Wednesday, October 23, 2013

"EU Economist Backs Austerity's Critics"

 Matina Stevis @ WSJ:
Coordinated austerity in euro-area countries has stifled economic recovery and deepened the crisis across the currency bloc, according to a new technical paper prepared by an economist at the European Commission.

Spending cuts in Germany in particular have made things worse for the weaker members of the euro area through “spillovers” – the economic impact on economies connected to Germany’s– the paper says, adding that limited stimulus programs in richer countries could help the whole of the currency bloc.

The paper, which doesn’t necessarily represent the views of the powers-that-be at the Commission, presents some inconvenient conclusions for European authorities from one of their own economists. The European Union and national governments have come under fire from outside economists for pursuing austerity across the euro zone. These critics have argued that Germany in particular should be running bigger deficits to help drag the bloc’s weaker members out of their slumps.

Monday, October 21, 2013

"Washington is still stuck in the wrong conversation"

Ryan Cooper @ WaPo Plumline explains how the Beltway is still stuck on Stupid...or worse:
With the shutdown and debt ceiling crisis over and budget negotiations beginning, it’s worth noting that we’re stuck back in the same old rut we’ve been stuck in since Republicans took the House in 2010. Republicans want cuts to social insurance, or say they do, and Democrats want a bit of new tax revenue in return. On a policy level, this is nuts. We’re trading austerity for…more austerity. Democrats and Republicans ought to consider bringing in other ideas. Almost anything else would be better.

Thursday, October 17, 2013

"Republicans are delusional about US spending and deficits"

Dean Baker @ The Guardian:
It is understandable that the public is disgusted with Washington; they have every right to be. At a time when the country continues to suffer from the worst patch of unemployment since the Great Depression, the government is shut down over concerns about the budget deficit.

There is no doubt that the Republicans deserve the blame for the shutdown and the risk of debt default. They decided that it was worth shutting down the government and risking default in order stop Obamacare. That is what they said as loudly and as clearly as possible in the days and weeks leading up to the shutdown. In fact, this is what Senator Ted Cruz said for 21 straight hours on the floor of the US Senate.

Going to the wall for something that is incredibly important is a reasonable tactic. However, the public apparently did not agree with the Republicans. Polls show that they overwhelmingly oppose their tactic of shutting down the government and risking default over Obamacare. As a result, the Republicans are now claiming that the dispute is actually over spending.

Anywhere outside of Washington DC and totalitarian states, you don't get to rewrite history. However, given the national media's concept of impartiality, they now feel an obligation to accept that the Republicans' claim that this is a dispute over spending levels.

But that is only the beginning of the reason that people should detest budget reporters. The more important reason is that they have spread incredible nonsense about the deficit and spending problems facing the country, causing most of the public to be completely confused on these issues. If budget reporters were held to the same standards as school teachers, with the expectation that they would be able to convey information, they would all be fired in a minute.

Contrary to the widely repeated stories of out-of-control deficits and spending, deficits have plunged in the last four years falling from 10.1% of GDP in 2009 to just 4% of GDP in 2013. The Congressional Budget Office projects the deficit to be just 3.4% of GDP in 2014. The latest projections show the debt-to-GDP ratio falling for the rest of the decade.

Saturday, October 12, 2013

Truth in the Age of Niallism

This is too much fun not to post. Matthew O'Brien at Atlantic on Niall Ferguson's latest:
Here are three facts about how the 10-year budget outlook has changed in the past year: 1) the fiscal cliff deal raised $600 billion in new revenue; 2) the sequester, if left in place, cut spending by $1.2 trillion; 3) the CBO revised its projection for federal healthcare spending down by $600 billion. 
Harvard historian Niall Ferguson has a counterfactual take. Here's how he described how our debt trajectory changed the past year: 
A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year. 
This isn't a difference of opinion. It's incorrect. But it's incorrect for reasons that will escape casual readers.

Monday, October 7, 2013

"Debt Threat" nonsense from academic clown Niall Ferguson

Niall Ferguson, the egregious blowhard Harvard professor who gets everything wrong, strikes again via the Wall Street Journal with remarkable stupidity. Increasingly it appears Ferguson isn't simply in error, so much as a right-wing troll of the FOX & FRIENDS school of aggressive disinformation. UC economist Brad DeLong takes Fergie apart:
Niall Ferguson: The Shutdown Is a Sideshow. Debt Is the Threat:

Only a fantasist can seriously believe "this is not a crisis." The fiscal arithmetic of excessive federal borrowing is nasty even when relatively optimistic assumptions are made about growth and interest rates. Currently, net interest payments on the federal debt are around 8% of GDP…
DeLong responds:  Um…. No. Not 8. Only 1/6 of 8.

Look at: Currently, net interest payments on the federal debt are not 8% but only one-sixth that--1.3% of GDP:

Www cbo gov sites default files cbofiles attachments 44521 LTBO2013 pdf

The fantasy is the 8% number, and the belief that the debt is, right now, a crisis.

Moreover, 1.3% is the wrong number to look at. We want to adjust for inflation at 2%/year, and that gets us to 1.3% - 2% x 80% = -0.3% of GDP. We want our concept of budget balance to be not a stable real value, but a constant debt-to-GDP ratio. Making that adjustment tells us that right now the U.S. could run a primary deficit of 0.3% + 2.5% x 80% = 2.3% of GDP without seeing any increase in the debt-to-GDP ratio.

That's right: rather than the debt forcing us to cut spending on programs below the level of taxes (i.e., run a primary surplus) in order to keep the debt-to-GDP ratio from growing, right now the United States can have spending on programs exceed taxes by 2.3% of GDP (i.e., run a primary deficit) and still keep its debt-to-GDP ratio stable. In terms of real resources, right now the debt is not a burden. It does not reduce how much the U.S. can afford to spend on programs. It is a profit center. It is providing a net addition to federal resources to the tune of 2.3% of GDP.

That's how far the federal debt is today from being a burden on the economy.

Wednesday, October 2, 2013

Tuesday, October 1, 2013

"How a Debt-Ceiling Crisis Could Become a Financial Crisis"

Annie Lowrey @ NYTs Economix:

Come mid-October, the United States will have only $30 billion of cash on hand. On any given day, its net payments can reach as high as $60 billion. That means that unless Congress raises the debt ceiling, allowing the Treasury to issue new debt, the United States may find itself unable to make all of its payments — stiffing government contractors, or state and local governments, or even its bondholders.

Economists widely agree that such an unprecedented event would have profound effects for the markets, likely precipitating a stock-market sell-off and setting off a round of global financial turbulence. But it has always been a little unclear just how it may play out. The Treasury might announce it would be forced to delay some payments, promising to do what it could to make sure bondholders were made whole. But then what?