driver of our predatory capitalist economy.
"predatory capitalist economy".
OK Karl.
It RAWRs at you, right before it evaporates your retirement.
Quote from: CountDeMoney on April 17, 2013, 12:28:02 PM
The DJIA is nothing more than the value of make-believe money based on levels of confidence. Unfortunately, it's the main driver of our predatory capitalist economy.
Does this actually mean something, or are you just stringing words together at random?
Main driver?
Forget it, Red Seedy is rolling...
Quote from: Admiral Yi on April 17, 2013, 02:58:50 PM
Quote from: CountDeMoney on April 17, 2013, 12:28:02 PM
The DJIA is nothing more than the value of make-believe money based on levels of confidence. Unfortunately, it's the main driver of our predatory capitalist economy.
Does this actually mean something, or are you just stringing words together at random?
Main driver?
It generates capital for all the evul corporations so they can export jobs overseas at an even faster rate.
Quote from: derspiess on April 17, 2013, 03:00:03 PM
Forget it, Red Seedy is rolling...
I get that, but I'm seriously curious whether he thinks the things he posts have actual meaning or whether he's posting screed for the purpose of posting screed.
Quote from: Admiral Yi on April 17, 2013, 03:09:55 PM
Quote from: derspiess on April 17, 2013, 03:00:03 PM
Forget it, Red Seedy is rolling...
I get that, but I'm seriously curious whether he thinks the things he posts have actual meaning or whether he's posting screed for the purpose of posting screed.
When it comes to economics, I'd put my money on the screed thing.
Quote from: derspiess on April 17, 2013, 03:14:15 PM
Quote from: Admiral Yi on April 17, 2013, 03:09:55 PM
Quote from: derspiess on April 17, 2013, 03:00:03 PM
Forget it, Red Seedy is rolling...
I get that, but I'm seriously curious whether he thinks the things he posts have actual meaning or whether he's posting screed for the purpose of posting screed.
When it comes to economics, I'd put my money on the screed thing.
Yup.
Quote from: derspiess on April 17, 2013, 03:00:03 PM
Forget it, Red Seedy is rolling...
He makes a good case for the S&P 500, which is the superior index.
Quote from: Admiral Yi on April 17, 2013, 03:09:55 PM
Quote from: derspiess on April 17, 2013, 03:00:03 PM
Forget it, Red Seedy is rolling...
I get that, but I'm seriously curious whether he thinks the things he posts have actual meaning or whether he's posting screed for the purpose of posting screed.
I think he is just tired of his situation. Wears a man down.
Quote from: Tamas on April 17, 2013, 11:25:59 AM
the PIIGS, and some other countries I am sure (khm, Hungary) has been, or at least were, spending much more than their income was.
If by PIIGS you mean Greece, that is an accurate assessment. Ireland and Spain suffered gigantic real estate bubbles. Italy was just not competitive enough under the Euro yet still had primary supluses. Portugal had a little bit of everything.
Quote from: Iormlund on April 17, 2013, 05:45:09 PM
Italy was just not competitive enough under the Euro yet still had primary supluses.
And a large existing stock of sovereign debt.
Which had not gone up for 20 years. Spending is certainly not the cause of the Italian crisis. A stagnating, uncompetitive economy is.
Quote from: Ed Anger on April 17, 2013, 05:36:11 PM
I think he is just tired of his situation. Wears a man down.
He's been like that for a while. Having said that, if he lands a cushy management position you can bet he'll forget all about his proletarian struggle.
Quote from: derspiess on April 17, 2013, 06:08:49 PM
Quote from: Ed Anger on April 17, 2013, 05:36:11 PM
I think he is just tired of his situation. Wears a man down.
He's been like that for a while. Having said that, if he lands a cushy management position you can bet he'll forget all about his proletarian struggle.
He needs a hug.
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
What if our problem never was the government spending too much?
Quote from: derspiess on April 17, 2013, 06:08:49 PM
Quote from: Ed Anger on April 17, 2013, 05:36:11 PM
I think he is just tired of his situation. Wears a man down.
He's been like that for a while. Having said that, if he lands a cushy management position you can bet he'll forget all about his proletarian struggle.
Of course he would, but he's not going to land that job. He's going to end up like that black guy in Falling Down, getting hauled off by the cops for protesting a bank that said that he's 'not economically viable'. Except it'll be the NYSE, and Seedy will be talking about shareholder value. He's been unemployed long enough that in this Brave New World, he's unemployable.
Quote from: Ideologue on April 17, 2013, 06:41:48 PM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
What if our problem never was spending too much?
But it was. We made a society where everyone was rich, but we weren't able to pay for it.
Quote from: Ideologue on April 17, 2013, 06:41:48 PM
What if our problem never was spending too much?
What is the sound of one hand clapping?
Quote from: Iormlund on April 17, 2013, 05:52:25 PM
Which had not gone up for 20 years. Spending is certainly not the cause of the Italian crisis. A stagnating, uncompetitive economy is.
I think you might be overstating the case. Italy has struggled to get it's deficit down to the target of 3% if I'm not mistaken. And with flat growth that means debt/GDP is still growing.
And the bigger point, the one that's relevant for the US, is that when your debt/GDP gets to a certain size you start to run out of wiggle room.
Quote from: Neil on April 17, 2013, 06:43:06 PM
Quote from: Ideologue on April 17, 2013, 06:41:48 PM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
What if our problem never was spending too much?
But it was. We made a society where everyone was rich, but we weren't able to pay for it.
Yet we obviously did, since all those McMansions didn't come from nowhere.
What if our problem was instead private sector retrenchment due to the collapse of an asset bubble caused in part by deregulation, on top of thirty years of growing wealth inequality and the middle class not sharing in productivity gains, leading to lack of aggregate demand? Maybe then spending a lot more to increase aggregate demand and jumpstart the economy would help. Then when that's done, raise taxes on rich people so that our borderline-regressive tax code ameliorates our class divisions and a new middle class can bloom. :)
Or we can do nothing, permit at least one generation to become completely lost, if not all subsequent generations as businesses readjust to a new normal of perpetually slack demand for goods and services. Sounds like a good plan, Berkut! :berkut:
Hey, Ide: theory only works on paper.
Quote from: Admiral Yi on April 17, 2013, 06:46:43 PM
And the bigger point, the one that's relevant for the US, is that when your debt/GDP gets to a certain size you start to run out of wiggle room.
That size is not fixed. It depends on the circumstances, the country, the culture even. In addition, historically, defaulting is a decision. Rarely do the market conditions back anyone so completely into a corner that it happens on its own.
Quote from: Ideologue on April 17, 2013, 06:41:48 PM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
What if our problem never was the government spending too much?
You have a good point. If you start off like Berkut with the idea that all government spending is bad, then it seems that all the solutions to the world's problems are bad.
Quote from: MadImmortalMan on April 17, 2013, 06:52:39 PM
That size is not fixed. It depends on the circumstances, the country, the culture even. In addition, historically, defaulting is a decision. Rarely do the market conditions back anyone so completely into a corner that it happens on its own.
The issue I'm addressing is not the decision to default, which as you point out is a decision, but rather the premiums lenders start to charge.
Quote from: Ideologue on April 17, 2013, 06:49:46 PM
Quote from: Neil on April 17, 2013, 06:43:06 PM
Quote from: Ideologue on April 17, 2013, 06:41:48 PM
Quote from: Berkut on April 17, 2013, 08:57:16 AM
The answer to our problem of spending way too much money is surely to spend a lot more.
What if our problem never was spending too much?
But it was. We made a society where everyone was rich, but we weren't able to pay for it.
Yet we obviously did, since all those McMansions didn't come from nowhere.
What if our problem was instead private sector retrenchment due to the collapse of an asset bubble caused in part by deregulation, on top of thirty years of growing wealth inequality and the middle class not sharing in productivity gains, leading to lack of aggregate demand? Maybe then spending a lot more to increase aggregate demand and jumpstart the economy would help. Then when that's done, raise taxes on rich people so that our borderline-regressive tax code ameliorates our class divisions and a new middle class can bloom. :)
Or we can do nothing, permit at least one generation to become completely lost, if not all subsequent generations as businesses readjust to a new normal of perpetually slack demand for goods and services. Sounds like a good plan, Berkut! :berkut:
Taxing the rich won't help, because they don't have enough money. Everyone's taxes must rise, even thought the rich must pay more than anyone else. Still, you're part of the problem. We live a world where a guy with no useful skills has a big TV and a collection of home movies. Society has given the trappings of wealth to absolutely everyone, and yet government can no longer do its job.
I'm fine with a lost generation. Every generation from now until the fall of the West is lost as far as I'm concerned.
Quote from: Neil on April 17, 2013, 06:42:18 PM
Of course he would, but he's not going to land that job. He's going to end up like that black guy in Falling Down, getting hauled off by the cops for protesting a bank that said that he's 'not economically viable'. Except it'll be the NYSE, and Seedy will be talking about shareholder value. He's been unemployed long enough that in this Brave New World, he's unemployable.
I don't have a pressure cooker and book bag, but I do have a crock pot and a gym bag.
THE SHRAPNEL WAS DETERMINED TO BE USED KITTY LITTER
MANY CLUMPING INJURIES AT THE SCENE
Quote from: CountDeMoney on April 17, 2013, 07:34:36 PM
Quote from: Neil on April 17, 2013, 06:42:18 PM
Of course he would, but he's not going to land that job. He's going to end up like that black guy in Falling Down, getting hauled off by the cops for protesting a bank that said that he's 'not economically viable'. Except it'll be the NYSE, and Seedy will be talking about shareholder value. He's been unemployed long enough that in this Brave New World, he's unemployable.
I don't have a pressure cooker and book bag, but I do have a crock pot and a gym bag.
THE SHRAPNEL WAS DETERMINED TO BE USED KITTY LITTER
MANY CLUMPING INJURIES AT THE SCENE
Wouldn't that just be a stinky fire rather than an explosion?
Definitely the last kind I bought. That stuff couldn't clump to save me from throwing out the whole box' worth, let alone shrapnelize.
I use fresh step when I have to put Drut in the garage. I loathe the litter box.
Biological weapon. Used cat litter can contain some serious nerve toxins deadly to humans. Always keep the litter box as far away from the kitchen as possible.
Aphrodite the Goddess Cat can overwhelm any clumping litter known to man. She will drink 4 gallons of water just to break down the Clump Factor 10 litter, then proudly watch me when I clean the cat box and swear under my breath at her.
Quote from: fahdiz on April 17, 2013, 06:52:12 PM
Hey, Ide: theory only works on paper.
Unless its the theory you subscribe to?
Quote from: Jacob on April 17, 2013, 09:00:42 PM
Quote from: fahdiz on April 17, 2013, 06:52:12 PM
Hey, Ide: theory only works on paper.
Unless its the theory you subscribe to?
Which one is that, Jake?
Yeah, I don't even know what you mean by that, fahdiz, old top.
Libertarian Socialism
Librarytarianism.
Quote from: fahdiz on April 17, 2013, 09:02:53 PMWhich one is that, Jake?
I don't know fadhz, why don't you tell us?
Thatcherism!
And a lot of theories don't work out even on paper. E.g., keeping B-52s confined to south of the DMZ, a feasible Albucierre warp drive, or economic austerity.
Government spending in the US has lagged behind previous economic recovery cycles by quite a bit. In prior post-Bretton woods recovery cycles, spending increased gradually over the 4 year period following the recession. But in this recession, after a jump in spending in recession year itself, spending has actually declined. The consequence has been a fiscal drag that has prolonged the process of private sector recovery from private debt over-extension. Indeed the biggest mistake austerity proponents make is focusing entirely on public debt levels and ignoring private debt levels. If an increase in public indebtedness helps decrease aggregate indebtedness levels across the entire economy, then the austerity case becomes more dubious.
That said, there does appear to be a fundamental structural fiscal problem in the US. The problem is that revenue levels as a % of GDP are simply too slow to support federal spending levels. This problem has existed since 2001-3 when two rounds of ostensibly temporary tax cuts were effectively made permanent. The recent fiscal compromise, while partially reversing a fraction of this revenue loss, still left the US federal government under-funded.
Quote from: The Minsky Moment on April 18, 2013, 09:10:54 AM
Government spending in the US has lagged behind previous economic recovery cycles by quite a bit. In prior post-Bretton woods recovery cycles, spending increased gradually over the 4 year period following the recession. But in this recession, after a jump in spending in recession year itself, spending has actually declined.
The Languish anti-spenders don't care about that. Who cares that it's actually declined? It obviously hasn't declined enough.
QuoteThat said, there does appear to be a fundamental structural fiscal problem in the US. The problem is that revenue levels as a % of GDP are simply too slow to support federal spending levels. This problem has existed since 2001-3 when two rounds of ostensibly temporary tax cuts were effectively made permanent. The recent fiscal compromise, while partially reversing a fraction of this revenue loss, still left the US federal government under-funded.
They don't give a shit about that, either. Revenue problems are not spending problems. And stopping spending is all that matters.
Quote from: The Minsky Moment on April 18, 2013, 09:10:54 AM
If an increase in public indebtedness helps decrease aggregate indebtedness levels across the entire economy, then the austerity case becomes more dubious.
I had not thought about it in those terms before. Its a good point.
Quote from: CountDeMoney on April 18, 2013, 09:32:56 AM
The Languish anti-spenders don't care about that. Who cares that it's actually declined? It obviously hasn't declined enough.
They don't give a shit about that, either. Revenue problems are not spending problems. And stopping spending is all that matters.
Actually I have stated repeatedly that I care a great deal about those things. Revenue increases are necessary. If the American people want certain things they need to pay for them.
I'm not referring to you. <_<
Quote from: The Minsky Moment on April 18, 2013, 09:10:54 AM
Government spending in the US has lagged behind previous economic recovery cycles by quite a bit. In prior post-Bretton woods recovery cycles, spending increased gradually over the 4 year period following the recession. But in this recession, after a jump in spending in recession year itself, spending has actually declined. The consequence has been a fiscal drag that has prolonged the process of private sector recovery from private debt over-extension. Indeed the biggest mistake austerity proponents make is focusing entirely on public debt levels and ignoring private debt levels. If an increase in public indebtedness helps decrease aggregate indebtedness levels across the entire economy, then the austerity case becomes more dubious.
Frankly Joan this is the most bizarre austerity critique you've provided so far.
First, what is the logic of back loading Keynesian stimulus? The whole rationale for Keynesian pump-priming is to give a boost to demand that jump starts business investment.
Second, by talking about spending trends, you ignore the actual levels of spending relative to the severity of the recessions. That is the true comparison.
Third, of course spending declined from the first year of the recession. You might recall we had a one-off $860 trillion stimulus package. Do you seriously wish we had done a fresh trillion the year after that? A trillion and a quarter the next? You want to triple total debt instead of just doubling it, all in a time of positive growth, with unemployment 3 points off full employment?
QuoteThat said, there does appear to be a fundamental structural fiscal problem in the US. The problem is that revenue levels as a % of GDP are simply too slow to support federal spending levels. This problem has existed since 2001-3 when two rounds of ostensibly temporary tax cuts were effectively made permanent. The recent fiscal compromise, while partially reversing a fraction of this revenue loss, still left the US federal government under-funded.
They were effectively made permanent when they were made permanent, which was this January during the Fiskal Kliff talks. But I've said all along that we need to restore the Clinton tax rates.
Quote from: CountDeMoney on April 18, 2013, 11:27:19 AM
I'm not referring to you. <_<
Then who the fuck are you referring to? :lol:
The people who have been taking the "keep taxes low" line are generally the proponents of "fragile recovery, keep on deficit spending." Your people.
Quote from: Valmy on April 18, 2013, 11:26:02 AM
Quote from: CountDeMoney on April 18, 2013, 09:32:56 AM
The Languish anti-spenders don't care about that. Who cares that it's actually declined? It obviously hasn't declined enough.
They don't give a shit about that, either. Revenue problems are not spending problems. And stopping spending is all that matters.
Actually I have stated repeatedly that I care a great deal about those things. Revenue increases are necessary. If the American people want certain things they need to pay for them.
I think pretty much the entire Languish group of people who are opposed to just spending more and more forever all support a broad based tax increase along with reducing the growth rate of spending to get the budget back under control.
Seedy is just foaming and raving again about imaginary people.
Quote from: Admiral Yi on April 18, 2013, 11:46:50 AM
First, what is the logic of back loading Keynesian stimulus?
There isn't any. I didn't suggest that. The stimulus did its job - it helped rescue the country from threatened depression and return to a postive growth path. But slamming the fiscal brakes compromised the sustainability of that recovery.
QuoteSecond, by talking about spending trends, you ignore the actual levels of spending relative to the severity of the recessions. That is the true comparison.
I don't know what this means. What do you propose comparing to what?
QuoteThird, of course spending declined from the first year of the recession. You might recall we had a one-off $860 trillion stimulus package.
You've misunderstood. Even taking the base point the year BEFORE the recession, relative spending levels are lower relatively to the equivalent time periods in the 3 prior post-Bretton Wood recessions by about 10 percent. That is, the ARRA stimulus, although admittedly large, has been vitiated by subsequent cuts.
The data can be found in the latest IMF WEO report: http://www.imf.org/external/pubs/ft/weo/2013/01/pdf/text.pdf
Look at the box pp 32-35. Figure 1.1.2 shows for various countries the progress of government spending using the year prior to the recession as the base point, and comparing this recession with the 3 prior post Bretton Woods recession. The chart for the US does show the ARRA stimulus to have been higher than average as an immediate stimulus, but it also shows that the unwinding of the stimulus was so sharp that 4 years out spending levels are considerable lower in relative terms than in the prior recessions. In particular there have been real decreases in spending each and every year of the recovery. The IMF economists go on to note the potential macro risks that such a fiscal policy may pose given prevailing interest rates.
This is a message board have the good manners to summarize a long PDF.
1. Identify the three post-Bretton Woods recessions you are talking about.
2. Identify spending as a percentage of GDP during the year those recessions began and each of the next four years.
3. Identify GDP growth rate for the year of the three other recessions you are talking about and each of the next four years.
Quote from: OttoVonBismarck on April 18, 2013, 04:40:27 PM
This is a message board have the good manners to summarize a long PDF.
I gave a reference to a 4 page box that contains less text than the sum total of your posts in this thread in a single day. I also specifically referenced a single chart. Even for the chronically lazy, that should not be too much of a challenge.
Quote from: The Minsky Moment on April 18, 2013, 04:45:08 PM
Quote from: OttoVonBismarck on April 18, 2013, 04:40:27 PM
This is a message board have the good manners to summarize a long PDF.
I gave a reference to a 4 page box that contains less text than the sum total of your posts in this thread in a single day. I also specifically referenced a single chart. Even for the chronically lazy, that should not be too much of a challenge.
You've obviously underestimated the laziness involved.
:lol:
Ok.
The prior recessions in the sample are 1975, 1982, and 1991.
GDP changes (from BEA)
1975-79 -0.2 5.4 4.6 5.6 3.1
1982-86 -1.9 4.5 7.2 4.1 3.5
1991-1995 -0.2 3.4 2.9 4.1 2.5
2009-2013 -3.1 2.4 1.8 2.2 ??
TL;DR
Quote from: Jacob on April 17, 2013, 09:14:07 PM
Quote from: fahdiz on April 17, 2013, 09:02:53 PMWhich one is that, Jake?
I don't know fadhz, why don't you tell us?
I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.
Quote from: fahdiz on April 19, 2013, 11:28:17 AM
I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.
So which is better, frequent and short or infrequent and more severe?
Quote from: MadImmortalMan on April 19, 2013, 12:12:50 PM
Quote from: fahdiz on April 19, 2013, 11:28:17 AM
I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.
So which is better, frequent and short or infrequent and more severe?
Frequent and short
seems to make the system better, primarily because when they are frequent and short they also tend to be milder shocks and contribute to a stronger system overall. Among the analogies Taleb uses, with which I feel a certain amount of agreement, are forest fires and airlines. Smaller forest fires end up preventing the really big forest fires and one accident/quality problem in the airlines, because of the steps taken after such an accident, decrease the likelihood that we'll end up having 15 planes all fall out of the sky later.
It's like finding yourself sliding off the road in a car - overcorrection always makes your slide (and resulting accident) much, much worse.
The current methods of correction for the economy allow much deeper problems to continue, making resulting crashes (which cannot be predicted with any great success) much more disastrous. Our system is so fragile because risk management methods are predicated around predicting the next disaster - x - without focus on our *exposure* to different kinds of shocks - F(x). Historically we do an awful job of predicting x, but it does seem that we can have some success controlling exposure because it is non-predictive.
Quote from: fahdiz on April 19, 2013, 12:22:58 PM
Quote from: MadImmortalMan on April 19, 2013, 12:12:50 PM
Quote from: fahdiz on April 19, 2013, 11:28:17 AM
I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.
So which is better, frequent and short or infrequent and more severe?
Frequent and short seems to make the system better, primarily because when they are frequent and short they also tend to be milder shocks and contribute to a stronger system overall. Among the analogies Taleb uses, with which I feel a certain amount of agreement, are forest fires and airlines. Smaller forest fires end up preventing the really big forest fires and one accident/quality problem in the airlines, because of the steps taken after such an accident, decrease the likelihood that we'll end up having 15 planes all fall out of the sky later.
It's like finding yourself sliding off the road in a car - overcorrection always makes your slide (and resulting accident) much, much worse.
The current methods of correction for the economy allow much deeper problems to continue, making resulting crashes (which cannot be predicted with any great success) much more disastrous. Our system is so fragile because risk management methods are predicated around predicting the next disaster - x - without focus on our *exposure* to different kinds of shocks - F(x). Historically we do an awful job of predicting x, but it does seem that we can have some success controlling exposure because it is non-predictive.
I agree with this and disagree at the same time. It's true that when you manage all the high frequency, low severity risks, what winds up happening is that the risk that will get you is the Black Swan risk. On the other hand, is that necessarily a bad thing? Those high frequency, low severity events can inflict huge costs. Our civilization advanced on the back of eliminating a lot of everyday risks at the cost of making it more vulnerable to mega-disasters, and I think we got a good deal.
We did succeed in preventing the rare, high severity risk. In fact, we haven't had a high severity event in the developed world since the early 1930s. That compares favorably with the record under 19th century laissez faire where catastrophic panics happened roughly every 20 years (e.g. 1857, 1873, 1893, 1907 in the US). The forest fire analogy doesn't work at all in this context because we are dealing with a behavioral system here, not a physical sysem.
Quote from: fahdiz on April 19, 2013, 11:28:17 AM
Quote from: Jacob on April 17, 2013, 09:14:07 PM
Quote from: fahdiz on April 17, 2013, 09:02:53 PMWhich one is that, Jake?
I don't know fadhz, why don't you tell us?
I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.
I don't think that's really pragmatism.
Quote from: DGuller on April 19, 2013, 01:50:58 PM
I agree with this and disagree at the same time. It's true that when you manage all the high frequency, low severity risks, what winds up happening is that the risk that will get you is the Black Swan risk. On the other hand, is that necessarily a bad thing? Those high frequency, low severity events can inflict huge costs. Our civilization advanced on the back of eliminating a lot of everyday risks at the cost of making it more vulnerable to mega-disasters, and I think we got a good deal.
I agree that there are costs associated with high frequency/low severity events, but I think the costs of making ourselves vulnerable to mega-disasters are a bit more hidden and potentially far more severe. It's sort of like paying off an amortized loan over time as opposed to paying less but having a sudden, unexpected, and crippling balloon payment somewhere along the line. I wouldn't say that our current economic structure represents stability; I'd suggest that it gives the illusion of stability while
most benefitting those who capitalize on risk without any real skin in the game.
Furthermore, it's not like we have managed to entirely eradicate high-frequency/low severity events, either. They still exist.
Quote from: Razgovory on April 19, 2013, 06:01:14 PM
Quote from: fahdiz on April 19, 2013, 11:28:17 AM
Quote from: Jacob on April 17, 2013, 09:14:07 PM
Quote from: fahdiz on April 17, 2013, 09:02:53 PMWhich one is that, Jake?
I don't know fadhz, why don't you tell us?
I don't have a prevailing economic theory beyond "often the steps taken to try and 'correct' boom and bust cycles make both the booms and the busts more extreme and more damaging". I generally try to take a pretty pragmatic view of economics - is it working? If not, why do we keep doing it? Etc.
I don't think that's really pragmatism.
OK
Quote from: The Minsky Moment on April 19, 2013, 02:15:28 PM
We did succeed in preventing the rare, high severity risk. In fact, we haven't had a high severity event in the developed world since the early 1930s.
You may have been untouched by the events of 2008 and onward, I suppose.
I typically find your posts exceptionally wise, or at least staggeringly well-informed, but this answer strikes me as one of the most ivory-toweresque things I've ever read from you.
That's because he's employed. They get like that.
Not just employed. If Joan Millions lost his job tomorrow, would his life be likely to substantially materially differ from now till the day he died? Survey says no.
Quote from: Ideologue on April 20, 2013, 11:57:31 AM
Not just employed. If Joan Millions lost his job tomorrow, would his life be likely to substantially materially differ from now till the day he died? Survey says no.
All depends on your spending habits. Joan strikes me as smart but also someone who recognizes quality and enjoys the finer things in life. I imagine his consumption practices would thus probably change if his income flow from his job was turned off, but I also imagine he's smart enough that he's well invested and financially safe from any catastrophic personal financial troubles if his income goes away.
I'd contrast him with several of the head surgeons at my wife's hospital who make about 2x her pay (two of them making over $650k) who are so massively indebted that if their income stream went down even a bit they would rapidly collide with personal bankruptcy.
He's a Jewish lawyer in Manhattan, guys. Fucker's got shoeboxes inside of shoeboxes stashed with cash, and the rest invested in marital aid novelty companies.
Quote from: CountDeMoney on April 20, 2013, 01:24:27 PM
He's a Jewish lawyer in Manhattan, guys. Fucker's got shoeboxes inside of shoeboxes stashed with cash, and the rest invested in marital aid novelty companies.
Who posts on Languish.
Quote from: The Brain on April 20, 2013, 04:07:55 PM
Quote from: CountDeMoney on April 20, 2013, 01:24:27 PM
He's a Jewish lawyer in Manhattan, guys. Fucker's got shoeboxes inside of shoeboxes stashed with cash, and the rest invested in marital aid novelty companies.
Who posts on Languish.
you do.
What's with all the JR hate?
Quote from: crazy canuck on April 20, 2013, 04:25:49 PM
What's with all the JR hate?
Nobody hates Minsky. We just stereotype him. Kinda like we do with you.
Quote from: CountDeMoney on April 20, 2013, 04:29:47 PMNobody hates Minsky. We just stereotype him. Kinda like we do with you.
Thankfully, no one stereotypes me.
Quote from: Xiacob on April 20, 2013, 06:23:10 PM
Quote from: CountDeMoney on April 20, 2013, 04:29:47 PMNobody hates Minsky. We just stereotype him. Kinda like we do with you.
Thankfully, no one stereotypes me.
:yes:
Quote from: Jacob on April 20, 2013, 06:23:10 PM
Quote from: CountDeMoney on April 20, 2013, 04:29:47 PMNobody hates Minsky. We just stereotype him. Kinda like we do with you.
Thankfully, no one stereotypes me.
I know I never do. :hug:
Quote from: Jacob on April 20, 2013, 06:23:10 PM
Quote from: CountDeMoney on April 20, 2013, 04:29:47 PMNobody hates Minsky. We just stereotype him. Kinda like we do with you.
Thankfully, no one stereotypes me.
I do. I love stereotyping.
Quote from: fahdiz on April 19, 2013, 11:54:00 PM
Quote from: The Minsky Moment on April 19, 2013, 02:15:28 PM
We did succeed in preventing the rare, high severity risk. In fact, we haven't had a high severity event in the developed world since the early 1930s.
You may have been untouched by the events of 2008 and onward, I suppose.
I typically find your posts exceptionally wise, or at least staggeringly well-informed, but this answer strikes me as one of the most ivory-toweresque things I've ever read from you.
2008 was terrible but it was terrible in the way that 1982 was terrible or the 70s stagflation was terrible. It doesn't come close to the Great Depression levels of misery, as did the earlier crises we mentioned. I am talking about unemployment rates reaching deep into the 20 percent range and falls in output reaching a quarter of total output - i.e. double what happened in 08-09.
The historical memory of that catastrophe has receded so much that we lack proper standard of comparison anymore. The GD wasn't Chaplinesque charmers with shabby clothes but winning smiles enjoying hijinks. It was middle class people leaving in Mubai-like chanties in Central Park and sleeping on the streets. That is what a real "high severity" economic event looks like, and we should all be very greatful none of us have ever experienced it.
What about other countries like in the Eurozone? They are kind of Western. Greece and Spain were hit pretty hard.
My concern about 2008+ is not that it was as severe as the Great Depression but that almost all the same policies and procedures that led to it are still in place. As long as we continue with business as usual we will still have all the issues with "too big to fail" and other fragilizing political arrangements to have similar events in the future.
Fragilizing? :hmm:
Quote from: Razgovory on April 22, 2013, 10:36:53 AM
What about other countries like in the Eurozone? They are kind of Western. Greece and Spain were hit pretty hard.
Depression level GDP contractions are so far only in Greece, which is at 79% of its pre-crisis GDP/capita in real terms. Cyprus is likely to follow this year.
The rest saw pretty bad contractions, but not really comparable to the desperate situation in Greece. The problem is that we are now in year six after the last peak and a lot of countries look nowhere close to regaining that previous peak.
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fi35.tinypic.com%2F5e76rn.png&hash=f0f2051938ee2255696cbd8977c52a9ef192918f)
Quote from: Admiral Yi on April 22, 2013, 11:51:08 AM
Fragilizing? :hmm:
Building or maintaining systems which specifically create fragile structures, like houses of cards - or our current financial system. Focusing on trying to predict what the next disaster will be (with an awful track record of doing so) rather than focusing on reducing our exposure to as many different kinds of risks as we are aware of.
Some of the policies and procedures that helped cause the financial meltdown are the very policies and procedures that prevent great depressions from recurring. Policies like using the power of the central bank balance to stabilize the market (which becomes the Greespan or Bernanke put). Policies like TARP or TALF that effectively retroactively validate risk-taking. Bailouts to block contagion and maintain confidence (including the no loss to senior bondholders) that generate moral hazard. And of course the granddaddy of financial moral hazard generators: federally-guaranteed deposit insurance.
One reason the Great Depression was such a disaster was because the banking system at the time was highly fragmented, with lots of small banks each heavily focused in a compact geographic area, and perhaps heavily relianct on narrow product lines. These banks had little product or gegraphic diversification, limited captial resources, no outside "sources of strength." They were accordingly prone to failure from a loss of confidence and the contagion from such failure was extreme virulent. The banking system as it has developed since that time is in a sense a reaction to those weaknesses. Banks became larger, more diverse in terms of where and how they got their revenues from. Individually, they are much less "fragile" then the old model George Bailey banks that needed angels and scriptwriters to stay afloat in a crisis. Of course the cost is the the potential impact from any one failure is greater.
Anyways I don't really see the need to control TBTF as being the big message of the 08 meltdown. Lehman's problem wasn't that it was too big; on the contrary, it was probably to narrowly focused. AIG was "too big" but the government bailout worked and Treasury got the money back. Same with the TARP program. Those efforts were hugely successful, at least if one discounts any future moral hazard effect.
As for Taleb, I think his books are getting less and less useful over time in terms of thinking about how the economy and financial system worked. "Fooled by Randomoness" accurately described some of the more common and impactful heuristic biases relating to probability and human decision making. "Black swan" is a bit of a muddle. The problem with financiers making dangerous bets wasn't failure to take into account very infrequent or unpredictable events. The problem was that the fat tail events they ignored weren't really rare or infrequent at all over the time frame in which they operated and they were predictable in gross, if not their exact timing and precise manifestation. Anyone who read Hyman Minsky would understand that dynamic and its cyclical character.
I haven't read the fragile book so won't comment on that work. However, I will say that any financial system constructed is going to have unavoidable fragilities; there is no way to construct a truly antifragile financial system without getting rid of the properties that make it an economically useful thing to have. Leverage and muturity transformation are inherently destabilizing.
Quote from: Razgovory on April 22, 2013, 10:36:53 AM
What about other countries like in the Eurozone?
As Zanza says, Greece is now in a true full-blown Depression event. But that is an event that was avoidable, it took a combination of years of corruption and crookedness on the Greek side, and deliberate policy of economic sabotage from the troika to make that happen.
Quote from: Zanza on April 22, 2013, 11:52:26 AM
Quote from: Razgovory on April 22, 2013, 10:36:53 AM
What about other countries like in the Eurozone? They are kind of Western. Greece and Spain were hit pretty hard.
Depression level GDP contractions are so far only in Greece, which is at 79% of its pre-crisis GDP/capita in real terms. Cyprus is likely to follow this year.
The rest saw pretty bad contractions, but not really comparable to the desperate situation in Greece. The problem is that we are now in year six after the last peak and a lot of countries look nowhere close to regaining that previous peak.
Yeah, it's like watching a crash in slow motion.
GDP is only part of the picture though. Unemployment figures tell a very different story. So does migration - over a million people have left the Spain since 2011 and in Ireland or the Baltics the numbers are just terrifying.
JR, what's your take on Taleb's suggestion that we should nationalize the banks but at the same time ease regulation on hedge funds?
Quote from: The Minsky Moment on April 22, 2013, 12:27:35 PM
One reason the Great Depression was such a disaster was because the banking system at the time was highly fragmented, with lots of small banks each heavily focused in a compact geographic area, and perhaps heavily relianct on narrow product lines. These banks had little product or gegraphic diversification, limited captial resources, no outside "sources of strength."
So...we need something that's halfway between what we have now and what we had then?
Quote from: fahdiz on April 22, 2013, 12:37:12 PM
JR, what's your take on Taleb's suggestion that we should nationalize the banks but at the same time ease regulation on hedge funds?
Hedge funds are not heavily regulated now. The bigger ones do have to register, and there are some disclosure requirements, but it is piddling stuff compared to regulation of deposit taking banks.
Bank nationalization has been tried before and the results have not been encouraging. Banks do still perform vital functions that hedge funds don't. Nationalization likely compromises the effective performance of those functions. It makes the banks vulnerable to public corruption and rent-seeking that is hard to control on that scale. It exposes the fisc to the steady drain of deadweight loss through inefficient or suboptimal management.
Actually I am surprised that Taleb would view the state as some kind of foolproof insulation from stresses. States have their own vulnerabilities and fragilities.
Quote from: MadImmortalMan on April 22, 2013, 12:56:47 PM
So...we need something that's halfway between what we have now and what we had then?
One way or another, you pick your poison. The predominant response to 08-09 was to accept the reality of the big institutions, but try to control downsides through "prudential regulaion", tougher capital requirements, countercyclical provisioning and the like. There is a tradeoff here: the more effective the controls are made to increase robustness, the weaker the ability of the institutions to provide liquidity and risk capital to the private economy. The pendulum swings back and forth as it has in the past and will in the future.
The one thing we human beings can't control is our own future behavior and mental processes. If people think a bridge is well-built, that doesn't make it more or less robust than it actually is. There may be uncertainty about how robust the bridge truly is because of inherent imprecision over engineering tolerances. But even though it is uncertain, it is still and objective physical quality. The same is not true of a bank or a security. There mere opinion can profoundly impact reality. A rock solid bank can collapse due to a purely perceptual shift that takes place entirely in human minds; at the same time, a dubious security can be kept afloat for long periods based on mental euphoria. A bank is not a bridge.
Quote from: The Minsky Moment on April 22, 2013, 12:58:18 PM
Quote from: fahdiz on April 22, 2013, 12:37:12 PM
JR, what's your take on Taleb's suggestion that we should nationalize the banks but at the same time ease regulation on hedge funds?
Hedge funds are not heavily regulated now. The bigger ones do have to register, and there are some disclosure requirements, but it is piddling stuff compared to regulation of deposit taking banks.
Bank nationalization has been tried before and the results have not been encouraging. Banks do still perform vital functions that hedge funds don't. Nationalization likely compromises the effective performance of those functions. It makes the banks vulnerable to public corruption and rent-seeking that is hard to control on that scale. It exposes the fisc to the steady drain of deadweight loss through inefficient or suboptimal management.
Actually I am surprised that Taleb would view the state as some kind of foolproof insulation from stresses. States have their own vulnerabilities and fragilities.
I don't think he does; I think he views the strategy as in line with what he terms a "barbell" - instead of looking for the golden mean, making one disproportionately large side of the equation as boring and "safe" as possible with the other side as risky as is feasible - he argues that this would maximize the potential gain from the risk while mitigating heavily against losses - in other words, being able to take advantage of positive Black Swans while providing little downside to negative stressors.
I don't know if he's right or not; I do know that what we have currently isn't working.
Quote from: Iormlund on April 22, 2013, 12:34:41 PM
GDP is only part of the picture though. Unemployment figures tell a very different story. So does migration - over a million people have left the Spain since 2011 and in Ireland or the Baltics the numbers are just terrifying.
Ireland and the Baltics have at least stabilized. Their unemployment is now below peak levels and their economies have started growing again. It will take years to reach the peak value again though and some of the emigrants may never come back which will hurt in the future.
Quote from: Zanza on April 22, 2013, 11:52:26 AM
Quote from: Razgovory on April 22, 2013, 10:36:53 AM
What about other countries like in the Eurozone? They are kind of Western. Greece and Spain were hit pretty hard.
Depression level GDP contractions are so far only in Greece, which is at 79% of its pre-crisis GDP/capita in real terms. Cyprus is likely to follow this year.
Yeah. I think Cyprus could be even worse, maybe Slovenia too if their situation gets bad. Then we'll get to see how mostly nationalised banks fail.
Quote from: The Minsky Moment on April 22, 2013, 12:27:35 PM
Some of the policies and procedures that helped cause the financial meltdown are the very policies and procedures that prevent great depressions from recurring. Policies like using the power of the central bank balance to stabilize the market (which becomes the Greespan or Bernanke put). Policies like TARP or TALF that effectively retroactively validate risk-taking. Bailouts to block contagion and maintain confidence (including the no loss to senior bondholders) that generate moral hazard. And of course the granddaddy of financial moral hazard generators: federally-guaranteed deposit insurance.
Solution: punishments for those convicted of the new economic crimes. Bad CEO? Lose your assets. Encouraged risky banking practices and lost? TAKE A HAIRCUT.
Skin in the game eliminates moral hazard.
So if Greece is so fucked right now, is it a good time to visit? Should be pretty cheap, right?
Quote from: Ideologue on April 22, 2013, 10:08:06 PM
Solution: punishments for those convicted of the new economic crimes. Bad CEO? Lose your assets. Encouraged risky banking practices and lost? TAKE A HAIRCUT.
Skin in the game eliminates moral hazard.
What's the punishment for elected officials that drive their state or city into bankruptcy?
Throbby: Absolutely. Nontradeables should be pretty damn cheap right now.
Quote from: Berkut on April 22, 2013, 11:30:31 PM
So if Greece is so fucked right now, is it a good time to visit? Should be pretty cheap, right?
Yeah probably, with the usual caveats about staying out of large groups of disaffected youth while travelling.
Quote from: Ideologue on April 22, 2013, 10:08:06 PM
Skin in the game eliminates moral hazard.
Very much so.
Quote from: Berkut on April 22, 2013, 11:30:31 PM
So if Greece is so fucked right now, is it a good time to visit? Should be pretty cheap, right?
Not really. They still have a strong currency and prices are not that flexible going down.
Yeah, they're still in the Euro which isn't cheap and prices haven't fallen a great deal though labour costs have. Their competitors like Turkey, Croatia and Bulgaria are probably far cheaper.
Hmm. Well, that is dissapointing. I guess I won't be planning that long delayed honeymoon then.
Yeah, it turns out the Euro was really a terrible idea for everyone except Germany.
Quote from: Ideologue on April 22, 2013, 10:08:06 PM
Solution: punishments for those convicted of the new economic crimes. Bad CEO? Lose your assets. Encouraged risky banking practices and lost? TAKE A HAIRCUT.
You can't make depositors take a haircut unless you want bank runs.
You can't make senior bondholders take a haircut in a crisis unless you want to risk shutting banks out of the capital markets.
Quote
Dear Paul:
Back in the late 1980s, you helped shape the concept of an emerging market debt overhang. The financial crisis has laid bare the fact that the dividing line between emerging markets and advanced countries is not as crisp as once thought. Indeed, this is a recurring theme of our 2009 book, This Time is Different: Eight Centuries of Financial Folly. Today, the growth bind of advanced countries in the periphery of the eurozone has a great deal in common with that of emerging market economies of the 1980s.
We admire your past scholarly work, which influences us to this day. So it has been with deep disappointment that we have experienced your spectacularly uncivil behavior the past few weeks. You have attacked us in very personal terms, virtually non-stop, in your New York Times column and blog posts. Now you have doubled down in the New York Review of Books, adding the accusation we didn't share our data. Your characterization of our work and of our policy impact is selective and shallow. It is deeply misleading about where we stand on the issues. And we would respectfully submit, your logic and evidence on the policy substance is not nearly as compelling as you imply.
You particularly take aim at our 2010 paper on the long-term secular association between high debt and slow growth. That you disagree with our interpretation of the results is your prerogative. Your thoroughly ignoring the subsequent literature, however, including the International Monetary Fund's work as well as our own deeper and more complete 2012 paper with Vincent Reinhart, is troubling. Perhaps, acknowledging the updated literature-not to mention decades of theoretical, empirical, and historical contributions on drawbacks to high debt-would inconveniently undermine your attempt to make us a scapegoat for austerity. You write "Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics."
Setting aside this wild hyperbole, you never seem to mention our other line of work that has surely been far more influential when it comes to responding to the financial crisis. Specifically, our 2009 book (released before our growth and debt work) showed that recoveries from deep systemic financial crises are long, slow and painful. This was not the common wisdom at all before us, as you yourself have acknowledged on more than one occasion. Over the course of the crisis, and certainly by 2010, policymakers around the world were using our research, alongside their assessments, to help justify sustained macroeconomic easing of both monetary and fiscal policy fronts.
Your desire to blame our later 2010 paper for the stances of some politicians fails to recognize a basic reality: We were out there endorsing very different policies. Anyone with experience in these matters knows that politicians may float a citation to an academic paper if it suits their purposes. But there are limits to how much policy traction they can get with this device when the paper's authors are out offering very different policy conclusions. You can refer to the appendix to this letter for our views on policy through the financial crisis as they were stated publicly in real time. We were not silent.
Very senior former policy makers, observing the attacks of the past few weeks, have forcefully explained that real-time policies are very seldom driven to any significant extent by a single academic paper or result.
It is worth noting that in the past, polemicists have often pinned the austerity charge on the International Monetary Fund for its work with countries having temporary or permanent debt sustainability issues. Since its origins after World War II, IMF programs have almost always involved some combination of austerity, debt restructurings, and structural reform. When a country that has been running large deficits is suddenly no longer able to borrow new funds, some measure of adjustment is invariably required, and one of the IMF's usual roles has been to serve as a lightning rod. Even before the IMF existed, long periods of autarky and hardship accompanied debt crises.
Now let us turn to the substance. The events of the past few weeks do not change basic facts and fundamentals.
Some Fundamentals on Debt
First, the advanced economies now have levels of debt that surpass most if not all historic episodes. It is public debt and private debt (which often becomes public as a crisis unfolds). Significant shares of these debts are held by foreigners in most cases, with the notable exception of Japan. In Europe, where the (public and private) external debt exposures loom largest, financial de-globalization is well underway. Debt financing has become an increasingly domestic business and a difficult one when the pool of domestic saving is limited.
As for the United States: our only short-lived high-debt episode involved WWII debts, which were held by domestic residents, not fickle international investors or central banks in China and elsewhere around the globe. This observation is not meant to suggest "a scare" in the offing, with bond vigilantes driving a concerted sell-off of Treasuries by the rest of the world and a dramatic spike US in interest rates. Carmen's work on financial repression suggests a different scenario. But many emerging markets have stepped into bubble-like territory and we have seen this movie before. We should not take for granted their prosperity that makes possible their continuing large-scale purchases of US debt. Reversals are possible. Sensible risk management means planning for these and other contingencies that might disturb today's low global interest rate environment.
Second, on debt and growth. The Herndon, Ash and Pollin paper, using a different methodology, reinforces our core result that high levels of debt are associated with lower growth. This fact has been hidden in the tabloid media and blogosphere discourse, but this point is made plain by even a cursory look at the full set of results reported in the very paper they critique. More importantly, the result was prominently featured in our 2012 Journal of Economic Perspectives paper with Vincent Reinhart on Debt Overhangs, which they do not cite. The main point of our 2012 paper is that while the difference in annual GDP growth between high and lower debt cases is about one percent a year, debt overhang episodes last on average 23 years. Thus, the cumulative effect on income levels over time is significant.
Third, the debate of the last few weeks does not change the fact that debt levels above 90% (even if one entirely rejects this marker for gross central government debt as a common cross-country "threshold") are very rare altogether and even rarer in peacetime. From 1955 until right before the recent crisis, advanced economies spent less than 10% of those years at a debt/GDP ratio of higher than 90%; only about two percent of the years are above 120% debt/GDP. If governments thought high debt was a riskless proposition, why did they avoid it so consistently?
Debt and Growth Causality
Your recent April 29, 2013 NY Times blog The Italian Miracle is meant to highlight how in high-debt Italy, interest rates have come down since the European Central Bank's well-placed efforts to act more as a lender of last resort to periphery countries. No disagreement there. However, this positive development is meant to re-enforce your strongly held view that high debt is not a problem (even for Italy) and that causality runs exclusively from slow growth to debt. You do not mention that in this miracle economy, GDP fell by more than 2 percent in 2012 and is expected to fall by a similar amount this year. Elsewhere you have stated that you are sure that Italy's long-term secular growth/debt problems, which date back to the 1990s, are purely a case of slow growth causing high debt. This claim is highly debatable.
Indeed, your repeatedly-expressed view that slow growth causes high debt but not visa-versa, is hardly supported by the recent literature on the subject. Of course, as we have already noted, this work has been singularly ignored in the public discourse of the past few weeks. The best and worst that can be said is that the results are mixed. A number of studies looking at more comprehensive growth models have found significant effects of debt on growth. We made this point in the appendix to our New York Times piece. Of course, it is well known that the economic cycle impacts government finances and therefore debt (causation from growth to debt). Cyclically adjusted budgets have been around for decades, your shallow characterization of the growth-debt connection.
As for ways debt might affect growth, there is debt with drama and debt without drama.
Debt with drama. Do you really think that a country that is suddenly unable to borrow from international capital markets because its public and/or private debts that are a contingent public liability are deemed unsustainable will not suffer lower growth and higher unemployment as a consequence? With governments and banks shut out from international capital markets, credit to firms and households in periphery Europe remains paralyzed. This credit crunch has a crippling effect on growth and employment with or without austerity. Fiscal austerity reinforces the procyclicality of the external and domestic credit crunch. This pattern is not unique to this episode.
Policy response to debt with drama. On the policy response to this sad state of affairs, we stress that restoring the credit channel is essential for sustained growth, and this is why there is a need to write off senior bank debt in many countries. Furthermore, there is no reason why the ECB should buy only sovereign debt-purchases of senior bank debt along the lines of the US Federal Reserve's purchases of mortgage-backed securities would be instrumental in rekindling credit and working capital for firms. We don't see your attraction to fiscal largesse as a substitute. Periphery Europe cannot afford it and for Germany, which can afford it, fiscal expansion would be procyclical. Any overheating in Germany would exert pressure on the ECB to maintain a tighter monetary policy, backtracking some of the progress made by Mario Draghi. A better use of Germany's balance sheet strength would be to agree on faster and bigger haircuts for the periphery, and to support significantly more expansionary monetary policy by the ECB.
Debt without drama. There are other cases, like the US today or Japan since the mid-1990s, where there is debt without drama. The plain fact that we know less about these episodes is a point we already made in our New York Times piece. We pointedly do not include the historical episodes of 19th century UK and Netherlands among these puzzling cases. Those imperial debts were importantly financed by massive resource transfers from the colonies. They had "good" high-debt centuries because their colonies did not. We offer a number of ideas in our 2012 paper for why debt overhang might matter even when there is no imminent collapse of borrowing capacity.
Bad shocks do happen. What is the foundation for your certainty that as peacetime debt hits new records in coming years, the United States will be able to engage in forceful countercyclical fiscal policy if hit by a large unexpected shock? Furthermore, do you really want to find out the answer to that question the hard way?
The United Kingdom, which does not issue a reserve currency, is more dependent on its financial sector and suffered a bigger banking bust, has not had the same shale gas revolution, and is more vulnerable to Europe, is clearly more exposed to the drama scenario than the US. And yet you regularly assert that the situations in the US and UK are the same and that both countries have the costless option of engaging in an open-ended fiscal expansion. Of course, this does not preclude high-return infrastructure investments, making use of the public balance sheet directly or indirectly through public-private partnerships.
Policy response to debt without drama. Let us be clear, we have addressed the role of somewhat higher inflation and financial repression in debt reduction in our research and in numerous pieces of commentary. As our appendix shows, we did not advocate austerity in the immediate wake of the crisis when recovery was frail. But the subprime crisis began in the summer of 2007, now six years ago. Waiting 10 to 15 more years to deal with a festering problem is an invitation for decay, if not necessarily an outright debt crisis. The end may not come with a bang but with a whimper.
Scholarship: Stick to the facts
The accusation in the New York Review of Books is a sloppy neglect on your part to check the facts before charging us with a serious academic ethical infraction. You had already implicitly endorsed this from your perch at the New York Times by posting a link to a program that treated the misstatement as fact.
Fortunately, the "Wayback Machine" crawls the Internet and periodically makes wholesale copies of web pages. The debt/GDP database was first archived in October 2010 from Carmen's University of Maryland webpage. The data migrated to ReinhartandRogoff.com in March 2011. There it sits with our other data, on inflation, crises dates, and exchange rates. These data are regularly sought and found for those doing research who care to look. The greater disclosure of debt data from official institutions is testament to this. The IMF began to construct historical public debt data only after we had provided a roadmap in the list of our detailed references in a 2009 book (and before that in a 2008 working paper) that explained how we had unearthed the data.
Our interaction with scholars and practitioners working on real world questions in our field is ongoing, and our doors remain open. So to accuse us of not sharing our data is an unfounded attack on our academic and personal integrity.
Recap
Finally, we attach, as do many other mainstream economists, a somewhat higher weight on risks than you do, as debts of all measure -- including old age liabilities, public debt, private debt and external debt -- ascend into record territory. This is not a conclusion based on one or two papers as you sometimes seem to imply, but rather on a long-standing body of economic research and extensive historical experience about the risks of record high debt levels.
You often cite John Maynard Keynes. We read Keynes, all the way through. He wrote How to Pay for the War in 1940 precisely because he was not blasé about large deficits - even in support of a cause as noble as a war of survival. Debt is a slow-moving variable that cannot - and in general should not - be brought down too quickly. But interest rates can change much more quickly than fiscal policy and debt.
You might be right, and this time might be, after all, different. If so, we will admit that we were wrong. Whatever the outcome, we intend to be there to put the results in proper context for the community of scholars, policymakers, and civil society.
Respectfully yours,
Carmen M. Reinhart and Kenneth S. Rogoff
Harvard University.
The econ blogosphere has gone critical over this. Even made Mankiw's blog and he rarely updates.
I really think R&R should have just let this lie. It's true that Krugman's blog is infected with a snarky tone and its ratio of light to heat is much lower than optimal. But IMO Krugman's comments on R&R - at least the ones I saw - seemed quite restrained by his standards. He has said over and over again that the real problem was not the R&R paper itself or R&R, but what others did in misinterpreting the paper. His only real beef vs. R&R is that R&R were not aggressive enough debunking the abuses of their paper by Ryan et al (which has some truth to it but IMO not totally fair) and their failure to unambiguously reject the notion of 90% as a critical breakpoint. The latter criticism is somewhat fair and in fact is reinforced by this very letter which while rejecting the literal threshhold cites to the 90% line. Also - Krugman's line about the influence with the paper, while hyperbolic, is essentially true. R&R's suggestion that Krugman rejects the "association" between high debt and slow growth is not true. I could go on but there is a lot in this letter that is dubious.
The bigger point is that R&R have a broader problems to deal with than the annoying gadfly that is Paul Krugman. The questions he has posed are also being asked insistently by a lot of others in the profession. I really don't think they did themselves a service by writing such a public document that raises the personal aspects of this to a higher level.
Preliminary draft working paper from Arin Dube at UMass, testing the R&R theory for reverse causation: https://dl.dropboxusercontent.com/u/15038936/RR%20Timepath/Dube_Growth_Debt_Causation.pdf
Tentantive results are that after accounting for potential reverse causality, the correlation dimishes significantly and the regression results are no longer statiscally significant.
Note that UMass' economics deparment is pretty well known for its left-leaning tendencies, for whatever that matters.
Not sure what that means.
Can you dumb it down for us?
Does it mean we should just keep on spending money we don't have?
A couple of my beer-drinking buddies are English PhDs from UMASS. I suspect they're a bit on the left but they do a good job hiding it.
Quote from: Admiral Yi on April 22, 2013, 11:39:50 PM
Quote from: Ideologue on April 22, 2013, 10:08:06 PM
Solution: punishments for those convicted of the new economic crimes. Bad CEO? Lose your assets. Encouraged risky banking practices and lost? TAKE A HAIRCUT.
Skin in the game eliminates moral hazard.
What's the punishment for elected officials that drive their state or city into bankruptcy?
Throbby: Absolutely. Nontradeables should be pretty damn cheap right now.
An interesting notion. Are you suggesting that public officials should be paid on the basis of the financial situation of the entity they represent?
Bringing back ostracism would be a good move.
Quote from: Berkut on May 31, 2013, 12:02:54 PM
Not sure what that means.
It means one of the following:
1. High debt levels do not cause lower economic growth in the future.
2. High debt levels do decrease future economic growth, but the data we have is insufficient to prove that with confidence.
It does seem to be clear that lower economic growth tends to cause debt to increase.
So as I suspected, it turns out that high debt is awesome, and we can just spend forever and ever without any concern.
Quote from: Berkut on May 31, 2013, 12:44:32 PM
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.
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.
Quote from: Berkut on May 31, 2013, 12:44:32 PM
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"
Quote from: The Minsky Moment on May 31, 2013, 12:51:47 PM
Quote from: Berkut on May 31, 2013, 12:44:32 PM
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.
Quote from: Berkut on May 31, 2013, 12:44:32 PM
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?
Quote from: derspiess on May 31, 2013, 12:49:00 PM
Quote from: Berkut on May 31, 2013, 12:44:32 PM
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.
Quote from: Berkut on May 31, 2013, 01:03:53 PM
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 :P
Quote from: Sheilbh on May 31, 2013, 01:10:49 PM
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.
Quote from: Berkut on May 31, 2013, 01:03:53 PM
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.
Quote from: Admiral Yi on May 31, 2013, 01:19:36 PM
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.
Is the ECB not buying sovereigns? I thought it was.
A country has to ask for an intervention before the ECB can act, Yi.
I'm pretty sure this was the original spreadsheet:
(https://languish.org/forums/proxy.php?request=http%3A%2F%2Fcarywalkin.files.wordpress.com%2F2013%2F02%2F2-17-13-arena.jpg&hash=f3edef6718820ebcafa69ac1e0d1dcf794683db6)
Quote from: Admiral Yi on May 31, 2013, 01:29:07 PM
Is the ECB not buying sovereigns? I thought it was.
They are lending money to banks for the purpose of buying sovereigns, IIRC.
I'm buying pieces of eight like crazy right now.
Quote from: Admiral Yi on May 31, 2013, 01:29:07 PM
Is the ECB not buying sovereigns? I thought it was.
It sort-of is. Their program wasn't direct intervention like the Fed's or BoE's and it was also far smaller. So it peaked this time last year, total ECB bond-buying was about €200 billion and I don't think they've been doing anywhere near as much in the last 6-9 months.
They've announced the OMT program (outright monetary transactions) which could lead to unlimited purchases if certain conditions are met, but the ECB have said they'd sterilise them (unlike the Fed and the BofE). But they've not actually had to intervene yet. So far the program's existence alone has had a remarkable effect. It probably helps that in a revolutionary move an EU body tried to get things in place before a crisis forced their hand in a 5am summit at the Lipsius :lol:
This is interesting on the subject:
http://www.voxeu.org/article/panic-driven-austerity-eurozone-and-its-implications
Quote
Submitted by F.F.Wiley via Cyniconomics blog,
You may have seen the new skirmishes this weekend in the very public debate about Carmen Reinhart's and Kenneth Rogoff's government debt research. Reinhart and Rogoff (I'll call them RR) posted a letter to Paul Krugman on Reinhart's website, in response to a piece that Krugman wrote for The New York Review of Books.
Krugman, of course, is one of the pundits who last month published "incomplete, exaggerated, erroneous and misleading" reports about RR's research, as I explained at the time. Unlike some of the others involved, he kept the smear campaign alive and all but guaranteed RR's latest response. I'll recap the weekend's exchange in a moment, but not before offering my take on Krugman's MO.
Observations on Krugman's campaign for more deficit spending
I'll start with an excerpt from my April 27 article, "More Reasons to Call Off the Reinhart-Rogoff Witch Hunt":
[The] question of how much debt is too much is an extremely important question. And RR's many critics make no attempt whatsoever to answer it (if I'm wrong about this, please send me the research), even as they bash two researchers who've been leading the way to possible answers since well before their 2010 paper.
It seems to me that you can say two things about the many pundits on this issue:
1. Commentators in the U.S. who've both looked under the surface of our fiscal challenges (see the problems with official numbers in articles such as this and this) and seriously considered the question "How much is too much?" have come away alarmed.
2. Of the commentators on the other side – those now crowing over the misinformation that's spread all the way from Rortybomb to the Colbert Report – I don't know of any who've attempted to do the same due diligence and answer the all-important question.
Well, I still haven't found an RR critic who's made a genuine effort to estimate how much debt is too much. But I did force myself to search a little further, and my search coincidentally focused on Krugman. I read End This Depression Now, his 2012 book, from cover to cover.
This wasn't my idea of a good read, but I try to make my reading list as balanced as I can stand. In this case, I was looking for counter-evidence to my assertions above. I wanted to see if there was anything more to Krugman's positions than über-Keynesianism and boasts that his adversaries were proven wrong. He writes incessantly about inaccurate inflation and interest rate forecasts made by so-called "austerians" – those who've dared to express concerns about America's soaring government debt – while arguing that these erroneous forecasts somehow prove his policy advice correct.
But his logic is full of holes. Near-term inflation and interest rate predictions have little to do with one's beliefs about the mostly long-term risks of excessive debt. I don't doubt that some forecasters have made faulty predictions. I know for a fact, though, that there are many who've opposed Krugman's deficit spending recommendations while at the same time either accurately forecasting inflation and interest rates or not making any predictions at all. By my estimates, the second group is large and the first not so much.
How Reinhart and Rogoff Spoiled My Holiday
So, what does all of this have to do with RR's letter to Krugman?
Well, just when I'd gotten through End This Depression Now and thought I could go back to reading stuff that makes sense to me, I learned of the RR post and felt compelled to read through Krugman's latest attacks. And then I felt compelled to write – not just to offer my two cents on this weekend's scuffle, but also to draw some parallels between the current debate and Krugman's book. So much for my planned holiday reading of either The Bankers' New Clothes or more of The Great Deformation. (I know, I'll get over it.)
In any case, here's my list of takeaways from RR versus PK, Memorial Day weekend edition:
• Using Internet archives (the "WayBackMachine"), RR demonstrated that their data was publicly available as far back as 2010, contrary to PK's accusations that this data was withheld. (As I said in earlier posts, I've downloaded their spreadsheets in the past and knew they were available.)
• RR showed that they've recommended policies intended to reduce austerity, contrary to their portrayal by PK as tireless austerity advocates.
• RR counterpunched on the question of debt-to-growth causality. (And yes, everyone recognizes this isn't determined wholly by correlation.) They responded to the accusation that they put too much weight on the causal effects of high debt on growth with an argument that PK puts too much weight on the causal effects of low growth on debt.
• Krugman eventually retreated to a core position that RR should have prevented impressionable policymakers from over-interpreting their 90% debt-to-GDP threshold. (I offered my opinion on these accusations here.)
For longer summaries, I recommend reading Econbrowser (James Hamilton) and economicprinciples (David Warsh).
Here's the discussion we should be having
Now I'll jump from RR versus PK to F.F. Wiley versus PK. (And no, I don't expect a response, but I'll say my piece anyway.)
Not surprisingly, End This Depression Now reads like a longer version of Krugman's blog. If you're one of his followers, you'll be even more convinced that poor inflation and interest rate forecasts by the "austerian" crowd provide the evidence needed to justify massive deficit spending. Never mind those of us who've forecast inflation and interest rates correctly, or not at all, and yet still believe his fiscal policy views are too extreme.
As I said above, I couldn't find a genuine effort to estimate how much debt is too much. But Krugman's book does include a section titled "What about the Burden of Debt?" This is two pages long, running from the top of page 141 to the top of page 143. Here's an excerpt:
The key thing to bear in mind is that the $5 trillion or so in debt America has run up since the crisis began, and the trillions more we'll surely run up before this economic siege is over, won't have to be paid off quickly, or indeed at all. In fact, it won't be a tragedy if the debt actually continues to grow, as long as it grows more slowly than the sum of inflation and economic growth.
To illustrate this point, consider what happened to the $241 billion in debt the U.S. government owed at the end of World War II ... this amounted to about 120 percent of GDP (compared with a combined federal, state, and local debt of 93.5 percent of GDP at the end of 2010). How was that debt paid off? The answer is that it wasn't.
Krugman goes on to discuss post-World War II debt developments, while providing some incredibly misleading debt service calculations, but I'll leave those for another day. I've shared the excerpt because it seems to tie into the RR debate. Consider the following:
• By using the post-World War II experience to dismiss our current debt problems, Krugman essentially suggests a debt threshold of 120% of GDP. He says nothing about debt above 120%, but he's suggesting that we shouldn't worry as long as we're below 120%. It's a threshold, all the same.
• For all the bellyaching about RR's data choices, they've built the world's most extensive government debt database (to my knowledge). Their most recent paper on debt and growth, published in 2012 and largely ignored by their critics, examined 26 high debt episodes in 22 countries. Krugman's threshold, on the other hand, is based on one high debt episode in one country.
• There are many reasons to believe that our World War II debt was far less troubling than today's challenges. One of these is that we were running gigantic non-defense budget surpluses, which meant that we balanced the budget after the war by merely bringing our soldiers home and returning factories to civilian use. As I discussed here and here, balanced budgets and financial repression were the critical ingredients in our success at whittling away war debt, and were more important than the "mild inflation and substantial economic growth" cited by Krugman.
• Outside of the natural slippage that occurs in recessions, our post-war leaders truly detested budget deficits. Presidents Harry Truman and Dwight Eisenhower restored surpluses within two years of every 1940s and 1950s recession, while mostly dismissing Keynesian theories that were being shaped in academia at that time. Truman even raised taxes to help pay for the Korean War (what a novel idea!), while Eisenhower went so far as to claim that "continued deficit spending is immoral."
In other words, there are several layers of contradictions in Krugman's reliance on the post-World War II period to support calls for more stimulus. Perhaps most glaringly, the reduction to a 60% debt-to-GDP ratio by 1957 (about half of the 1946 figure) was achieved partly by avoiding the types of Keynesian stimulus measures that have since helped push debt back above 100% of GDP. If Krugman's ideas about deficits existed at all in the 1950s, they certainly had no influence in policymaking circles, where old-fashioned principles of fiscal discipline still held sway. And without Truman's and Eisenhower's un-Krugman-like beliefs, the success story that he cites as a reason to be unconcerned wouldn't have unfolded the way that it did.
Krugman's use of this decidedly non-Keynesian episode of debt reduction to justify his Keynesian beliefs reminds me of the many times (too many) that I've encountered "circular reference" errors in Excel. His logic is no less flawed or "circular." But since there's no spreadsheet involved, I'll call it an error of induction.
Getting back to RR versus PK, Krugman refuses to walk away from a smear campaign that's based on overblown accusations of questionable thresholds, selective data use and a spreadsheet error.
I think it's time to change focus and consider the questionable thresholds, selective data use and induction error in Krugman's work.
Man, Free market fundamentalists get really pissy if you criticize their religion.
The point about post ww2 debt is key to me in this entire debate.
WW2 debt was at 120%, but that was the result of us fighting the largest war in humn history, and there was never any idea that this was an a-ok place to be. Rather it was seen as a necessary evil to be ended as quickly as possible.
Citing this as an example of where crazy debt is fine is comepltely counter-factual to what happened. It was not fine, and it was adressed as quickly as possible. Nobody was saying "Hey, 120% os great! We can just spend like this forever!". Quite the opposite in fact.
But that appears to be the message now - debt debt debt, and if you suggest that we should be concerned about the level, or suggest that there might come SOME point SOMEWHERE that there is too much, the attack dogs come out in full force.
This is exactly what I mean when I say I can never trust the left on fiscal matters. No matter what the circumstance, right now is NEVER the time not to spend some more. It is always soon - right around the corner. That is when we should not spend more more more. A few more years. Or maybe it was a few years ago.
But NOW? The answer NOW is always more, and there is never, ever, ever any kind of definitive statements of how much is enough. Not when it comes to debt, not when it comes to taxes, not when it comes to spending levels. The magic number is always "More than we are spending/borrowing/taxing right now".
So when are you moving to Europe, Berkie? I hear austerity is all the rage there.
Quote from: CountDeMoney on June 01, 2013, 11:48:41 PM
So when are you moving to Europe, Berkie? I hear austerity is all the rage there.
Nah, I like it here just fine.
And I don't care one bit about "austerity". That is just bullshit jargon.
I care about sane and rational spending policies, rather than pie in the sky "Golly, these numbers tell us we can just keep on borrowing forever and ever! It is all going to be just fine!"
And given your dismay over the Chinese, I am surprised you are such a huge fan of getting even more in hock to them than we already are...
Quote from: Berkut on June 01, 2013, 11:25:17 PM
The point about post ww2 debt is key to me in this entire debate.
WW2 debt was at 120%, but that was the result of us fighting the largest war in humn history, and there was never any idea that this was an a-ok place to be. Rather it was seen as a necessary evil to be ended as quickly as possible.
Citing this as an example of where crazy debt is fine is comepltely counter-factual to what happened. It was not fine, and it was adressed as quickly as possible. Nobody was saying "Hey, 120% os great! We can just spend like this forever!". Quite the opposite in fact.
But that appears to be the message now - debt debt debt, and if you suggest that we should be concerned about the level, or suggest that there might come SOME point SOMEWHERE that there is too much, the attack dogs come out in full force.
This is exactly what I mean when I say I can never trust the left on fiscal matters. No matter what the circumstance, right now is NEVER the time not to spend some more. It is always soon - right around the corner. That is when we should not spend more more more. A few more years. Or maybe it was a few years ago.
But NOW? The answer NOW is always more, and there is never, ever, ever any kind of definitive statements of how much is enough. Not when it comes to debt, not when it comes to taxes, not when it comes to spending levels. The magic number is always "More than we are spending/borrowing/taxing right now".
Talk about BS. :rolleyes:
Quote from: Berkut on June 01, 2013, 11:25:17 PM
The point about post ww2 debt is key to me in this entire debate.
WW2 debt was at 120%, but that was the result of us fighting the largest war in humn history, and there was never any idea that this was an a-ok place to be. Rather it was seen as a necessary evil to be ended as quickly as possible.
Citing this as an example of where crazy debt is fine is comepltely counter-factual to what happened. It was not fine, and it was adressed as quickly as possible. Nobody was saying "Hey, 120% os great! We can just spend like this forever!". Quite the opposite in fact.
But that appears to be the message now - debt debt debt, and if you suggest that we should be concerned about the level, or suggest that there might come SOME point SOMEWHERE that there is too much, the attack dogs come out in full force.
This is exactly what I mean when I say I can never trust the left on fiscal matters. No matter what the circumstance, right now is NEVER the time not to spend some more. It is always soon - right around the corner. That is when we should not spend more more more. A few more years. Or maybe it was a few years ago.
But NOW? The answer NOW is always more, and there is never, ever, ever any kind of definitive statements of how much is enough. Not when it comes to debt, not when it comes to taxes, not when it comes to spending levels. The magic number is always "More than we are spending/borrowing/taxing right now".
Geez, Berkut, stop shaking so much, you're spraying the mouth foam all over the place.
Quote from: Berkut on June 01, 2013, 11:59:31 PM
I care about sane and rational spending policies, rather than pie in the sky "Golly, these numbers tell us we can just keep on borrowing forever and ever! It is all going to be just fine!"
And given your dismay over the Chinese, I am surprised you are such a huge fan of getting even more in hock to them than we already are...
Not a fan at all; however, I do find your aversion to spending as borderline Ryan/Cantor/Coburn clinical, considering all the work that's been accomplished the last few years.
Never mind that the deficit has been dropping at a pace unseen in generations at $400B in just this one year and $800B since Obama took office, or that the unemployment rate and the broader economy has had to suffer the brunt of your precious reduced spending, or that we're passing on all these historically low interest rates not to borrow upon and invest in order to make deficit hawks like you happy, but considering how the CBO said just this month--
QuoteIf the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, CBO estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.
--I'm curious as to when you think the end to "all this borrowing forever and ever" is going to be satisfied. In your "sane and rational" opinion, of course.
Quote from: DGuller on June 02, 2013, 02:28:28 AM
Geez, Berkut, stop shaking so much, you're spraying the mouth foam all over the place.
You don't understand, POORS ARE GETTING HIS MONEY!!!!!!!1111 It's fine if the cash goes to the army. Berkut had no problem with vast amounts of debt wracked up by the Iraq war. Sure he was unhappy about debt, but cut anything but that.
Man, free spending liberals get really pissy when you criticize their religion. :lol:
Quote from: Admiral Yi on June 02, 2013, 08:03:50 AM
Man, free spending liberals get really pissy when you criticize their religion. :lol:
When I said that, I was thinking of you and how pissy you got when dared suggest that the Free market fundamentalists of the Austrian School are adverse to mathematical models and similar empirical methods. In essence it's faith based economics.
:lol:
Exactly like Keynesianism.
Not to my knowledge. I've always noticed there are a lot more forced laughs when someone is backed in a corner. Tell me Yi, does it bother you that the economic drum you were beating, failed so catastrophically for the British? That the rush to reduce deficit not only failed devastated economic growth but didn't actually cut deficit spending?
Quote from: CountDeMoney on June 02, 2013, 02:48:46 AM
Quote from: Berkut on June 01, 2013, 11:59:31 PM
I care about sane and rational spending policies, rather than pie in the sky "Golly, these numbers tell us we can just keep on borrowing forever and ever! It is all going to be just fine!"
And given your dismay over the Chinese, I am surprised you are such a huge fan of getting even more in hock to them than we already are...
Not a fan at all; however, I do find your aversion to spending as borderline Ryan/Cantor/Coburn clinical, considering all the work that's been accomplished the last few years.
Never mind that the deficit has been dropping at a pace unseen in generations at $400B in just this one year and $800B since Obama took office, or that the unemployment rate and the broader economy has had to suffer the brunt of your precious reduced spending, or that we're passing on all these historically low interest rates not to borrow upon and invest in order to make deficit hawks like you happy, but considering how the CBO said just this month--
QuoteIf the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, CBO estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.
--I'm curious as to when you think the end to "all this borrowing forever and ever" is going to be satisfied. In your "sane and rational" opinion, of course.
I love how you define NOT borrowing as simply borrowing less from the historically high levels of borrowing we have been doing.
Budget deficits are going down? Good.
This *exactly* proves my point. We run up the highest budget deficits ever, and then define "restraint" as not running quite so high a deficit next year. This is exactly what is always done, and exactly what I said would be done back when we first started running up insane debt disguised as "stimulus".
Quote from: Admiral Yi on June 02, 2013, 08:03:50 AM
Man, free spending liberals get really pissy when you criticize their religion. :lol:
Indeed. What is sad is how you can't tell the qualitiative difference anymore between posts from DG and Raz and Seedy. They all basically have the same one trick pony as a response. ZOMG BERKUT IS SO ANGRY!!!LOLOLOLOL!!!!
I don't think you're angry. I just think you don't know the difference between good deficits and bad deficits--it's all bad to you. Which in itself is a one trick pony.
Quote from: Razgovory on June 02, 2013, 09:17:51 AM
Not to my knowledge. I've always noticed there are a lot more forced laughs when someone is backed in a corner. Tell me Yi, does it bother you that the economic drum you were beating, failed so catastrophically for the British? That the rush to reduce deficit not only failed devastated economic growth but didn't actually cut deficit spending?
We've been over this before. And I assume we'll go over it again. And again.
I've read about a quarter of The Road to Serfdom. I didn't encounter a single economic statistic. I've read a few chapter of A General Theory. I didn't encounter a single economic statistic there either. If the absence of statistics in one proves that the author disregards data that conflicts with his theory, then it follows that the same is true for the other.
If your critique of the Austrian school is that Glenn Beck predicted runaway hyperinflation because of the Fed's easy money policy, which obviously hasn't come to pass, then the response is that Ann Applebaum, who is an actual economist rather than a weirdo talk show host, predicted 860 billion in stimulus would return us to full employment and positive growth in one quarter, which didn't happen either. Does that "disprove" Keynesianism? Of course not.
Quote from: Berkut on June 02, 2013, 09:41:50 AM
Quote from: Admiral Yi on June 02, 2013, 08:03:50 AM
Man, free spending liberals get really pissy when you criticize their religion. :lol:
Indeed. What is sad is how you can't tell the qualitiative difference anymore between posts from DG and Raz and Seedy. They all basically have the same one trick pony as a response. ZOMG BERKUT IS SO ANGRY!!!LOLOLOLOL!!!!
If everyone is commenting on your crazy behavior in all likelihood the problem doesn't lie in everyone else.
Quote from: Admiral Yi on June 02, 2013, 10:24:20 AM
Quote from: Razgovory on June 02, 2013, 09:17:51 AM
Not to my knowledge. I've always noticed there are a lot more forced laughs when someone is backed in a corner. Tell me Yi, does it bother you that the economic drum you were beating, failed so catastrophically for the British? That the rush to reduce deficit not only failed devastated economic growth but didn't actually cut deficit spending?
We've been over this before. And I assume we'll go over it again. And again.
I've read about a quarter of The Road to Serfdom. I didn't encounter a single economic statistic. I've read a few chapter of A General Theory. I didn't encounter a single economic statistic there either. If the absence of statistics in one proves that the author disregards data that conflicts with his theory, then it follows that the same is true for the other.
If your critique of the Austrian school is that Glenn Beck predicted runaway hyperinflation because of the Fed's easy money policy, which obviously hasn't come to pass, then the response is that Ann Applebaum, who is an actual economist rather than a weirdo talk show host, predicted 860 billion in stimulus would return us to full employment and positive growth in one quarter, which didn't happen either. Does that "disprove" Keynesianism? Of course not.
You know that "I read a couple of chapters of two books and saw an equal number of statistics" is one of the least compelling arguments I've ever read. The Austrian school is notorious for it's dislike of mathematical models. That's what I was getting at.
Your stuff about Glenn Beck and Applebaum (She's an economist? I thought she was just a poor historian), is lost on me. The failure I was talking about the deficit cutting scheme that failed in Britain and similar schemes pushed pushed by people like Paul Ryan.
Remember, the US is wasting $150 billion every year by allowing the USAF to exist.
Quote from: Razgovory on June 02, 2013, 10:55:41 AM
The Austrian school is notorious for it's dislike of mathematical models. That's what I was getting at.
This is a change from your previous characterization. Before you were claiming that members of the Austrian school disregarded empirical observations that contradicted their theories.
QuoteYour stuff about Glenn Beck and Applebaum (She's an economist? I thought she was just a poor historian), is lost on me. The failure I was talking about the deficit cutting scheme that failed in Britain and similar schemes pushed pushed by people like Paul Ryan.
You may be right. Either way, someone in the White House (Goolsby?) made that prediction and it didn't come true.
Not really sure how you can describe a budget proposal that was never enacted (Ryan's) as a failure in terms of maintaining American credit-worthiness. Are we talking about an alternate universe? :unsure:
Your description of British austerity as a failure is a little puzzling as well. The testable hypothesis is whether there is a causal relationship between national indebtedness and risk premia. You seem to be claiming that since Britain cut spending and the deficit increased as a % of GDP that "disproves austerity."
As a side note, the usage of the term austerity has become sort of ridiculous. If you're spending 10% more than you earn and you drop that to "only" 6% more than you earn, that's not "austere." That's spending more than you earn.
Quote from: CountDeMoney on June 02, 2013, 10:09:03 AM
I don't think you're angry. I just think you don't know the difference between good deficits and bad deficits--it's all bad to you. Which in itself is a one trick pony.
I don't think that is my issue at all. It isn't about good and bad, it is about what is the actual motivation for deficits. My issue is not whether it is good or bad, it is that as far as I can tell, the position of people like you is that there is no such thing as a bad deficit. I've never once heard your type say that there is a time for restraint.
This isn't, for me, about what the money is used for, it is that this is just another example of the lefts tendency to only ever look at half the equation. They only ever look at what the desirability of spending money might be, and never at the capability of generating that money to begin with. The assumption is that as long as you can justify the want/need/desire to spend, the ability to actually spend is irrelevant.
Which is why the debate is almost always emotional in nature. It is always "Oh, you want poor people to starve? You want to take away health care from children? You want old people to have to eat cat food?". It is never, from what I can see, a rational and reasoned discussion about how best to spend what we can afford to pay for social services.
Now we've taken that position to the extreme. It seems to me that the argument has become that we CANNOT spend too much - that deficit spending, in an of itself, is some kind of noble goal that through the magic of economics somehow puts all of economic history on hold, because THIS time it is different.
Quote from: Admiral Yi on June 02, 2013, 11:24:56 AMAs a side note, the usage of the term austerity has become sort of ridiculous. If you're spending 10% more than you earn and you drop that to "only" 6% more than you earn, that's not "austere." That's spending more than you earn.
I'll come back here later, but this interests me.
I think you're totally wrong on your point but the use of austerity is odd. I'm really surprised the word's gone global because for me I think it's from British English from the war. 1940s Britain is known as 'austerity Britain'. In this country I think both sides of the argument have referenced the sort of ideas of that time. So it seems natural that we'd describe it in those terms. But it's a word of particular meanings here which are a bit distinct from simple fiscal consolidation, which is the IMF's favoured phrase.
I think it's really interesting and a bit unusual that it's now entered into the way Americans talk about things. I don't know if maybe that's always how budget cuts/tax rises have been referred to over there or if it's new? :mellow:
New. It's always been deficit reduction, shrinking the deficit, getting the budget under control, etc.
Quote from: Admiral Yi on June 02, 2013, 01:50:30 PM
New. It's always been deficit reduction, shrinking the deficit, getting the budget under control, etc.
Yeah, that was my impression. What would you use to describe other periods of austerity in US history, say 1937 or the post WW1 retrenchment?
37?
I dont' think you call post WWI anything. "The end of war time spending?"
Quote from: Admiral Yi on June 02, 2013, 01:56:14 PM
37?
Yep. The US got worried about deficits and cut spending by about 20% over two years. Unemployment shot back up, the stock market fell again and the economy, at best, stagnated. It and the Japanese in the late 90s are the normal examples of premature tightening having a dreadful effect.
Quote from: Admiral Yi on June 02, 2013, 01:56:14 PM
37?
I dont' think you call post WWI anything. "The end of war time spending?"
The government's big spending cuts of the early 20's were not a disarmament. They were a direct response to the depression that immediately followed the war. I don't think we can replicate the results they got because they had a hyper-inflationary Europe to compete with and the flow of gold across the Atlantic running away from that created a largely expansionary monetary base in the US.
Quote from: Berkut on June 02, 2013, 09:41:50 AM
Quote from: Admiral Yi on June 02, 2013, 08:03:50 AM
Man, free spending liberals get really pissy when you criticize their religion. :lol:
Indeed. What is sad is how you can't tell the qualitiative difference anymore between posts from DG and Raz and Seedy. They all basically have the same one trick pony as a response. ZOMG BERKUT IS SO ANGRY!!!LOLOLOLOL!!!!
:lol: Seriously? This is the first time I made a "Berkut is so angry" post in probably many months, and it's instantly part of the pattern? Yeah, I'm not buying what you're selling.
Quote from: DGuller on June 02, 2013, 02:21:43 PM
Quote from: Berkut on June 02, 2013, 09:41:50 AM
Quote from: Admiral Yi on June 02, 2013, 08:03:50 AM
Man, free spending liberals get really pissy when you criticize their religion. :lol:
Indeed. What is sad is how you can't tell the qualitiative difference anymore between posts from DG and Raz and Seedy. They all basically have the same one trick pony as a response. ZOMG BERKUT IS SO ANGRY!!!LOLOLOLOL!!!!
:lol: Seriously? This is the first time I made a "Berkut is so angry" post in probably many months, and it's instantly part of the pattern? Yeah, I'm not buying what you're selling.
So far that is the entirety of the responses you've made to my posts in this thread. I didn't say it was a pattern, I said all three of you are basically responding with standard bullshit personal attacks that you all know perfectly well are completely inaccurate. Which says a lot about the quality of your position, and a standard level of integrity for Raz, but a disappointing level for you.
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it. I am, however, a fiscal conservative who is not buying into what YOU are selling. That doesn't put me in the radical right Grover Nordquist camp though.
Quote from: Berkut on June 02, 2013, 03:29:41 PM
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it.
Your anti-debt militancy says otherwise. And unless I've missed it, you still haven't given any indication as to what level of debt is acceptable other than ZOMG DEFASITS IS TEH EVUL, so it looks like we have to assume that level is zero--in which case you have become a Paul Ryan/Tea Party dumbass.
So please; what level of debt is acceptable to you?
And you still haven't given any kind of indication as to what level of debt is unacceptable. What does that make you?
I would say the 10% of GDP at its worst point of 2009 was unacceptable. Fortunately, we're not at that point anymore.
And we're seeing government spending per capita at the slowest rates since Eisenhower, which should make all you let's-go-back-to-the-50s types nice and happy.
Quote from: Admiral Yi on June 02, 2013, 11:24:56 AM
Quote from: Razgovory on June 02, 2013, 10:55:41 AM
The Austrian school is notorious for it's dislike of mathematical models. That's what I was getting at.
This is a change from your previous characterization. Before you were claiming that members of the Austrian school disregarded empirical observations that contradicted their theories.
QuoteYour stuff about Glenn Beck and Applebaum (She's an economist? I thought she was just a poor historian), is lost on me. The failure I was talking about the deficit cutting scheme that failed in Britain and similar schemes pushed pushed by people like Paul Ryan.
You may be right. Either way, someone in the White House (Goolsby?) made that prediction and it didn't come true.
Not really sure how you can describe a budget proposal that was never enacted (Ryan's) as a failure in terms of maintaining American credit-worthiness. Are we talking about an alternate universe? :unsure:
Your description of British austerity as a failure is a little puzzling as well. The testable hypothesis is whether there is a causal relationship between national indebtedness and risk premia. You seem to be claiming that since Britain cut spending and the deficit increased as a % of GDP that "disproves austerity."
As a side note, the usage of the term austerity has become sort of ridiculous. If you're spending 10% more than you earn and you drop that to "only" 6% more than you earn, that's not "austere." That's spending more than you earn.
It is? I thought I was always maintaining that the Austrian school didn't like mathematical models. And I would think that a defict cutting scheme that fails to actually cut deficit is a failure. It's my impression that similar schemes failed across Europe, is there a reason to believe that the US would be any different? Seems like we dodged a bullet there, and that people who argued we should take that bullet should take a good long look at their ideas.
Quote from: Berkut on June 02, 2013, 03:29:41 PM
Quote from: DGuller on June 02, 2013, 02:21:43 PM
Quote from: Berkut on June 02, 2013, 09:41:50 AM
Quote from: Admiral Yi on June 02, 2013, 08:03:50 AM
Man, free spending liberals get really pissy when you criticize their religion. :lol:
Indeed. What is sad is how you can't tell the qualitiative difference anymore between posts from DG and Raz and Seedy. They all basically have the same one trick pony as a response. ZOMG BERKUT IS SO ANGRY!!!LOLOLOLOL!!!!
:lol: Seriously? This is the first time I made a "Berkut is so angry" post in probably many months, and it's instantly part of the pattern? Yeah, I'm not buying what you're selling.
So far that is the entirety of the responses you've made to my posts in this thread. I didn't say it was a pattern, I said all three of you are basically responding with standard bullshit personal attacks that you all know perfectly well are completely inaccurate. Which says a lot about the quality of your position, and a standard level of integrity for Raz, but a disappointing level for you.
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it. I am, however, a fiscal conservative who is not buying into what YOU are selling. That doesn't put me in the radical right Grover Nordquist camp though.
Don't read my posts or stop being such a fucking coward. <_<
Quote from: Razgovory on June 02, 2013, 05:18:39 PM
It is? Quote
Yes.
QuoteAnd I would think that a defict cutting scheme that fails to actually cut deficit is a failure. It's my impression that similar schemes failed across Europe, is there a reason to believe that the US would be any different? Seems like we dodged a bullet there, and that people who argued we should take that bullet should take a good long look at their ideas.
This makes little to no sense Raz. If your criticism of British deficit reduction is that it failed to reduce the deficit, then yes, it has been a failure. But your previous insinuation that I should feel bad about it, and your current question whether the US's results would be any different, strongly suggest that you see the British experience as a proof that the entire "austerity" argument is flawed. Raz, we *have* reduced the deficit in the US. It's not a hypothetical.
Quote from: Admiral Yi on June 02, 2013, 05:51:46 PM
Quote from: Razgovory on June 02, 2013, 05:18:39 PM
It is? Quote
Yes.
QuoteAnd I would think that a defict cutting scheme that fails to actually cut deficit is a failure. It's my impression that similar schemes failed across Europe, is there a reason to believe that the US would be any different? Seems like we dodged a bullet there, and that people who argued we should take that bullet should take a good long look at their ideas.
This makes little to no sense Raz. If your criticism of British deficit reduction is that it failed to reduce the deficit, then yes, it has been a failure. But your previous insinuation that I should feel bad about it, and your current question whether the US's results would be any different, strongly suggest that you see the British experience as a proof that the entire "austerity" argument is flawed. Raz, we *have* reduced the deficit in the US. It's not a hypothetical.
I guess that means we're done.
Quote from: Berkut on June 02, 2013, 03:29:41 PM
So far that is the entirety of the responses you've made to my posts in this thread. I didn't say it was a pattern, I said all three of you are basically responding with standard bullshit personal attacks that you all know perfectly well are completely inaccurate. Which says a lot about the quality of your position, and a standard level of integrity for Raz, but a disappointing level for you.
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it. I am, however, a fiscal conservative who is not buying into what YOU are selling. That doesn't put me in the radical right Grover Nordquist camp though.
The reason I responded in such a way is that your post wasn't just attacking a strawman; it was a My Lai of strawmen. There was no reasoning with that, so I didn't even bother.
Quote from: CountDeMoney on June 02, 2013, 04:38:05 PM
Quote from: Berkut on June 02, 2013, 03:29:41 PM
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it.
Your anti-debt militancy says otherwise. And unless I've missed it, you still haven't given any indication as to what level of debt is acceptable other than ZOMG DEFASITS IS TEH EVUL, so it looks like we have to assume that level is zero--in which case you have become a Paul Ryan/Tea Party dumbass.
So please; what level of debt is acceptable to you?
So if I don't state a number, then the reasonable assumption is that the number is zero?
Not much point in even engaging in discussion, is there?
Quote from: CountDeMoney on June 02, 2013, 05:04:03 PM
I would say the 10% of GDP at its worst point of 2009 was unacceptable. Fortunately, we're not at that point anymore.
And we're seeing government spending per capita at the slowest rates since Eisenhower, which should make all you let's-go-back-to-the-50s types nice and happy.
How can government spending per capita be measured as a speed?
Quote from: Berkut on June 02, 2013, 07:16:40 PM
How can government spending per capita be measured as a speed?
Whether it rises or drops over a specific period of time, perhaps?
Quote from: DGuller on June 02, 2013, 07:11:40 PM
Quote from: Berkut on June 02, 2013, 03:29:41 PM
So far that is the entirety of the responses you've made to my posts in this thread. I didn't say it was a pattern, I said all three of you are basically responding with standard bullshit personal attacks that you all know perfectly well are completely inaccurate. Which says a lot about the quality of your position, and a standard level of integrity for Raz, but a disappointing level for you.
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it. I am, however, a fiscal conservative who is not buying into what YOU are selling. That doesn't put me in the radical right Grover Nordquist camp though.
The reason I responded in such a way is that your post wasn't just attacking a strawman; it was a My Lai of strawmen. There was no reasoning with that, so I didn't even bother.
Ahh, so the only possible way to respond to a post that doesn't agree with you is to make a personal attack and accuse me of being angry?
So in fact this is just you aping Raz, right?
Quote from: Admiral Yi on June 02, 2013, 06:45:35 PM
I guess that means we're done.
Nah, I had to do that. Languish tradition. Seriously though, you are trying to find some inconsistency and I'm not seeing it. The US has reduced deficit spending by
not doing what the deficit hawks suggested and the countries that follow the hawks suggestions failed actually reduce deficit in addition to the pain of spending cuts.
Quote from: Berkut on June 02, 2013, 07:18:54 PM
Quote from: DGuller on June 02, 2013, 07:11:40 PM
Quote from: Berkut on June 02, 2013, 03:29:41 PM
So far that is the entirety of the responses you've made to my posts in this thread. I didn't say it was a pattern, I said all three of you are basically responding with standard bullshit personal attacks that you all know perfectly well are completely inaccurate. Which says a lot about the quality of your position, and a standard level of integrity for Raz, but a disappointing level for you.
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it. I am, however, a fiscal conservative who is not buying into what YOU are selling. That doesn't put me in the radical right Grover Nordquist camp though.
The reason I responded in such a way is that your post wasn't just attacking a strawman; it was a My Lai of strawmen. There was no reasoning with that, so I didn't even bother.
Ahh, so the only possible way to respond to a post that doesn't agree with you is to make a personal attack and accuse me of being angry?
So in fact this is just you aping Raz, right?
Wait, what? You keep insulting me and then complain about personal attacks?
Quote from: CountDeMoney on June 02, 2013, 05:04:03 PM
I would say the 10% of GDP at its worst point of 2009 was unacceptable. Fortunately, we're not at that point anymore.
And we're seeing government spending per capita at the slowest rates since Eisenhower, which should make all you let's-go-back-to-the-50s types nice and happy.
Yeah, but you aren't willing to pay the taxes to support that kind of spending.
Quote from: Razgovory on June 02, 2013, 07:24:38 PM
Quote from: Berkut on June 02, 2013, 07:18:54 PM
Quote from: DGuller on June 02, 2013, 07:11:40 PM
Quote from: Berkut on June 02, 2013, 03:29:41 PM
So far that is the entirety of the responses you've made to my posts in this thread. I didn't say it was a pattern, I said all three of you are basically responding with standard bullshit personal attacks that you all know perfectly well are completely inaccurate. Which says a lot about the quality of your position, and a standard level of integrity for Raz, but a disappointing level for you.
I am not some kind of Paul Ryan/Tea Party dumbass, and you know it. I am, however, a fiscal conservative who is not buying into what YOU are selling. That doesn't put me in the radical right Grover Nordquist camp though.
The reason I responded in such a way is that your post wasn't just attacking a strawman; it was a My Lai of strawmen. There was no reasoning with that, so I didn't even bother.
Ahh, so the only possible way to respond to a post that doesn't agree with you is to make a personal attack and accuse me of being angry?
So in fact this is just you aping Raz, right?
Wait, what? You keep insulting me and then complain about personal attacks?
He's not insulting you.
Quote from: Razgovory on June 02, 2013, 07:23:06 PM
Nah, I had to do that. Languish tradition. Seriously though, you are trying to find some inconsistency and I'm not seeing it. The US has reduced deficit spending by not doing what the deficit hawks suggested and the countries that follow the hawks suggestions failed actually reduce deficit in addition to the pain of spending cuts.
Raz, I can't keep up with all this. Do me a favor and state, as concisely as possible, what you're in favor of and what you're opposed to.
Quote from: Neil on June 02, 2013, 07:36:38 PM
Quote from: CountDeMoney on June 02, 2013, 05:04:03 PM
I would say the 10% of GDP at its worst point of 2009 was unacceptable. Fortunately, we're not at that point anymore.
And we're seeing government spending per capita at the slowest rates since Eisenhower, which should make all you let's-go-back-to-the-50s types nice and happy.
Yeah, but you aren't willing to pay the taxes to support that kind of spending.
Unlike many of my countrymen, I do not possess a psychotic aversion to the concept of taxes.
Quote from: CountDeMoney on June 02, 2013, 07:39:11 PM
Quote from: Neil on June 02, 2013, 07:36:38 PM
Quote from: CountDeMoney on June 02, 2013, 05:04:03 PM
I would say the 10% of GDP at its worst point of 2009 was unacceptable. Fortunately, we're not at that point anymore.
And we're seeing government spending per capita at the slowest rates since Eisenhower, which should make all you let's-go-back-to-the-50s types nice and happy.
Yeah, but you aren't willing to pay the taxes to support that kind of spending.
Unlike many of my countrymen, I do not possess a psychotic aversion to the concept of taxes.
I have no problem with taxes. My issues with debt in fact are pretty much simply that I don't think we should be spending what we are not willing to tax, mostly.
I would have no problem with an across the board adjustment of taxes upwards.
You still haven't answered my question, so I'm going to have to ask Ideologue to treat you as a hostile witness with a 750-word review of Exorcist II: The Heretic.
Quote from: CountDeMoney on June 02, 2013, 07:50:54 PM
You still haven't answered my question, so I'm going to have to ask Ideologue to treat you as a hostile witness with a 750-word review of Exorcist II: The Heretic.
What was the question?
Quote from: CountDeMoney on June 02, 2013, 07:39:11 PM
Quote from: Neil on June 02, 2013, 07:36:38 PM
Quote from: CountDeMoney on June 02, 2013, 05:04:03 PM
I would say the 10% of GDP at its worst point of 2009 was unacceptable. Fortunately, we're not at that point anymore.
And we're seeing government spending per capita at the slowest rates since Eisenhower, which should make all you let's-go-back-to-the-50s types nice and happy.
Yeah, but you aren't willing to pay the taxes to support that kind of spending.
Unlike many of my countrymen, I do not possess a psychotic aversion to the concept of taxes.
So cut the feds a cheque then. Do your part.
Quote from: Neil on June 02, 2013, 07:52:18 PM
So cut the feds a cheque then. Do your part.
They get theirs, don't worry.
Quote from: CountDeMoney on June 02, 2013, 07:50:54 PM
You still haven't answered my question, so I'm going to have to ask Ideologue to treat you as a hostile witness with a 750-word review of Exorcist II: The Heretic.
Cruel and unusual punishment.
Quote from: Berkut on June 02, 2013, 07:18:54 PM
Quote from: DGuller on June 02, 2013, 07:11:40 PM
The reason I responded in such a way is that your post wasn't just attacking a strawman; it was a My Lai of strawmen. There was no reasoning with that, so I didn't even bother.
Ahh, so the only possible way to respond to a post that doesn't agree with you is to make a personal attack and accuse me of being angry?
So in fact this is just you aping Raz, right?
That's not what I said. I didn't say that your post didn't agree with me, I just said that it was so riddled with strawmen that it did not indicate potential for a meaningful discussion. It was just reeking of hysterics that we know so well and love in your posts. :berkut:
In any case, even if you managed to gather up your emotions and post a reasonable argument, I still wouldn't enter into an argument with you, simply because I have no interest in this subject. It's been argued to death by now. I just wouldn't post anything at all, instead of posting a drive-by mocking post that I did.
Quote from: Admiral Yi on June 02, 2013, 07:38:50 PM
Quote from: Razgovory on June 02, 2013, 07:23:06 PM
Nah, I had to do that. Languish tradition. Seriously though, you are trying to find some inconsistency and I'm not seeing it. The US has reduced deficit spending by not doing what the deficit hawks suggested and the countries that follow the hawks suggestions failed actually reduce deficit in addition to the pain of spending cuts.
Raz, I can't keep up with all this. Do me a favor and state, as concisely as possible, what you're in favor of and what you're opposed to.
'
I think we found our problem. I was never talking about myself, and the topic was not about things I support i.e. austerity.
Quote from: CountDeMoney on June 02, 2013, 07:51:57 PM
Quote from: CountDeMoney on June 02, 2013, 04:38:05 PM
So please; what level of debt is acceptable to you?
Oh, that is the question.
I don't know really. I do operate under the presumption, however, that debt is to be avoided whena t all possible.
So I don't approach it from the standpoint of "Hey, how much debt should we have?" I approach it from the standpoint of "Debt is to be avoided, therefore, if someone is proposing that we take on more debt, they should make a compelling argument for why it is necessary".
Which is why the current round of "thinking" is rather distressing to me - the current thinking seems to be that debt is not something to be avoided at all, and in fact we can augimagically just borrow forever without any negative consequence, so why not?
Of course, that isn't what is said - but that is in fact the practical message being sent by virtue of the reality that *any* question raised about incredibly high debt levels is immediately met with the retort that it is ok. 855? OK! 90%? OK! Hell, people are actually holding up the 120% that we saw as a result of a freaking world war as some kind of measuring stick to suggest that what the hell, me still have trillions to go before we need to worry about it!
What is the right number? I don't know, to be honest. I suppose it depends on what is going on, and what the risk is, and what the long term dangers are of ever more debt. What is alarming is the amount of vitriol aimed at people who try to make a reasoned, rational, and non-emotive argument that maybe perhaps just borrowing without regard isn't such a stupendous plan forever and all time.
Like Yi said, spending a lot more than you bring in rather than spending a LOT more than you bring in is not "austerity".
Quote from: Berkut on June 02, 2013, 01:27:00 PM
Now we've taken that position to the extreme. It seems to me that the argument has become that we CANNOT spend too much - that deficit spending, in an of itself, is some kind of noble goal that through the magic of economics somehow puts all of economic history on hold, because THIS time it is different.
No one is making anything remotely like that argument. This is about as clear of an example of a straw man argument as can be conceived.
Quote from: The Minsky Moment on June 02, 2013, 10:37:47 PM
Quote from: Berkut on June 02, 2013, 01:27:00 PM
Now we've taken that position to the extreme. It seems to me that the argument has become that we CANNOT spend too much - that deficit spending, in an of itself, is some kind of noble goal that through the magic of economics somehow puts all of economic history on hold, because THIS time it is different.
No one is making anything remotely like that argument. This is about as clear of an example of a straw man argument as can be conceived.
I disagree - I think that is exactly the argument that is practically being made when every time someone expressing a concern about deficit spending, the answer is ALWAYS "Nope, we should spend more, not less - the fact that we have more debt now than EVER before (barring an active world war) does NOT mean we should stop racking up more debt".
How can you say there is some limit, when if we are running the highest debt ever, and that argument is that we have not reached that limit? The limit is always theoretical - always some number greater than whatever the number is now.
Quote from: Berkut on June 02, 2013, 09:53:55 PM
So I don't approach it from the standpoint of "Hey, how much debt should we have?" I approach it from the standpoint of "Debt is to be avoided, therefore, if someone is proposing that we take on more debt, they should make a compelling argument for why it is necessary".
That is terribly mistaken.
Debt is not to be avoided as a matter of principle, debt is actually incredibly useful. The standard of living we had today would not exist had it not been for the leveraging of economic activity that debt permits, and the markets it creates in its wake. Most modern capitalist enterprises use debt. Most physical infrastructure is funded though debt. The creation of modern public debt markets in the UK was one of the most important factors in that nations rise to power. The creation of a national debt in the USA was one of the key political and economic developments in US history.
But there is another critical point here that keeps being missed. Even if we accept as a rule of thumb that debt is a bad thing, then the question "how much debt should we have" cannot be answered solely in reference to the public debt. "Our" debt is all debt, public and private. If public debt is raised so that private debt can be reduced, then the total effect may be zero or even negative .
Quote from: Berkut on June 02, 2013, 10:47:23 PM
I disagree - I think that is exactly the argument that is practically being made when every time someone expressing a concern about deficit spending, the answer is ALWAYS "Nope, we should spend more, not less - the fact that we have more debt now than EVER before (barring an active world war) does NOT mean we should stop racking up more debt".
How can you say there is some limit, when if we are running the highest debt ever, and that argument is that we have not reached that limit? The limit is always theoretical - always some number greater than whatever the number is now.
Who is arguing these things?
Quote from: The Minsky Moment on June 02, 2013, 10:51:58 PM
Quote from: Berkut on June 02, 2013, 09:53:55 PM
So I don't approach it from the standpoint of "Hey, how much debt should we have?" I approach it from the standpoint of "Debt is to be avoided, therefore, if someone is proposing that we take on more debt, they should make a compelling argument for why it is necessary".
That is terribly mistaken.
Debt is not to be avoided as a matter of principle, debt is actually incredibly useful. The standard of living we had today would not exist had it not been for the leveraging of economic activity that debt permits, and the markets it creates in its wake. Most modern capitalist enterprises use debt. Most physical infrastructure is funded though debt. The creation of modern public debt markets in the UK was one of the most important factors in that nations rise to power. The creation of a national debt in the USA was one of the key political and economic developments in US history.
But there is another critical point here that keeps being missed. Even if we accept as a rule of thumb that debt is a bad thing, then the question "how much debt should we have" cannot be answered solely in reference to the public debt. "Our" debt is all debt, public and private. If public debt is raised so that private debt can be reduced, then the total effect may be zero or even negative .
I think we are talking about different things. I am not talking about debt as a monetary instrument to facilitate investment. I am talking about "We want $100 worth of services, but we only colelct $75, so lets just borrow the other $25".
There is a big difference between taking out a loan to fund a business, and running up your credit card so you can keep eating out and going to the movies. One is investment, the other is simply living outside your means.
I don't think anyone supports structural deficits which is what you're talking about.
Quote from: Sheilbh on June 03, 2013, 06:33:38 AM
I don't think anyone supports structural deficits which is what you're talking about.
A prototypical version of the anti-austerity argument was made today by Larry Summers: http://www.ft.com/intl/cms/s/2/13ce15ac-c878-11e2-8cb7-00144feab7de.html#axzz2VALK64yc
FWIW I do think some degree of fiscal tightening is appropriate in the US at this stage of the cycle,. but agree with Summers that it has been too much, too fast, and with the blunt instrument that is sequestration, too stupid.
On the flip side, the UK is a useful cautionary tale that taking a moral high stance on deficits and imposing brutal cuts on an economy in recession may in fact do nothing to reduce net indebtedness.
Quote from: The Minsky Moment on June 03, 2013, 10:08:29 AM
FWIW I do think some degree of fiscal tightening is appropriate in the US at this stage of the cycle,. but agree with Summers that it has been too much, too fast, and with the blunt instrument that is sequestration, too stupid.
I dunno...kids kicked out of Head Start? Food stamps and unemployment benefits cut? Public sector employees shitcanned by the tens of thousands? It's Tea Party heaven.
Every time the person makinig that statement gets asked the follow up question of what cuts would make more sense, the silence is deafening.
Quote from: Admiral Yi on June 03, 2013, 11:14:25 AM
Every time the person makinig that statement gets asked the follow up question of what cuts would make more sense, the silence is deafening.
I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.
Quote from: crazy canuck on June 03, 2013, 11:44:07 AM
I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.
That's not the argument being made when someone calls the sequester a blunt instrument.
Quote from: Admiral Yi on June 03, 2013, 11:45:43 AM
Quote from: crazy canuck on June 03, 2013, 11:44:07 AM
I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.
That's not the argument being made when someone calls the sequester a blunt instrument.
Who called it that?
Quote from: Admiral Yi on June 03, 2013, 11:45:43 AM
Quote from: crazy canuck on June 03, 2013, 11:44:07 AM
I assume because the point is that cuts at that particular point in the economic cycle dont or didnt make sense.
That's not the argument being made when someone calls the sequester a blunt instrument.
That is a separate argument which goes to the weakeness in your political system - ie the kids dont play well together and there is no structural incentive for them to do so.
Quote from: Jacob on June 03, 2013, 11:49:36 AM
Who called it that?
Joan, Larry Summers. Obama has used similar language (if not identical) numerous times.
Quote from: Admiral Yi on June 03, 2013, 11:51:30 AM
Quote from: Jacob on June 03, 2013, 11:49:36 AM
Who called it that?
Joan, Larry Summers. Obama has used similar language (if not identical) numerous times.
Ah... I see.
I was under the impression that there had been various proposals for alternatives to the sequester, but that none of them had sufficient political backing to replace it.
Are you saying the sequester was an appropriate way to deal with the deficit? And that it was not blunt?
Quote from: Jacob on June 03, 2013, 11:56:26 AM
Ah... I see.
I was under the impression that there had been various proposals for alternatives to the sequester, but that none of them had sufficient political backing to replace it.
Are you saying the sequester was an appropriate way to deal with the deficit? And that it was not blunt?
The only proposal I am aware of is one pushed by a White House flunky on CNN. When pushed on specifics all he could come up with is a billion cut from the Farm Bill.
Without a doubt it is blunt. Whether it is appropriate depends on what you mean.
Quote from: Admiral Yi on June 03, 2013, 11:14:25 AM
Every time the person makinig that statement gets asked the follow up question of what cuts would make more sense, the silence is deafening.
I dont have the detailed access and insight into each appropriation and line item that the committee staffs do. If Congress insists on abdicating its own responsibility to determine to make cuts in a reasonable and rational way, and thus must fall back on across the board reductions, then it should empower each affected executive department to allocate the funds to the appropriated items as it sees fit.
I don't think anyone with the power to do anything about it knows enough to be able to make the right kind of cuts. I mean, within the specific parts of the federal government I work with constantly I'm pretty confident I could find the right kind of cuts to make, but that's only one tiny piece of the pie. The thing as a whole is so huge there's no way anyone on a high enough level can possible be able to pinpoint the right things. I simply don't think it's possible to cut with razor precision if it's done at that high level.
Quote from: Admiral Yi on June 03, 2013, 11:45:43 AM
That's not the argument being made when someone calls the sequester a blunt instrument.
It is. It's stupid and the product of politicians failing to choose, which is what they're paid for. They'd rather everyone gets an equal amount of blame than actually make decisions.
But then I'm from a parliamentary system. I don't really understand how failing to pass a budget doesn't end in an election because the government hasn't done its job :lol:
I think the Coalition's austerity plans have been awful, but at the very least they sat down and decided what were the priorities over the next 4-5 years, where was there most low-hanging fruit and divvied up cuts accordingly.
Shelf, I think you misread. Go back.
Quote from: Admiral Yi on June 03, 2013, 02:02:18 PM
Shelf, I think you misread. Go back.
Not sure :Embarrass: