Results for “Rogoff Reinhart” 28 found
Assorted links
2. How does competency-based learning work?
3. Are the Chinese switching out of Hollywood movies because the movies are too stupid? It seems so. And at what rate does popular culture depreciate?
4. James Hamilton on Reinhart-Rogoff, and a good overview/scoring of the overall controversy.
5. “Dwight Howard missed more free throws this season (366) than Lakers teammate Steve Nash has missed in his 17-year NBA career (322). Howard: 355 for 721 this season, 49.2 percent; Nash: 3,038 for 3,360 from 1996-97 through 2012-13, 90.4 percent.” Link here.
Paul Krugman on fame and economics
Do read the whole post (in response to mine here), here is one excerpt:
And the trouble with where I think Cowen, at least, is going is the apparent suggestion that everyone who develops a prominent public profile in economics has to do it by pandering. No, they don’t — and specifically, I don’t think that’s what I do. I’ve taken very strong positions over the years; I’ve been wrong on some occasions; but I can’t think of any cases where I took a stronger position than my actual beliefs warranted.
In particular, my hard-line views on policy in the current crisis — it’s a demand problem not a structural problem, there is no risk of crowding out, there is no risk of inflation from aggressive monetary expansion, there are large negative effects from austerity — aren’t simplifications of some more complex story, they are what my basic model and the lessons of history teach. Where there are things my “base” would like to believe but I’m not convinced, I say so — e.g., on the issue of whether inequality is a key factor holding back recovery.
Assorted links
Assorted links
1. The evolution of the pharmacy.
2. Air Genius Gary Leff on Seth Godin and airports.
3. There is a Mormon transhumanist association.
4. The Reinhart/Rogoff data for download.
5. The “Neuro-Gastronomy” restaurant in NYC, better to try Xian’s Famous Foods.
Ezra and Tom Coburn on Sweden
EK: To go back to Krugman, if he were sitting here, he’d say in this crisis there’s been no evidence anywhere that cutting deficits leads to growth. We’ve not seen it in the euro zone or the UK. And he’d say the Reinhart/Rogoff story is a correlation story. It doesn’t prove that high debt always and everywhere hurts growth.
TC: Go look at Sweden. Here’s what Sweden did. They cut their spending and their taxes. They have the best growth rate in Europe. They had a surplus this year. They had growth at six-plus percent. They actually did a Reagan style approach to their problem by cutting spending and cutting taxes. And they’re the fastest growing with a decline in their debt-to-GDP ratio.
EK: But correct me if I’m wrong, but if I recall, Sweden’s monetary policy went towards a very sharp devaluation, they’ve been driven by export growth, and alongside Israel, they’ve been more aggressive than any other central bank in the world. They’ve done stuff that if we did it here, people would lose their minds.
TC: I think there are monetary parts to that. But their finance minister put in place tough stuff. They had people who left Sweden because of the tax ratio. Now they’ve moved back. And it’s not a perfect example, but it’s an exception to the Krugman story.
The entire dialogue is interesting, noting that, as Ezra points out, Coburn is more worried about inflation than he needs to be.
The FP Top 100 Global Thinkers
The new list has been published and I am pleased and honored to have made it. The non-economists include such figures as Obama, Merkel, Sarkozy, Bill Gates, and Mark Zuckerberg. The economists — plenty of them — include Krugman, Stiglitz, Reinhart and Rogoff, Roubini, Lant Pritchett, and Duflo and Banerjee. To engage in some superficial self-reflection, the striking thing about the list is that everyone on it is either a) more successful than I am, or b) has been to jail or is headed there. Somehow I expect to continue to evade both categories. Both Rogoff and I recommended the Frank Brady biography of Bobby Fischer. My entering PhD. class put three people on the list, Roubini and Banerjee being the other two.
Has the Keynesian IS-LM model made good predictions lately?
I’ll skip context and links and cut right to the chase. Reinhart-Rogoff and nominal gdp perspectives and TGS views also have been predicting a slow recovery, so while IS-LM has done OK here it wins no special prizes.
What about the “no crowding out” prediction? Since at least the early to mid 1980s, it has been well-known in macroeconomics that U.S. budget deficits do not forecast real interest rates very well and that includes under periods of full or near-full employment. Here is a brief survey by Alan Reynolds on the topic (you can follow up on his references), and he is usually considered a villain by the Keynesians and so he is hardly a Keynesian himself.
There may be a few reasons for the general lack of a connection between deficits and real interest rates in the United States:
1. The supply of capital to the United States is fairly elastic, either domestically or internationally.
2. We don’t have good identifying restrictions on the empirics in the first place. For one thing, controlling for monetary policy is tricky.
3. We haven’t yet seen budget deficits big enough to matter.
4. We are not measuring budget deficits correctly because what matters is the consolidated fiscal stance of the U.S. government, a’la Robert Eisner.
5. Ideas related to Barro’s Ricardian Equivalence hypothesis.
Anyone — Keynesian or otherwise — paying attention to the last thirty years of empirical macro never expected much crowding out of financial capital in the first place. It simply has not been in the cards.
To put it more bluntly, the “no crowding out” result is not much of a predictive victory for Keynesian economics, IS-LM, the liquidity trap, and so on, even though I have read it claimed as such many times. It is a strike against some predictors who were wrong in the first place, especially in the right-wing popular press circa 2009-2010, plus some Republicans who jumped ship on the issue, perhaps because they wanted to attack Obama.
What’s a unique prediction we might look at? It is a common Old Keynesian claim these days, at least from Krugman, that the AD curve is upward-sloping because of a liquidity trap. That would imply that harsh and binding minimum wage hikes, and other wage-propping mechanisms, should prove expansionary. That claim, at least for the Great Depression, has been knocked down fairly conclusively by Scott Sumner. If there is no comparable test on today’s data, it is because we have grown that much wiser.
The size of fiscal stimulus vs. the length of fiscal stimulus
For this blog post, let’s assume Keynesian economics.
For all the talk of a “large stimulus,” you don’t hear much about a “longer stimulus.”
The problem with a “too small” stimulus is that you get an initial economic boost, but when the stimulus expires the economy slumps back down, as indeed happened in mid 2011. Ideally a stimulus employs some idle labor, stops it from depreciating, and tides those workers over until they can look for other jobs in fundamentally better economic conditions. Those last few words are important. If conditions are not improving soon, the ability of the stimulus to “buy time” for those workers isn’t worth much. The workers get laid off from the government projects and their reemployment prospects are no better than to begin with. We end up having spent a lot of money to postpone our adjustment problems, rather than achieving takeoff.
Deleveraging recessions last a long time, as shown by Rogoff and Reinhart. The need for continuing deleveraging implies that even a stimulus twice the size of ARRA won’t turn the tide.
In those cases a well-designed stimulus program should not be so “timely.” For a given presented expected value sum spent on stimulus, it is better to spread it out across the years. It is better to help a smaller set of workers for five years (or however many years it takes for most of the deleveraging to end), after which they are reemployable , than to temporarily boost a larger number of workers for two years, and then leave them back in the dust because deleveraging is still going on.
The effectiveness of a stimulus will be measured by how many workers it bridges over until most of the deleveraging is over. For ARRA, that number is close to zero.
Length may be one reason why WWII was effective stimulus (again, we are operating within the Keynesian worldview here, no need to argue this point in the comments). The war lasted a while, and in the meantime a lot of balance sheet repair went on.
Oddly, there is not much discussion about the length of fiscal stimulus. But there should be.
Assorted links
What’s the critical debt-gdp ratio?
Krugman (here), Rogoff, DeLong, and others all have recent writings on this topic. My general view on these matters is the following:
1. There is nothing sacred about "90 percent" as a cut-off ratio and in any case such structural quantitative estimates are not stable over time. The accompanying expectations matter too.
2. The United States today (and in many other times) can manage a ratio higher than that; how much higher we do not know and what is the correct "stopping rule" we do not know. I suppose we will find out.
3. Major wars aside, if the United States approached or exceeded the 90 percent figure, it would be a sign of a dysfunctional politics and an irresponsible citizenry. Do we have to borrow that much money? Can't we just pay for the stuff? Apparently not.
4. Even if the debt is not itself a problem, being skeptical about the debt is one way to enforce accountability on the expenditure side, namely by requiring transparency on expenditures and who is really footing the bill for what.
5. If the United States reaches or exceeds that ninety percent ratio, which is likely, it will be because of health care costs, spending too much on health care, and having dysfunctional health care institutions.
6. Under the scenario of #5, measured gdp might do OK. Health care costs are part of gdp too. But we will be misallocating resources on a massive scale and the high debt helped make it possible.
7. At some sufficiently high debt-gdp ratio, it becomes a foreign policy issue and a big one. Postwar UK had a high debt to gdp ratio, and to this day it is a fine place, but that debt meant the end of England as a world power, for better or worse. The U.S. for instance used financial issues to push England around and they basically had to give up on their overseas commitments. A very high debt ratio here would mean the end of the U.S. as a global world power, again even if gdp does OK. A global power needs the option of spending a lot more, quickly, without asking for anyone's permission. Your mileage on a U.S. retreat from the global policeman role will vary, but it's the elephant in the room which hardly anyone is talking about.
8. I don't agree with Jim Buchanan on either a balanced budget amendment (I am against it, preferring deficits in recessions), or on the intergenerational incidence of domestic debt. Nonetheless his writings are an undervalued resource in this debate. Very often he focuses on what debt does to a country, drawing upon the Founding Fathers, the classical economists, and the Italian public finance theorists, among others.
Addendum: Ezra Klein comments.
Assorted links
1. How do German politicians move?
2. Good review of Nicholas Carr.
3. Interview with Robert Hall.
4. Paul Romer on the New Orleans police force.
5. Profile of Reinhart and Rogoff, and how Rogoff quit chess.
6. Model this.
*This Time is Different*
The authors are Carmen Reinhart and Kenneth Rogoff and the subtitle is Eight Centuries of Financial Folly. Here is the book's home page.
This book is of course self-recommending. By "self-recommending" I mean it is obviously worthwhile and it looks as if I have read some of the content in advance. By self-recommending I also mean…that I haven't read it yet. Nonetheless someone needs to recommend it, so it recommends itself.
The economics of “bailouts”
Paul Krugman writes:
…(according to Reinhart and Rogoff) the resolution of Sweden’s financial crisis imposed a fiscal burden – that is, required a taxpayer-financed bailout – equal to 6 percent of GDP. That would be $850 billion in America today. Just saying.
It’s worth noting that such costs consist mostly of transfers rather than real resource costs. Most of the costs of overinvestment in housing already have been borne in the form of lower living standards, namely we have fewer non-housing goods and services. Making debt obligations whole again does involve higher taxes but most of the money is sloshed around; the government doesn’t dynamite any factories or homes. It should bother you if you think taxes are already too high but of course that doesn’t describe everyone. Furthermore if the destruction of the debt claim would otherwise have been deflationary, some of that debt can be monetized (thus, taxes don’t go up) without raising the risk of inflation. (TC: the Swedish number seems to be wrong, see the first comment.)
Here are a few other points about bailouts, or non-bailouts, as the case may be:
1. Most plans for Fed assistance aren’t bailouts at all. It is pretty easy for the Fed or Treasury to virtually wipe out shareholders. The real "bailouts" come when the institutions are allowed to stay open and continue taking risks.
2. The Fed’s regulatory powers make crisis deals less than fair. If you, as a bank, don’t accept the Fed’s terms, you can be prosecuted or thrown in jail or at least ruined by your friendly regulator. Being an advocate of the rule of law, I’m not entirely comfortable with this arrangement, but it does mean that the Fed has a much easier time managing crises. Keep in mind also that the failing banks are indeed the most likely ones to have been criminal, so the unfairness is not usually being applied to the innocent.
3. If you think the managers were in charge, and will remain in charge, the real moral hazard problem is the severance pay for the failed managers, not the so-called bailouts.
4. If you’re a critic of bailouts, you can’t have it both ways. If the Fed or Treasury is guaranteeing loans, yes that does put taxpayer dollars on the line. But if you think the system can hold up, as do most bailout critics, those guarantees are unlikely to cost very much. The Fed or Treasury may even turn a profit. If you think the system cannot hold up, the bailout is probably necessary even if costly. So you can’t claim: "The bailout isn’t needed" and also "The bailout will burden taxpayers."
Addendum: By the way, do read David Leonhardt on "what really happened."