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Stepping back for a moment, this thorough debunking of Reinhart and Rogoff's flawed paper means that now there is NO evidence that government debt exceeding 90%

• bubbleRefuge 14y ago
  There never was any evidence because they never published the data till now. Nobody could reproduce the results.
  • w1ntermute 14y ago
    Why the fuck is this considered acceptable? Why should I listen to any boffin who refuses to release his data? It's not exactly difficult to upload a couple files to your damn website. I've been in the exact same position and I did it in 5 minutes. But it took them THREE FUCKING YEARS to release this shit. What a joke.
    • bubbleRefuge 14y ago
      Corporate controlled media ?
      • dmix 14y ago
        It's not even a corporate conspiracy... it's the markets demand for politics to be entertainment... not something based on empirical data. See: http://www.amazon.com/Amusing-Ourselves-Death-Discourse-Business/dp/014303653X/ http://www.amazon.com/Amusing-Ourselves-Death-Discourse-Busi...
        • bubbleRefuge 14y ago
          But what about shops like CNBC ? They get lots of ad revenue from the FIRE industry.
• deleted 14y ago
  [deleted]
• protomyth 14y ago
  I would imagine the problem cited will be the amount of revenue going to debt service.
  • XorNot 14y ago
    Which is only a problem if you can show you're forgoing vital services for it. Example: 30 billion, at say, 2% interest per year (which a government could easily get, and the US can currently do much better then) is only 600 million interest repayments. And remember, this is before accounting for inflation, since the loan can be repaid with much cheaper dollars in the future (i.e. inflation usually sits at around 2%, and a government can tweak that as needed). US debt servicing currently compromises about 7% of the annual budget. So there's no imminent risk that interest payments couldn't be paid for out of general revenue. Even if the US really needed 600 million per year of some service, it would _still_ make more sense to take out the 30 billion loan, plough 28.8 billion into infrastructure or other investments, then spend 600 million on those services, 600 million on financing the interest, and repay the entire thing with simultaneously cheaper dollars in the future _and_ the new revenue they've generated from growth. The only _real_ danger, is the risk you may have to run a larger fraction of your annual revenue into debt servicing if you can't refinance. But you can put money aside to account offset that contingency, and still borrow.
  • rayiner 14y ago
    We spend about $190 billion a year paying interest on our debt, out of $2.45 trillion in revenue. That's about 7.8%, which is not an unsustainable large number by any stretch of the imagination. To use the ever-dubious household analogy, it's like a programmer ($150k/year salary) having a $650 car payment. Maybe the ideal car payment for someone bringing home around $8000/month is more like $500 or below, but it's not exactly the height of fiscal irresponsibility.
    • protomyth 14y ago
      That's at the current interest rate (which is close to zero), the problem gets worse when interest rates go up due to inflation concerns.
• tunesmith 14y ago
  So, yay Keynesianism?
  • bubbleRefuge 14y ago
    Absolutely! Yes. Didn't Simpson-Bowels ( the bi-partisan deficit reduction committee) cite the Reinhart-Rogoff 90% limit as part of the justification for long run austerity policies. I'd go further. Lets lay down the gauntlet here and proclaim: there is no long term deficit problem in the USA.
    • calinet6 14y ago
      Bingo! This basically changes everything (or at least disproves the major argument against the deficit issue, since there is no proof that economic growth will be negatively affected by the debt). Too bad this can't be used more publicly in the political arena, since if anyone so much as mentions the economic theory people will be like "Reindeer-Stroganoff what?"
      • bubbleRefuge 14y ago
        Yeah you're right. To wonky. Its to ez for j6p to equate the household budget/debt analogies with that of the Federal government. Especially with the false analogy reinforced every 5s by politicians/pundits on Fox News/CNN.
        • tunesmith 14y ago
          That one's always bugged me, because it's easy to imagine a Keynesian household budget, too. Imagine a multi-generational household where the patriarch has savings but where the living expenses are covered by his descendants. Then the banking system go crazy for a couple of months - a kid has a business idea that will make money but has lost bank funding. The patriarch has the choice whether to invest savings to get the business off the ground (increasing the probability of the kid contributing to living expenses in the future), or instead just tell the kid to tighten his belt, at the expense of the patriarch's own future living standard.
• fauigerzigerk 14y ago
  There may not be empirical evidence for the magical 90% level, but we don't need empirical evidence to know that at some point interest payments will require highter tax revenues which will reduce disposable income and hence consumption. Obviously someone is on the receiving end of those repayments, but if that someone is not putting money in the pockets of those same taxpayers and instead decides to finance a power plant in Thailand then GDP will inevitably suffer. I'm not a government deficit scaremonger by any means. I think Krugman's (and others') argument that the U.S. government can borrow very cheaply and should therefore act in a countercyclical manner for the common good is plausible. I'm also convinced that the crowding out argument is bogus in an economy that suffers from too little demand whilst corporations are sitting on tons of cash. But we should not lose sight of the fact that interest rates are a highly psychological affair. Once trust in the ability to repay debt gets eroded things can get out of control very quickly. So we should be scared at least a little bit. That said, the U.S is probably the one entity on this planet that is furthest away from that point. Even Japan with it's 245% debt/GDP ratio can borrow at 0.5% for 10 years whilst their currency is crashing and the central bank is announcing a massive QE program twice the size of the U.S one. But if the U.S ever gets to the point where Japan is now, that's when I'm starting read up on agriculture or the hunter-gatherer diet.
  • podperson 14y ago
    There's obviously some point where having too much debt is bad, but if we go back to the classical "country as household" oversimplistic analogy, I doubt you'd find evidence that people who have mortgages over some magic value relative to their income suddenly start getting smaller annual raises.
    • kzrdude 14y ago
      If you reinvested your household's profit into the company that pays your salaries, it might?
    • fauigerzigerk 14y ago
      Annual raises are not analogous to GDP. Spending is. If interest payments grow faster than income then spending will go down. Also, if a household's interest payments are rising faster than its income then it will not be able to invest, say, in the education of the kids. So if you count the kids as part of that household over their lifetime, annual raises will indeed be smaller because better educated folks get bigger raises.
• grannyg00se 14y ago
  How can huge government debt not cause slower economic growth? At very least all of the money wasted on debt repayment could've been spent on incentive programs. Unless the borrowed money is invested in something that consistently returns more than the debt financing, I don't see how one could think a high debt/gdp ratio would be okay.
  • moultano 14y ago
    How could the ether not exist? All waves must have a medium! When the data doesn't fit the model, it doesn't matter how pretty the model is, the model is wrong. The right way to answer these questions is to say "The data contradicts my intuitions. How could my intuitions be wrong?"
    • grannyg00se 14y ago
      Is there data that shows that a massive government debt does not slow economic growth?
  • podperson 14y ago
    How does government debt slow growth? Explain the mechanism. (Bear in mind that "growth" is in GDP, a dubious measure in the first place. Hurricanes and cancer add to GDP.) It's easy to see how slow growth can increase debt: expenses grow through inefficiency, inflation, or whatever, but revenue fails to keep up. So we get low growth driving up debt. I can buy that. If you have a big mortgage to pay off, will that slow down your salary increases? How? Why? You may lament the fact your salary goes to paying interest on your mortgage, but if anything you're more motivated to increase your salary (the proportional benefits from raises are greater!)
    • NoPiece 14y ago
      In regards to your analogy: let's say you aren't salaried, but are self employed. Now you take on a a big mortgage, and spend you income on paying your mortgage instead of investing it in growing your business. Government debt slows growth because you have to pay it back. The currency (you savings/income) may end up being devalued, or your taxes may have to go up.
• Vivtek 14y ago
  They'll say nothing at all.
• bcoates 14y ago
  Is there evidence to the contrary or are we back to people yelling past each other with unsupported theories?
• oleganza 14y ago
  Since the GDP contains all government spendings and debt, it is obvious that debt and spendings only increase "economic growth". But if you call a spade a spade and realize that 100% of government spendings is taken from products of the market, then the real GDP (RP) will be defined like this: RP = "Official GDP" - 2 * (gov debt and expenditures).
  • cromwellian 14y ago
    That would only be true if 100% of government spending came from taxes and the government didn't spend anything, it does not. Deficit spending comes from people investing in the government, and a non-trivial amount comes from foreigners. You buy something from Walmart -> China gets USD -> China buys US treasuries. You got a product, the US government got money, and the Chinese got left with an IOU. Moreover, government spending doesn't vanish into a blackhole. If I tax a dollar from you, and then build a highway or launch a GPS satellite or educate a child, I not only put your money back into the economy, I also left lasting changes that improve efficiency.
• JumpCrisscross 14y ago
  "there is NO evidence that government debt exceeding 90% of GDP somehow negatively impacts growth." Correct, 90% is not the magical, universal debt/GDP:dGDP inflection point it was made out to be. "there is NO EVIDENCE that more government debt causes slower economic growth" Whoah, whoah. Try the refutation paper [1]. It finds "that average GDP growth tails off somewhat when the public debt/GDP ratio increases towards 120 percent." There is no strong inflection point ("the scatterplot does suggest a non-linearity in the relationship, but that occurs in the change in the public debt/GDP ratio from 0 to 30 percent"). But there is a monotonically decreasing debt/GDP:dGDP relationship. It is more subtle than previously characterised, and thus potentially mitigatable in the short term, but let's not take Einstein's refutation of Newtonian physics to mean gravity doesn't exist. [1] http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf http://www.peri.umass.edu/fileadmin/pdf/working_papers/worki...
  • cantankerous 14y ago
    I don't think most people are arguing against the negative side effects of massive amounts of debt. The point this really drives home is that the budget theater that has been going on for the past few years is entirely unnecessary. The reality of the budget drama in Congress is that it's almost entirely about the house majority stymieing any forward momentum by the current administration at just about any cost. This is why Congress has such a low approval rating.
    • sageikosa 14y ago
      > The point this really drives home is that the budget theater that has been going on for the past few years is entirely unnecessary. Translation(?): the econometric models used to measure the length of the road were off by a little bit, we have more time to kick the can. Econometric models are descriptive in any case (they are measuring quantities that are based on the human actions causing those metrics, those metrics are not controlling those behaviors), past performance is no guarantee of future behavior.
      • jbooth 14y ago
• duaneb 14y ago
  I guess I just assumed that if excel was used at a financial firm, there were unit tests (or whatever the excel equivalent would be). It's a scary thought that it might not be the case because excel doesn't excel at reporting errors or debugging.
• haberman 14y ago
  It seems to me that "deficit scaremongers" are more worried about scenarios like Greece and the Weimar Republic, not "slower economic growth." I think it's a good-faith concern. As much as I believe in data, the ability of the US to borrow cheaply enough to finance deficit spending is entirely up to the whims of investors. People are fickle. If the shit hits the fan and investors lose confidence in the USA for whatever reason, the deficit spending we currently rely on could become many times more expensive, and unsustainable. EDIT: Downvotes? I doubt most people are even aware of this 90% number, but everyone knows about Greece. If you ask an average tea partier, I am willing to bet they are more concerned about Greece than exceeding 90% debt/GDP. If this is nonsense, refute it (I'd like to hear, and believe, that refutation).
  • czr80 14y ago
    Comparing the US, a huge resource-rich country with its own currency, to a tiny resource-poor european country that does not control its own currency is complete and utter nonsense. To pay back its debt all the US government needs is dollars, and hey, look, the US government controls the supply of dollars. To pay back its debt, the Greek government needs euros, and, oh, the ECB controls the supply of euros. Oops. If you say the US can't print money because it will cause inflation - well, in the current climate you'd still be wrong, but let's address one issue at a time. The bottom line is that the US and Greece are fundamentally different, and comparisons between them are simply wrong.
    • haberman 14y ago
      Fair enough on the fact that the US can print Dollars -- that addresses the Greece argument, but not the Weimar Republic one. Why is the inflation concern invalid?
      • czr80 14y ago
        As part of the war reparations, the Weimar republic had to pay back debt demoninated in gold and foreign currency. Same problem as Greece (or Argentina, to pick another case). Wikipedia has a good write up.
• ianstallings 14y ago
  What us "scaremongers" are going to say is that it's not very wise. Debt is based on future growth so it's always a gamble. Wouldn't you rather be prudent and spend less? Or is there some rush to spend every single dime? I just don't get it. Breaking it down with research into past events doesn't negate the fact that borrowing has to be paid back. Did we just fall of the rational-thinking cart or something? It's not silly to be conservative. In fact in a lot of places it's called wisdom.
  • derefr 14y ago
    To put it shortly, a completely de-leveraged economy leaves people starving in the streets. We're basically spending to outrace Malthus.
• kaonashi 14y ago
  Lost in the conversation about government debt is the determining factor of whether or not government debt can ever be a problem at all. It's not how much you owe, it's not who you owe it to; it's what you owe. If your government owes IOU's that it can print itself (fiat currency), it can never default on those IOU's. If your government owes IOU's printed by another government or sovereign body, then it can most certainly run out of them and must buy them at market rates.
  • SilasX 14y ago
    >If your government owes IOU's that it can print itself (fiat currency), it can never default on those IOU's. People like to repeat this as if it's somehow insightful and helpful to the discussion, but it's vacuous. Yes, you can always just print away debts denominated in a currency you control. That says nothing about how much you fuck up the economy by doing so. That's why some countries that could print their way out of debt (Russia '98) default anyway, because even a default might not be as bad as (the risk of) triggering complete collapse of the currency.
    • kaonashi 14y ago
      Saying you have to 'keep printing money' to cover debts is meaningless. All money is printed (or keystroked) into existence. Governments impose a tax burden payable only in the state's currency (so that people are forced to offer their output for sale in that currency), then they provide that currency. The way to be fiscally responsible with your currency is to print enough so that everyone has a job, but so much that you're overrunning your output capacity and increasing inflation. Keep interest rates on bonds (if you choose to issue them) lower than your GDP growth (and since you're the monopoly issuer of your currency, you have control over interest rates) and you won't have issues with expanding debt % [1]. The first response to this is usually "well, Greece" or "well, Zimbabwe". The crucial difference in those countries was that what they owed was not their own currency, but foreign currencies. [1] http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf
      • 14y ago
• WalterBright 14y ago
  I'm not so sure that this error means that a free lunch has been discovered.
  • afterburner 14y ago
    No one's claiming that... What this means is, instead of slashing budgets in a recession because you think debt slows growth, instead invest in a recession, because the alternative is no benefit to growth plus putting more people out of work.
• anigbrowl 14y ago
  Stepping back for a moment, this thorough debunking of Reinhart and Rogoff's flawed paper means that now there is NO evidence that government debt exceeding 90% of GDP somehow negatively impacts growth. Let me repeat that: there is NO EVIDENCE that more government debt causes slower economic growth -- just theories. These two sentences do not say the same thing. There is evidence that debt results in slower economic growth. There is not evidence that it negatively impacts growth, to with that it results in economic shrinkage. I'm with your general sentiment but don't throw the baby out with the bathwater in your enthusiasm.