Why the Argument for Austerity Took a Big Hit Yesterday

[tru_m.a.c]

I can quote Jay Carney on it as well.

 

[TLR Is Mental Poison]

Well run it up to 1000% of GDP then.

I never said debt slowed growth. I argued in Favor of deficit financed tax cuts. I have done that here, and I have done that on HL.

http://www.nytimes.com/2009/12/13/business/economy/13view.html

I said taxes slowed growth.

Retail sales growth slows as higher taxes kick in | Reuters

Wal-Mart Struggles to Restock Store Shelves as U.S. Sales Slump - Bloomberg





My concern about high debt levels was Crowding out Crowding out (economics) - Wikipedia, the free encyclopedia And what is growing? is the it the private sector or Government spending? The quality of growth matters.



SO I don't understand why I'm being called out here.

Effective tax rates are at their lowest point in history for the average American. We have talked about this before. You want deficit financed tax cuts, the federal govt is running a $1T+ deficit. ~7% of the US economy is IOUs, and yet the real economy is still growing. You dont know what you are talking about.

 

[VerbalIntercourse]

Effective tax rates are at their lowest point in history for the average American. We have talked about this before. You want deficit financed tax cuts, the federal govt is running a $1T+ deficit. ~7% of the US economy is IOUs, and yet the real economy is still growing. You dont know what you are talking about.

Lowest point in history?

You realize People didn't pay income taxes until the early 1900's, and if that, it only on the top 10% (2% tax levied) during the civil war?

 

[Dusty Bake Activate]

Well run it up to 1000% of GDP then.

I never said debt slowed growth. I argued in Favor of deficit financed tax cuts. I have done that here, and I have done that on HL.

http://www.nytimes.com/2009/12/13/business/economy/13view.html

I said taxes slowed growth.

Retail sales growth slows as higher taxes kick in | Reuters

Wal-Mart Struggles to Restock Store Shelves as U.S. Sales Slump - Bloomberg





My concern about high debt levels was Crowding out Crowding out (economics) - Wikipedia, the free encyclopedia And what is growing? is the it the private sector or Government spending? The quality of growth matters.



SO I don't understand why I'm being called out here.

More tax cuts when taxes are at their lowest point in like 60 years, money is more concentrated in the hands of people at the top who won't spend it than almost ever before, and demand is sputtering?

 

[TLR Is Mental Poison]

Lowest point in history?

You realize People didn't pay income taxes until the early 1900's, and if that, it only on the top 10% (2% tax levied) during the civil war?

So???

Back in the day there was no income tax. Now half the country gets a check from the govt every year, giving back the taxes they paid and more. Country went from paying nothing to paying less than nothing.

Your assertion that private investment is getting "crowded out" is also bogus. Govt borrowing has had zero effect on private investing. There are factors affecting investing but nobody is saying 'i am not going to buy this stock because our debt to GDP ratio is too high'. Again you are just talking out of your ass

 

[VerbalIntercourse]

So???

Back in the day there was no income tax. Now half the country gets a check from the govt every year, giving back the taxes they paid and more. Country went from paying nothing to paying less than nothing.

Your assertion that private investment is getting "crowded out" is also bogus. Govt borrowing has had zero effect on private investing. There are factors affecting investing but nobody is saying 'i am not going to buy this stock because our debt to GDP ratio is too high'. Again you are just talking out of your ass

The housing boom was ignited as an effect of government borrowing. Do you read greenspan's book? Of course government borrowing has an effect on private investment. What world are you living?

 

[TLR Is Mental Poison]

The housing boom was ignited as an effect of government borrowing.

Can you explain this further? How did govt borrowing specifically lead to the housing boom?

 

[Dusty Bake Activate]

http://www.huffingtonpost.com/2013/05/02/reinhart-rogoff-austerity_n_3201453.html

Under steady attack after their seminal research was found to be riddled with errors, Harvard economists Carmen Reinhart and Kenneth Rogoff are making a show of backing away from the austerity that their research encouraged.

They claim that their views on austerity have never changed, but the record tells a different story. They're still trying to have it both ways -- advocating for government belt-tightening while trying to avoid being seen as political.

For those readers who have spent the past month held prisoner by the Sleestaks from "The Land Of The Lost," let me catch you up: Reinhart and Rogoff wrote a paper back in January 2010, called "Growth In A Time Of Debt," which strongly suggested that government debt of more than 90 percent of gross domestic product caused bad things to happen to economies. In the years since its publication, that paper has been cited by many politicians, from Rep. Paul Ryan (R-Wis.) to George Osborne of the U.K., to justify harsh belt-tightening programs despite deep, widespread economic pain in the U.S., U.K. and Europe.

Two weeks ago, a University of Massachusetts-Amherst grad student, Thomas Herndon, destroyed their paper's credibility by pointing out that it was riddled with errors, including glaring data omissions and a goofy Excel spreadsheet mistake. Suddenly, the Paul Krugmans of the world, who have spent the past few years arguing fruitlessly against austerity, had the upper hand. The austerity movement had been discredited, along with the research from Reinhart and Rogoff that underpinned it.

Of course, Reinhart and Rogoff have repeatedly claimed that their work has not been discredited at all, that the bulk of the data still supports their thesis that debt is a really, really bad thing. And austerity advocates claim, accurately, that they weren't relying only on Reinhart and Rogoff in pushing for austerity. They still believe debt is a really, really bad thing, with or without Reinhart and Rogoff's numbers.

As part of the effort to rehabilitate their image, Reinhart and Rogoff have taken the additional step of trying to distance themselves from austerity altogether by claiming they were never advocates. In a Financial Times piece on Wednesday (subscription required) and in a New York Times op-ed last week, they argued that "austerity is not the only answer" to the oh-so-serious problem of government debt. In fact, a whole toolkit must be used -- a little austerity here, a little financial repression there, maybe a little inflation.

And with Wednesday's FT column, a surprising new tool appears in the kit: More government debt! Although not too much more, and only if it's used for the right things (emphasis added):

To be clear, no one should be arguing to stabilise debt, much less bring it down, until growth is more solidly entrenched....

Nevertheless, given current debt levels, enhanced stimulus should only be taken selectively and with due caution. A higher borrowing trajectory is warranted, given weak demand and low interest rates, where governments can identify high-return infrastructure projects. Borrowing to finance productive infrastructure raises long-run potential growth, ultimately pulling debt ratios lower. We have argued this consistently since the outset of the crisis.

But Reinhart and Rogoff never argued, in many of the high-profile columns they wrote following the release of their paper, that governments should take on more debt for infrastructure spending, or for anything else. In fact, they strongly suggested that governments had better hurry up and start cutting their debt, tout de suite, lest a new financial crisis hit.

This is what they wrote in the FT in January 2010, around the time of the publication of "Growth In A Time Of Debt" (emphasis mine):

Given the likelihood of continued weak consumption growth in the US and Europe, rapid withdrawal of stimulus could easily tilt the economy back into recession. Yet, the sooner politicians reconcile themselves to accepting adjustment, the lower the risks of truly paralysing debt problems down the road. Although most governments still enjoy strong access to financial markets at very low interest rates, market discipline can come without warning. Countries that have not laid the groundwork for adjustment will regret it.

Markets are already adjusting to the financial regulation that must follow in the wake of unprecedented taxpayer largesse. Soon they will also wake up to the fiscal tsunami that is following. Governments who have convinced themselves that they have done things so much better than their predecessors had better wake up first. This time is not different.

In July 2011, they wrote in Bloomberg:

Although we agree that governments must exercise caution in gradually reducing crisis-response spending, we think it would be folly to take comfort in today's low borrowing costs, much less to interpret them as an "all clear" signal for a further explosion of debt.

Rather than suggesting that it might be okay to increase crisis-response spending temporarily, they allow only that spending can be reduced "gradually." Which is austerity by another name. And they warn governments against "a further explosion of debt" to pay for infrastructure or stimulus or anything else, even when interest rates are at record lows and people are suffering.

In June 2012, Rogoff did call "debt-ceiling absolutists" naive in their belief that governments could suddenly just stop taking on debts necessary to pay for stuff like armies and roads. But he also scolded the "simplistic Keynesians" like Krugman who have called for more debt and more government spending: "[E]xpanding today's already large deficits is a risky proposition, not the cost-free strategy that simplistic Keynesians advocate."

A little later, in August 2012, Rogoff claimed that he had "always favoured investment in high-return infrastructure projects that significantly raise long-term growth." But as Slate's Matthew Yglesias noted at the time, this is a stingy sop -- okay, fine, we can spend some money, but only as long as we're sure we're spending it on "high-return" projects. Good luck figuring out what those are.

And for the past three years, as their paper was used as a political weapon by austerity advocates, Reinhart and Rogoff remained mute, never complaining that their paper was being misconstrued or taken too far. In fact, their columns and congressional consultations only fanned austerity's flames. Rogoff in 2011 told Congress that right now was "absolutely" the time to start cutting debt, according to Sen. Tom Coburn (R-Okla.).

Now that their thesis has suffered a potentially fatal blow, and the "fiscal tsunami" of soaring interest rates they predicted has still not materialized, Reinhart and Rogoff are re-writing history and appearing to get a little cozier with the idea of debt. Given the damage that austerity has already caused, any apparent abandonment of it is welcome. Still, there's no better proof that the intellectual case for austerity has always been empty.

 

[Sensitive Blake Griffin]

I always hated economics, can someone break this down simply for me?

 

[TLR Is Mental Poison]

I always hated economics, can someone break this down simply for me?

These guys wrote a paper making a link between slow economic growth and high govt debt based on historical data. Its a paper a lot of economists and politicians cite as justification for their policy (largely austerity- slashing govt programs). Nobody could replicate their findings. Some grad student finally contacted them and said 'hey i am writing a report to replicate your findings, can i have your data?' They said sure and sent him their actual files.

The files were full of errors and wild ommissions that coincidentally helped the point they were trying to prove. So now it turns out that all the govt program slashing and all that was based on a biased paper based on false data. And now they are like a motherfukker, trying to claim they didn't say what they did.

 

[Dusty Bake Activate]

These guys wrote a paper making a link between slow economic growth and high govt debt based on historical data. Its a paper a lot of economists and politicians cite as justification for their policy (largely austerity- slashing govt programs). Nobody could replicate their findings. Some grad student finally contacted them and said 'hey i am writing a report to replicate your findings, can i have your data?' They said sure and sent him their actual files.

The files were full of errors and wild ommissions that coincidentally helped the point they were trying to prove. So now it turns out that all the govt program slashing and all that was based on a biased paper based on false data. And now they are like a motherfukker, trying to claim they didn't say what they did.

And one of the flaws was an Excel formula error.

 

[TLR Is Mental Poison]

IMO US can and should use debt to get through these times. People are pretty much paying us to take on our debt and entities like China are continually increasing their Treasury holdings. China is a growth economy but not for long; as fukked up as the US is its model is way more sustainable. There is a lot of easy excess we can trim too.

 

[Sensitive Blake Griffin]

These guys wrote a paper making a link between slow economic growth and high govt debt based on historical data. Its a paper a lot of economists and politicians cite as justification for their policy (largely austerity- slashing govt programs). Nobody could replicate their findings. Some grad student finally contacted them and said 'hey i am writing a report to replicate your findings, can i have your data?' They said sure and sent him their actual files.

The files were full of errors and wild ommissions that coincidentally helped the point they were trying to prove. So now it turns out that all the govt program slashing and all that was based on a biased paper based on false data. And now they are like a motherfukker, trying to claim they didn't say what they did.

thanks for the concise explanation. That is disturbing to say the least. That's why economics always pissed me off, how can there be so many different theories that not everybody agrees on? I was like, fukk kinda shyt is this?

 

[TLR Is Mental Poison]

thanks for the concise explanation. That is disturbing to say the least. That's why economics always pissed me off, how can there be so many different theories that not everybody agrees on? I was like, fukk kinda shyt is this?

Economics is kind of goofy, but at least most theories aren't based on funky Excel sheets

And one of the flaws was an Excel formula error.

I am not sure that error was unintentional, friend

It seems way too convenient that the error changes the results of their study from -0.1% to +2.2%

Plus I havent read the paper yet, but what exactly is the mechanism that makes high govt debt strangle growth? Especially in the US case, where our real debt yields are negative, and we are running a deficit about 6-7% of the GDP? The whole exercise seems like a confusion of correlation/causation, even w/o the error.

 

[CHL]

LOL

I'm sorry, I have to bump this