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On April 30 2013 13:16 JonnyBNoHo wrote:I could do the calculations if I had the data... which I don't, so I can't  I any case if someone wants money spent it's their job to provide data and show that the project is worthwhile. "Financing is cheap" just doesn't cut it. Edit: I have no problem with spending more on infrastructure or taking advantage of cheap financing in general. I just don't want that to be an excuse for more million dollar bus stops in Virginia or whatever. I want real, meaningful shit.
If you're looking for a comprehensive analysis written in 500 words or less, that will never happen unless someone has a couple million dollars to give away. Fortunately, the first-order conditions seem well sufficient enough for things that should have been financed a decade ago, let alone now...bridge and high-hazard dam repairs come to mind, as the most concrete example.
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On April 30 2013 00:06 Sermokala wrote:Show nested quote +On April 29 2013 23:35 aksfjh wrote:On April 29 2013 22:16 paralleluniverse wrote:On April 20 2013 04:48 Sermokala wrote:On April 20 2013 04:40 Slaughter wrote:
How is this a "scandal"? It seems like a scientific paper was simply proven wrong. Unless they covered it up or knew of the mistake? The right is winning a lot of elections in the EU right now due to the "austerity" movement that they've championed. People want to blow this up like it invalidates all austerity people so the liberals can get debt much further then that and not have to care again about balanced budgets. It's not left vs right in Europe. It's incumbent vs non-incumbent. Incumbent nearly always loses, due to their crazed obsession with austerity. The left "won" the most recent Italian election. You're painting a strawman when you say that people who oppose austerity believe that balanced budgets never matter. We believe in balancing the budget when the economy is stronger. Bill Clinton did it. You've said that there's no alternative to austerity, when there clearly is -- not austerity, stimulus. And the argument against stimulus, for austerity, is basically that beyond a certain point, 90% RR says, excessive debt somehow causes a debt crisis (although no one has been able to specifically say how that can possibly happen to a country using it's own currency). Yet there is no evidence of this. Because the evidence against a 90% tipping point has now blown up. Now there's no evidence to fear high debt in our current situation. You're arguing him on the wrong level. He's CONVINCED that high levels of debt will destroy a country. He stands on grounds that say "debt is bad in all forms." So much so that he fears debt more than 25% unemployment, or an economic collapse (if that isn't already the definition of "collapse"). Thus, he thinks we're proposing stimulus as a means to control the debt/deficit, when in reality, we propose stimulus to make the economy thrive again. The debt/deficit is almost inconsequential until the point where the private sector begins competing with the government for resources instead of competing for government business. A nation defaulting on its debt like what would happen with every other odd eurozone country these days would destroy a country. Not just obliterate the economies of every other nation that isn't as irresponsible in the euro zone but completely destroy the nations financial basis. No one is going to want to buy greece or spains debt if Germany and china aren't backing them up. This idea that you think that fearing 25% unemployment is somehow better then exponentially exploding debt is nothing more then shitty propaganda from people who just want their governments to collapse.
Where are you getting this idea that default is such an awful thing? Like I said, faith-based economics. It's not necessarily true that default is a terrible thing.
Here's what the IMF, the enforcers of fiscal rectitude, the rescuers of insolvent governments have to say on the matter:
We investigated the empirical basis of the costs of sovereign defaults in its different versions. Our findings suggest that default costs are significant, but short lived. Reputation of sovereign borrowers that fall in default, as measured by credit ratings and spreads, is tainted but only for a short time. [...] Perhaps the most robust and striking finding is that the effect of defaults is short lived, as we almost never can detect effects beyond one or two years. Source: https://www.imf.org/external/pubs/ft/wp/2008/wp08238.pdf
As the paper argues, history suggests that the cost of default is basically undetectable beyond 2 years. But instead, Greece continues on the Euro and continues spiraling into a depression.
Also, the debt of Greece is backed up by the ESM and the ECB. Germany and all Eurozone countries contribute to the former. China has nothing to do with it. But I know that on the right, "China" is a knee-jerk reaction to anything relating to "debt".
Show nested quote +On April 29 2013 23:36 paralleluniverse wrote:On April 29 2013 23:01 Sermokala wrote:On April 29 2013 22:16 paralleluniverse wrote:On April 20 2013 04:48 Sermokala wrote:On April 20 2013 04:40 Slaughter wrote:
How is this a "scandal"? It seems like a scientific paper was simply proven wrong. Unless they covered it up or knew of the mistake? The right is winning a lot of elections in the EU right now due to the "austerity" movement that they've championed. People want to blow this up like it invalidates all austerity people so the liberals can get debt much further then that and not have to care again about balanced budgets. It's not left vs right in Europe. It's incumbent vs non-incumbent. Incumbent nearly always loses, due to their crazed obsession with austerity. The left "won" the most recent Italian election. You're painting a strawman when you say that people who oppose austerity believe that balanced budgets never matter. We believe in balancing the budget when the economy is stronger. Bill Clinton did it. You've said that there's no alternative to austerity, when there clearly is -- not austerity, stimulus. And the argument against stimulus, for austerity, is basically that beyond a certain point, 90% RR says, excessive debt somehow causes a debt crisis (although no one has been able to specifically say how that can possibly happen to a country using it's own currency). Yet there is no evidence of this. Because the evidence against a 90% tipping point has now blown up. Now there's no evidence that there is a need fear high debt in our current situation. Italy basically isn't even a country most of the time. And its the last nation that should be trusted as a barometer for economic strategy. Populist views hurt the populist most of all. Stimulus is a joke. You borrow tons of money to put into an economy and you hope that it will turn around somehow. Thats how we started out on Obama's 4 years of 1 trillion a year deficit. Do you want Obama last 3 years to also be trillion dollars of debt per year? Whos honestly that dumb that thinks that having more stimulus in america would have resulted in a lower debt. That doesn't take more then 4 seconds to realize is stupid. All stimulus does is gum up the works of recovery and put a nation a ton in debt. Austerity is the only thing to lower a nations debt. And when your nations debt is out of control and no one thinks you can pay it off then the austerity will be much much worse then what it is now. No one can save Spain, no one can save the south of Europe. Everyone is just waiting for the end of the world and trying to soften the fall. I'm not pointing to Italy as an example of good fiscal policy. I'm pointing to Italy to debunk you're absurd claim that elections show that Europe is lurching to the right. It's not true. It's lurching against the incumbent, against austerity. It's giving rise to nationalism, Euroskepticism and batshit crazy anti-establishment parties. Yes, Obama started with a deficit roughly double where it was in 07/08, with over $1 trillion deficits through most of his first term. Why don't you tell me how he managed to pull that off given that the stimulus which was about $800 billion, spent only about $300 billion per year for a few years. Where's the other roughly $700 billion in deficits coming from? It's certainly not Obamacare, because it's not even in effect. And it's not the bailouts, which ended up profitable to the government. Or maybe, just maybe, much of the budget is determined by the economic cycle. The argument for stimulus is not an argument for reducing debt right now. It will increase debt in the short term. It's an argument to increase employment, to put people back to work, and to increase growth. In case you haven't realized, prolonged unemployment has terrible costs, people who have been out of work for a long time are nearly unemployable, skills degrade, human potential is wasted, future tax payers don't make a income and therefore don't pay tax, etc. Reducing the debt can wait until the economy has recovered. Reducing the debt now is counterproductive as Europe shows. No, don't blame the welfare state, the stronger welfare states like Germany or Sweden aren't the ones screwed, and don't blame the debt, Spain was in surplus pre-crisis and it's debt is lower than Germany. What you believe in is faith-based economics. Austerity is the only choice, not because of the evidence, but because you think it has to be true. Stimulus retards growth, well because you say so. And, as you claim, austerity is the only way to reduce debt. Where is the historical precedence for this false claim? Tell me, apart from export-led growth, which isn't really possible in a global recession, what country has cut it's way out of debt? What country has cut it's way to growth? The highest debt level over last few hundred years of US history was after WWII. At over 100% of GDP, did this debt cause a debt crisis? Was it reduced by a mad austerity drive? No, the US simply grew its way out of debt. It didn't cut its way out of debt. Are you seriously asking where the other deficits were coming from? The banking bailouts and auto industry bailouts (arguable corporate stimulus if anything) Kinda happened you know. And again This idea that increasing debt in the short term for countries that are experiencing exponentially increasing debt makes no sense in any way no one is going to give money to an addict so that in some way using is going to help them get better. Reducing the debt isn't something that can just wait for spain, greece, portugal and iceland. Iceland went though a revolution and England still isn't happy about it. No one gives a shit for what happened pre-crisis. Everyone got their legs kicked out from under them. It doesn't matter where everyone came from it just matters where everyone is right now. What I believe is common fucking sense. I don't put faith in weather forcasters and I don't understand how anyone would put faith in economists. I believe in common fucking sense. You can't simply say "lets ignore the numbers for the next 5 years" and keep plunging into the red in some mad gambit to turn it around. Some nations didn't keep their house's in order and are paying for it now. The USA after WW2 had the only modern functioning economy, Asia now exists in an economical equation that Europe never had to account for before. No one is going to give greece or spain the money it needs to support the stimulus packages that you're proposing. Austerity is the only thing left to them.
So now you're blaming the roughly $700 billion per year in deficits, that can't be explained by stimulus, on the bailouts. But this is completely wrong, as I'd already pointed out, the bailouts will probably end up being profitable for the government.
The CBO says that only $417 billion has been spent on the bailouts. And a large proportion of that was at the start of the crisis in 08/09. Further, the report says, due to almost all of the money being paid back, the net cost will be $24 billion. So the total cost of the bailout on the cumulative deficit over Obama's first term is virtually nil, less than rounding error.
So again I ask, how did Obama manage to double the deficit to over $1 trillion per year throughout his first term? Given that TARP and the bailout accounts for around $300 billion per year, where did the other roughly $700 billion per year in deficits come from? How did Obama manage to pull that off?
Your claim that no one will give money to "debt addicts" is also nonsense. The 3 most "fiscally reckless" advanced countries are Japan, the UK and the US. Yet the countries with the lowest borrowing costs are Japan, the UK and the US.
Then you claim what happened pre-crisis doesn't matter. But a common argument for austerity is that government recklessly increased spending and blew up the budget in good times and now must pay the price with austerity. And central to this story is what happened pre-crisis. Pre-crisis Spain was quite significantly reducing it's government debt and running surpluses. So if debt is bad, and surpluses are good, and Spain was running surpluses, why is Spain screwed now? Could it be that this story is nonsense.
So you don't want to talk about the past, but you want to talk about now? Well, right now Eurostats reports that Spain's debt to GDP is 77.4%, while Germany's debt to GDP is 81.7%. Yes, Germany has higher debt than Spain, right now.
You say that US was the only functioning economy after WWII. But I could have just used the same argument applied to the UK. While the US at the end of WWII had over 100% debt to GDP, the UK's debt was over 200% (!!) of GDP. But like the US, they did not cut their way out of this massive debt, they grew their way out of debt.
Your "common fucking sense" may tell you that "debt = bad", because that's what you want to believe. But evidence, serious economic analysis, or historical fact, shows that basically everything you've said is completely wrong. Your belief that we cannot possibly wait until the economy recovers to deal with debt, and that there is no alternative to austerity, hasn't been backed up by any evidence from you. You just believe it's true, because your "common fucking sense" tells you it must be true. What you believe in is faith-based economics.
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On April 30 2013 13:16 JonnyBNoHo wrote:Show nested quote +On April 30 2013 12:31 acker wrote:On April 30 2013 11:18 JonnyBNoHo wrote:Well I can't do a NPV analysis because I do not have all the data. I have just one data point - different financing rates. Sorry, but no complete data no analysis All things being equal a lower financing rate will increase the NPV of the project. The problem with a hypothetical is that a negative NPV at a lower financing rate may simply become less negative (but still negative!). Or it may turn positive (depending on how important financing is). There's simply no way to tell just by looking at the financing rate whether or not the project is viable or not. One last thing, what I'm advocating is not something that's radical. It's a standard part of project analysis that everyone learns while serving time in b-school. The DOT also advocates using it. It's ok Jonny, we know you do your best. That said, didn't you say that you could do the calculations just two posts ago, using Excel? I'm quite aware that the author's analysis is incomplete, but it still remains true that that it's the best approximation currently available to us. If you say that NPV is more accurate (and it certainly is!) but can't use it, we might as well shoot the moon and say we should ask Ernst and Young or the CBO for a writeup. I could do the calculations if I had the data... which I don't, so I can't I any case if someone wants money spent it's their job to provide data and show that the project is worthwhile. "Financing is cheap" just doesn't cut it. Edit: I have no problem with spending more on infrastructure or taking advantage of cheap financing in general. I just don't want that to be an excuse for more million dollar bus stops in Virginia or whatever. I want real, meaningful shit.
One of many productive ways to spend the money would be trying to reverse this:
![[image loading]](https://lh3.ggpht.com/-Pi3q7K4IP9E/UX0t-p6dYYI/AAAAAAAAZ-w/MWTiv628FZk/s1600/PulbicBushObama.jpg)
More info: http://economistsview.typepad.com/economistsview/2013/04/public-and-private-sector-payroll-jobs-bush-and-obama.html
There was also a civil engineer report a while back finding that a lot of bridges in American are structurally deficient. Money could be spent fixing those up. On this project, NPV calculations aren't needed, because the choice isn't whether to do the project or not. The bridge will eventually need to be patched up or it will collapse one day. The question is not "if" to do the project, the only question is "when" to do the project. And given the historically low rates at which the US government can borrow today, now is the best time for the investment.
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On April 30 2013 18:53 paralleluniverse wrote:Show nested quote +On April 30 2013 13:16 JonnyBNoHo wrote:On April 30 2013 12:31 acker wrote:On April 30 2013 11:18 JonnyBNoHo wrote:Well I can't do a NPV analysis because I do not have all the data. I have just one data point - different financing rates. Sorry, but no complete data no analysis All things being equal a lower financing rate will increase the NPV of the project. The problem with a hypothetical is that a negative NPV at a lower financing rate may simply become less negative (but still negative!). Or it may turn positive (depending on how important financing is). There's simply no way to tell just by looking at the financing rate whether or not the project is viable or not. One last thing, what I'm advocating is not something that's radical. It's a standard part of project analysis that everyone learns while serving time in b-school. The DOT also advocates using it. It's ok Jonny, we know you do your best. That said, didn't you say that you could do the calculations just two posts ago, using Excel? I'm quite aware that the author's analysis is incomplete, but it still remains true that that it's the best approximation currently available to us. If you say that NPV is more accurate (and it certainly is!) but can't use it, we might as well shoot the moon and say we should ask Ernst and Young or the CBO for a writeup. I could do the calculations if I had the data... which I don't, so I can't I any case if someone wants money spent it's their job to provide data and show that the project is worthwhile. "Financing is cheap" just doesn't cut it. Edit: I have no problem with spending more on infrastructure or taking advantage of cheap financing in general. I just don't want that to be an excuse for more million dollar bus stops in Virginia or whatever. I want real, meaningful shit. One of many productive ways to spend the money would be trying to reverse this: More info: http://economistsview.typepad.com/economistsview/2013/04/public-and-private-sector-payroll-jobs-bush-and-obama.htmlThere was also a civil engineer report a while back finding that a lot of bridges in American are structurally deficient. Money could be spent fixing those up. On this project, NPV calculations aren't needed, because the choice isn't whether to do the project or not. The bridge will eventually need to be patched up or it will collapse one day. The question is not "if" to do the project, the only question is "when" to do the project. And given the historically low rates at which the US government can borrow today, now is the best time for the investment.
you might as well provide this as well:
![[image loading]](http://1.bp.blogspot.com/-5nQCvcQ_emM/UX09OXe4oZI/AAAAAAAAZ_A/KvsCuzewxGI/s1600/PrivateBushObama.jpg)
I'll prefer a job increase in the private sector over the public sector
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On April 30 2013 19:17 Flyingdutchman wrote:Show nested quote +On April 30 2013 18:53 paralleluniverse wrote:On April 30 2013 13:16 JonnyBNoHo wrote:On April 30 2013 12:31 acker wrote:On April 30 2013 11:18 JonnyBNoHo wrote:Well I can't do a NPV analysis because I do not have all the data. I have just one data point - different financing rates. Sorry, but no complete data no analysis All things being equal a lower financing rate will increase the NPV of the project. The problem with a hypothetical is that a negative NPV at a lower financing rate may simply become less negative (but still negative!). Or it may turn positive (depending on how important financing is). There's simply no way to tell just by looking at the financing rate whether or not the project is viable or not. One last thing, what I'm advocating is not something that's radical. It's a standard part of project analysis that everyone learns while serving time in b-school. The DOT also advocates using it. It's ok Jonny, we know you do your best. That said, didn't you say that you could do the calculations just two posts ago, using Excel? I'm quite aware that the author's analysis is incomplete, but it still remains true that that it's the best approximation currently available to us. If you say that NPV is more accurate (and it certainly is!) but can't use it, we might as well shoot the moon and say we should ask Ernst and Young or the CBO for a writeup. I could do the calculations if I had the data... which I don't, so I can't I any case if someone wants money spent it's their job to provide data and show that the project is worthwhile. "Financing is cheap" just doesn't cut it. Edit: I have no problem with spending more on infrastructure or taking advantage of cheap financing in general. I just don't want that to be an excuse for more million dollar bus stops in Virginia or whatever. I want real, meaningful shit. One of many productive ways to spend the money would be trying to reverse this: More info: http://economistsview.typepad.com/economistsview/2013/04/public-and-private-sector-payroll-jobs-bush-and-obama.htmlThere was also a civil engineer report a while back finding that a lot of bridges in American are structurally deficient. Money could be spent fixing those up. On this project, NPV calculations aren't needed, because the choice isn't whether to do the project or not. The bridge will eventually need to be patched up or it will collapse one day. The question is not "if" to do the project, the only question is "when" to do the project. And given the historically low rates at which the US government can borrow today, now is the best time for the investment. you might as well provide this as well: I'll prefer a job increase in the private sector over the public sector
Well yes. But, the public sector situation is more dire. As the graphs shows, public sector employment fell and is still falling, whereas private sector employment increased and is still increasing. Also, it's easier to increase public sector employment, as public sector workers, like teachers, policeman, firefighters, have decreased over the last few years. So they can just be rehired. Whereas to increase private sector jobs, you need to find projects first and then hand out contracts. Either would be very helpful though.
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United Kingdom36161 Posts
On April 30 2013 10:15 Flyingdutchman wrote:Show nested quote +On April 30 2013 09:47 Kontys wrote:On April 30 2013 09:27 Flyingdutchman wrote:On April 20 2013 04:17 Sub40APM wrote:On April 20 2013 02:40 AnachronisticAnarchy wrote:
Still not a good idea to have debt, least of all 15 digits of it. It's just common sense. No one says accumulating debt is 'good'. what they are saying is 'accumulating debt now, to get more people employed and then paying it off when the economy is growing stronger is better than on top of a weak economy instituting austerity' which is what the RR paper, its political advocates and even R when he gave interviews to conservative papers all suggested. EU and US have more or less been doing that since the 1930's, yet somehow they always forget the paying off part. Don't give policymakers with short term goggles more excuses to fuck up everything in the long run. When the slump is over the public finances will be back in balance as a matter of course. As the economy recovers, tax receipts go up, and unemployment claims go down. Claims that the US is on an unsustainable fiscal path are political shock treatment, aimed at coercing people (politicians and citizenry) to accept extreme policy based on extreme conditions, never mind the fact that the treatment offered has nothing to do with the condition. As for the EU, now that's an interesting story of many colliding national interests. Also, the euro as currency zone with low overall inflation is very much a mixed bag.. I've written about it elsewhere in this thread and it's getting late (page 2 I think). Suffice to say, the European story has very little to do with overall debt levels. The claim that we always forget about paying off is erroneous. Key piece of evidence would be the development of US and British public debt position following WW2. A development very much like what we should be aiming for once this recession is finally over. I don't need an econ 101, obviously in times of economic prosperity it is easier to balance a budget. Yet, since the 70's the only time the US had a budget surplus was when they were reaping capital gains tax from the dotcom bubble. So in that time frame, if we forgive them the 80's, we should expect some more surpluses besides the 4 Clinton years. If I look at figures like that I feel it is really hard to believe politicians actually give a shit what happens after their terms are over, which was my point. Don't give short-sighted people too much leeway when it comes to policy that they won't follow up on. (I am using the US data as an example, not singling them out in this debate btw). I don't think I read your text on page 2, I will look into it tomorrow or something, now it is time to play starcraft...
This is basically true, yeah. In the UK we had reasonably decent growth and tax receipts in the decade or so leading up to the worldwide crash, but the administration still decided to ramp up spending and run a large deficit during these 'good times'. Now we have 'austerity' where we're actually still running a large deficit and government spending is still really pretty high. Depends what you call austerity I guess.
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Of course the world didn't end after 90%.
We're so economically ingrained in the fantasy world it won't end for many decades. Until then I suspect you'll continue to see widespread social ills as people experience severe anxiety, stress and neurosis as a result of cognitive dissonance. Regardless of how we decide to "play the game" the fact remains that there comes a point where the market and actual resources fall too far out of synch.
This is all well and good, until they run out of bread and circuses.
You can ignore reality. But you can't ignore the consequences of ignoring reality.
Reality just hasn't caught up yet. Give it time. History is on the side of the inevitable, of collapse. Rome didn't fall in a day, it took nearly 400 years of the entire civilization being an effective, "Dead Man Walking". That's where we are, and that's how our era will be viewed in retrospect.
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Last week, I wrote a post summing up a week of bad news for austerity, noting that the debate seems to be shifting. Now even Politico is covering it:
And the intellectual shift away from austerity is not just coming from the left. The conservative American Enterprise Institute issued a paper last week saying Congress has already achieved enough deficit reduction for now. Other organizations not typically associated with free-spending liberalism, including the International Monetary Fund and Goldman Sachs, have cautioned that the austerity movement — which favors rapid reduction of national debt — may be worsening Europe’s economic problems and slowing down the U.S. recovery, as well. “American fiscal austerity has been moderate and probably, at the current pace of deficit reduction of about $300 billion per year over the next half decade, has proceeded far enough for now,” AEI scholar John Makin wrote last week. Read more: http://www.politico.com/story/2013/04/democrats-debt-crisis-90717.html#ixzz2Rwync8sL
The NYMag also has an interesting article on the medias portrayal of the austerity debate.
And what seems to have done it, isn't the reasoned arguments against austerity, or pointing out that RR never showed causation, or that causation could run from low growth to high debt, it wasn't just the disastrous effects of austerity in Europe, or all the talk about the fiscal cliff and sequester threatening growth and jobs on both sides of politics. No, what did it was the embarrassment that RR contained a Excel coding error and a "David v Goliath" story of "grad student debunks Harvard economists".
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On April 30 2013 21:43 Kimaker wrote:
Of course the world didn't end after 90%.
We're so economically ingrained in the fantasy world it won't end for many decades. Until then I suspect you'll continue to see widespread social ills as people experience severe anxiety, stress and neurosis as a result of cognitive dissonance. Regardless of how we decide to "play the game" the fact remains that there comes a point where the market and actual resources fall too far out of synch.
This is all well and good, until they run out of bread and circuses.
You can ignore reality. But you can't ignore the consequences of ignoring reality.
Reality just hasn't caught up yet. Give it time. History is on the side of the inevitable, of collapse. Rome didn't fall in a day, it took nearly 400 years of the entire civilization being an effective, "Dead Man Walking". That's where we are, and that's how our era will be viewed in retrospect.
This is not a well reasoned argument. You might as well tell us that we're all going to die sooner or later so just give up now.
Reinhart and Rogoff were wrong to say 90% was a threshold, a bright line for the difference between an economy with a debt problem and an economy with a debt crisis.
There's no doubt that the United States has a debt problem. The bigger question is whether it's something we need to address right now or if we can sail into the wind and address in, say, five years, when pre-2007 growth levels have resumed. It's far from inevitable that our system will fail, especially not if you're predicting doom centuries from now.
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5003 Posts
This is why you don't try to cite papers that aren't peer reviewed, eheheheh
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Also, the OP's link is broken. But I would also include this article on Bloomberg.
The relevant chart shows that Reinhart-Rogoff's defense is correct that despite the sniping at some mistakes, the correlation does exist between high debt and low growth:
![[image loading]](http://www.bloomberg.com/image/i63DIFaTv1io.jpg)
This doesn't necessarily change the fact that R-R overreached in their conclusions and that a correlation doesn't necessarily mean much. But I think it is equally overreaching to call their work "debunked" or imply it is completely invalid.
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i'd have to call the dispute negligent, and really the people arguing for it aren't fit to survive
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On April 30 2013 22:18 coverpunch wrote:Also, the OP's link is broken. But I would also include this article on Bloomberg.The relevant chart shows that Reinhart-Rogoff's defense is correct that despite the sniping at some mistakes, the correlation does exist between high debt and low growth: This doesn't necessarily change the fact that R-R overreached in their conclusions and that a correlation doesn't necessarily mean much. But I think it is equally overreaching to call their work "debunked" or imply it is completely invalid.
But the data doesn't go far enough. It just takes points around low growth and high debt and jumbles them together, then implies one caused the other.
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On April 30 2013 22:18 coverpunch wrote:Also, the OP's link is broken. But I would also include this article on Bloomberg.The relevant chart shows that Reinhart-Rogoff's defense is correct that despite the sniping at some mistakes, the correlation does exist between high debt and low growth: This doesn't necessarily change the fact that R-R overreached in their conclusions and that a correlation doesn't necessarily mean much. But I think it is equally overreaching to call their work "debunked" or imply it is completely invalid.
Firstly, showing that high debt is correlated with low growth could suggest that low growth causes high debt just as much as it could suggest that high debt causes low growth.
Secondly, Arindrajit Dube tries to untangle the causation issue, he believes that the causation more likely runs from low growth to high debt. Krugman also believes this is more likely.
Thirdly, here's the debt and GDP growth from the new paper. Notice that the negative correlation still holds. But notice how weakly the data fits the trend, and that there's no 90% "tipping point". No one should be making policy judgement based on such a badly fitted model and such an uncertain relationship.
![[image loading]](http://www.bloomberg.com/image/iBQ9noBviJc8.jpg)
Lastly, the new paper shows that the correlation changes over time, and in the most recent period, high debt countries didn't have lower growth.
![[image loading]](http://www.econbrowser.com/archives/2013/04/ap_growth_debt.gif)
I assure you, this paper is as debunked as you can get.
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On April 30 2013 22:35 paralleluniverse wrote:Show nested quote +On April 30 2013 22:18 coverpunch wrote:Also, the OP's link is broken. But I would also include this article on Bloomberg.The relevant chart shows that Reinhart-Rogoff's defense is correct that despite the sniping at some mistakes, the correlation does exist between high debt and low growth: This doesn't necessarily change the fact that R-R overreached in their conclusions and that a correlation doesn't necessarily mean much. But I think it is equally overreaching to call their work "debunked" or imply it is completely invalid. Firstly, showing that high debt is correlated with low growth could suggest that low growth causes high debt just as much as it could suggest that high debt causes low growth. Secondly, Arindrajit Dube tries to untangle the causation issue, he believes that the causation more likely runs from low growth to high debt. Krugman also believes this is more likely. Thirdly, here's the debt and GDP growth from the new paper. Notice that the negative correlation still holds. But notice how weakly the data fits the trend, and that there's no 90% "tipping point". No one should be making policy judgement based on such a badly fitted model and such an uncertain relationship. Lastly, the new paper shows that the correlation changes over time, and in the most recent period, high debt countries didn't have lower growth. I assure you, this paper is as debunked as you can get.
Do you have this stuff bookmarked, or do you just remember where you found it?
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On April 30 2013 21:55 coverpunch wrote:Show nested quote +On April 30 2013 21:43 Kimaker wrote:
Of course the world didn't end after 90%.
We're so economically ingrained in the fantasy world it won't end for many decades. Until then I suspect you'll continue to see widespread social ills as people experience severe anxiety, stress and neurosis as a result of cognitive dissonance. Regardless of how we decide to "play the game" the fact remains that there comes a point where the market and actual resources fall too far out of synch.
This is all well and good, until they run out of bread and circuses.
You can ignore reality. But you can't ignore the consequences of ignoring reality.
Reality just hasn't caught up yet. Give it time. History is on the side of the inevitable, of collapse. Rome didn't fall in a day, it took nearly 400 years of the entire civilization being an effective, "Dead Man Walking". That's where we are, and that's how our era will be viewed in retrospect. This is not a well reasoned argument. You might as well tell us that we're all going to die sooner or later so just give up now. Reinhart and Rogoff were wrong to say 90% was a threshold, a bright line for the difference between an economy with a debt problem and an economy with a debt crisis. There's no doubt that the United States has a debt problem. The bigger question is whether it's something we need to address right now or if we can sail into the wind and address in, say, five years, when pre-2007 growth levels have resumed. It's far from inevitable that our system will fail, especially not if you're predicting doom centuries from now.
That's fair. I concede the implication that it's defeatist from an optimists perspective. I'm not an optimist, and I don't tie my identity to the sinking ship of the modern United States in terms of what constitutes "surrender" or "giving up." Those are personal acts. I could care less about the system.
That being said, study history. Government spending will not be scaled back, and it will always be 5 years from now. There is no scenario where this doesn't occur barring the sudden appearance of a post-scarcity economy. Economically, we'll just put off our responsibilities and debts onto the backs of the next generation. And sure, maybe every nation in the world does this and we break even for all intensive purposes. You sill get the nightmare scenario of wealth distribution which only finance can produce.
It's all about the zeitgeist, and we've been thoroughly demoralized as a society at this point. Half of the nation no longer sees a world which is in keeping with its morals and they perceive of no way to remedy it. Hence, they surrender. Those who could fix the system are beaten down by the system and instead of social victories they concentrate on small personal ones. Why should they save something they no longer agree with or see the value in? Call them anachronistic, pig-headed, religious gun-nuts, what have you; but that's what it is.
You call doom, death. I call it the painful death throes before expiration. That doesn't mean I don't intend on living; I just don't particularly care if the current system does. My existence is not contingent on the system.
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On April 30 2013 22:42 aksfjh wrote:Show nested quote +On April 30 2013 22:35 paralleluniverse wrote:On April 30 2013 22:18 coverpunch wrote:Also, the OP's link is broken. But I would also include this article on Bloomberg.The relevant chart shows that Reinhart-Rogoff's defense is correct that despite the sniping at some mistakes, the correlation does exist between high debt and low growth: This doesn't necessarily change the fact that R-R overreached in their conclusions and that a correlation doesn't necessarily mean much. But I think it is equally overreaching to call their work "debunked" or imply it is completely invalid. Firstly, showing that high debt is correlated with low growth could suggest that low growth causes high debt just as much as it could suggest that high debt causes low growth. Secondly, Arindrajit Dube tries to untangle the causation issue, he believes that the causation more likely runs from low growth to high debt. Krugman also believes this is more likely. Thirdly, here's the debt and GDP growth from the new paper. Notice that the negative correlation still holds. But notice how weakly the data fits the trend, and that there's no 90% "tipping point". No one should be making policy judgement based on such a badly fitted model and such an uncertain relationship. Lastly, the new paper shows that the correlation changes over time, and in the most recent period, high debt countries didn't have lower growth. I assure you, this paper is as debunked as you can get. Do you have this stuff bookmarked, or do you just remember where you found it?
I usually remember where I found it. But sometimes I have to look around a bit. This stuff is only a week old, so memory is OK.
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On April 30 2013 22:35 paralleluniverse wrote:Show nested quote +On April 30 2013 22:18 coverpunch wrote:Also, the OP's link is broken. But I would also include this article on Bloomberg.The relevant chart shows that Reinhart-Rogoff's defense is correct that despite the sniping at some mistakes, the correlation does exist between high debt and low growth: This doesn't necessarily change the fact that R-R overreached in their conclusions and that a correlation doesn't necessarily mean much. But I think it is equally overreaching to call their work "debunked" or imply it is completely invalid. Firstly, showing that high debt is correlated with low growth could suggest that low growth causes high debt just as much as it could suggest that high debt causes low growth. Secondly, Arindrajit Dube tries to untangle the causation issue, he believes that the causation more likely runs from low growth to high debt. Krugman also believes this is more likely. Thirdly, here's the debt and GDP growth from the new paper. Notice that the negative correlation still holds. But notice how weakly the data fits the trend, and that there's no 90% "tipping point". No one should be making policy judgement based on such a badly fitted model and such an uncertain relationship. + Show Spoiler +Lastly, the new paper shows that the correlation changes over time, and in the most recent period, high debt countries didn't have lower growth. + Show Spoiler +I assure you, this paper is as debunked as you can get.
I don't think there's any question at all that at least some of the causation is flowing in the wrong direction, that low growth causes higher debts. In fact, we KNOW that happens because we know that both Presidents Bush and Obama massively increased spending in response to recessions. The recessions did not happen because government spending went up. This is definitely a time when informed experience > statistics.
But I don't think that debunks the question of whether excessive debt can eat into growth, which is what R-R were arguing. In fact, the United States only just approached the gray area after 2010, so we are in somewhat uncharted territory.
In addition, the 2000-2009 is not the "most recent period", it is the smallest data set and the most biased, given that there were two recessions in that period (2001, 2008). All of the data sets end in 2009.
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EPT
