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Excel Error Contributes To Problems With Austerity Study
quarterbuck writes "Many politicians, especially in Europe, have used the idea that economic growth is impeded by debt levels above 90% of GDP to justify austerity measures. The academic justification came from a paper and a book by Kenneth Rogoff and Carmen Reinhart. Now researchers at U Mass at Amherst have refuted the study — they find that not only was the data tainted by bad statistics, it also had an Excel error. Apparently when averaging a few GDP numbers in an excel sheet, they did not drag down the cell ranges down properly, excluding Belgium. The supporting website for the book, 'This time it is different,' has lots of financial information if a reader might want to replicate some of the results."
The Excel error is making the rounds as the cause of the problems with the study, but it's actually a minor component. The study also ignores some post-WWII data for countries that had a high debt load and high growth, and there's some fishy weighting going on: "The U.K. has 19 years (1946-1964) above 90 percent debt-to-GDP with an average 2.4 percent growth rate. New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6. These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for the U.K."
No, finite resources do.
When I read the title, I expected a calculation or rounding issue, or an internal range issue from built in components and not "dumb ass user didn't set the range correctly when averaging". That's not an Excel error, that's a user error - Excel did exactly what it was told to do.
Attempting to justify more theft of the public and increased government spending.
It's simple to answer this question, do you want to incur debt or spend money that you have? Anyone who prefers debt is a fucking idiot and shouldn't be trusted.
Economics. The social "science" with a pretension and envy of physics, practiced by those who couldn't cut it at math or physics.
Fuck systemd. Fuck Redhat. Fuck Soylent, too. Wait, scratch the last one.
It's about what you spend it on.
If you spend it on capital goods that allow you to produce more, that's investment.
If you spend it on final use goods, that's consumption
Simple concepts: consumption is not production and not all spending is investment. And yet, look at how Gross Domestic Product is calculated.
GDP = private consumption + gross investment + government spending + (exports - imports)
Set your phasers on "funky"!
In Holland at least, financial products must carry a legal disclaimer stating that past performance is no indication for the future.
What is this entire flawed study? Trying to predict the future, from past performance.
The Dutch economy is an open economy heavily dependent on the performance of the rest of the world. It doesn't much matter what our leaders do, the rest of the world dictates the state of the Dutch economy. So how do you compare its performance with the rest of world? It doesn't matter what our debt is, it matter how many products Germany ships through Rotterdam. But still, these economists try to compare how The Netherlands fared with X debt against the US which has a totally different economy. How different? The US is one of the bigger countries and is #1 in agri culture. The Netherlands is one of the smallest countries and is #2 in agri culture. Why? Every American black and white cow was created by a dutch boy sticking his arm up a cow. And jerking of a bull. The US exports low value agri cultural products, the Netherlands high value.
But it means the SAME industry, is COMPLETELY different. Baby cow production US style is cowboys and homo sexuality in the prairy. Dutch baby cow production is bestiality and high tech in the desolate north.
It is interesting to note that politicians who claim to want the best for big business are NEVER themselves successful big business owners AND that the successful big business owners never ever agree with them. Wallstreet likes the Republicans supposedly (but the two top financial newspapers advised voting against Romney because even a socialist in the white house would be better) but people like Warren Buffet and Richard Branson sing a very different tune. They think the best way to beat a recession is to spend. Not spend recklessly but invest in the future not in handing out tax cuts to buy votes.
Be wary of any leader who leads out of an ideology and not what is needed right now. Would you go to a doctor whose every answer is "lets amputate"? No? Then why vote for a politician whose every answer is "cut taxes, spend less, except on the pork project I need to get re-elected"? Real leadership is looking at what needs to be done and then do it. Not just have a one size fits all slogan.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
"""
Paul Ryan's Path to Prosperity budget states their study "found conclusive empirical evidence that [debt] exceeding 90 percent of the economy has a significant negative effect on economic growth."
"""
Nope. "has a[n] effect" is a claim of causation. In reality, all they found was a correlation. And by "reality", I of course mean "made up fantasy land where they can't use excel properly".
-- FatPhil (AC, as I'm away from home and don't remember my password)
While the errors here are startling, it is clear this is being pushed for political ends, and not scientific ones.
There is an excessive willingness to take on debt in most of the developed world, because sovereign interest rates tend to be rather low, and it is politically profitable to do so.
The problem with governments taking on debt, is not based on the economics, its based on the politics. If you say 90% of GDP is OK, it will be politically profitable to never have a debt less than 90% of GDP, and to continually push higher until the public is again convinced that the debt is too high.
It may be economically valid to give certain kinds of tax giveaways to certain voting blocks right before an election in some cases.That doesn't mean you should stand for it. Governments who have chronic debts are run by the most cynical brand of politicians, unchecked by the voter.
Hearing Krugman go on about this week after week is nauseating. Yes, recessions are the worst time for austerity. But the bastards never practice austerity in the good times. If the bad times are the only times when the public will support reigning in expenses, then so be it. The government is like a drunk teenager who is whining about their curfew over a cell phone while driving.
Carmen Reinhart: (Chief Economist) Bear Stearns -> IMF -> Harvard
\-> married with Vincent Reinhart: FED -> (Chief US Economist) Morgan Stanley.
famous quote: "Secretary Paulson Makes the Right Call" The Wall Street Journal, Sept. 16, 2008:
"In other words, some government aid might ultimately have to be directed toward financial firms whose failure would otherwise threaten the financial system.
The politicians now running for office should also appreciate that their grand ambitions for new spending programs or tax cuts may have to be tempered by the need to rescue financial firms."
Kenneth Rogoff: IMF -> Harvard
so I find it quite comfortable in Germany. In fact, I'll probably add another academic title quite soon. I just wish that my American passport would list the titles as it can cause some confusion when traveling (Passport and Credit Cards don't always match in the computer).
Reinhart and Rogoff have certainly been warning of high debt levels, but it's wrong to give this study too much credit for what "austerity" there has been across Europe. Most cuts in places like Greece and Spain were fait accompli, once it was clear that the ECB was not going to budge on its inflation target to neither try and boost nominal growth nor to crudely relieve nominal debt levels.
I will grant that the 90% debt/gdp trigger is most likely non-existent, but the rest of their book does yeoman's work in cataloging financial crises. It's a useful antidote to the mass psychological amnesia that is perpetually recurring. "Our new investments our safe and returns will never fall" inevitably leads to "what perfidy caused this?" The cycle has been repeated in remarkably similar ways for nearly a millenium now. We should appreciate the detailed financial history they have created, and chide them for the dubious massaging of the data. Just don't overstate its political implications.
I got a catholic block.
Does High Public Debt Consistently Stifle Economic Growth?
No, finite resources do.
High public debt drains away valuable resources faster than low public debt
Given the same amount of initial resource, a country with high public debt will have smaller chances for recovery
But then again, most economies (other than that of North Korea) are dynamic, and the amount of resource fluctuates
Muchas Gracias, Señor Edward Snowden !
When you're cooking the data, try not to make too many obvious mistakes. Of course, had the original propaganda piece, I mean "study", been peer-reviewed by someone who "could do the math" (obviously NOT any economists), this would have been pointed out as total nonsense in the first place.
That's a straw man argument. It isn't an Excel error or a book that causes that problem. It's a book ABOUT the problem, not the causality of the problem.
Debt to GDP simply limits the money you can borrow, especially in scary economic times. To run a deficit, you have to either print the deficit by inflating the currency artificially or by selling bonds and borrowing the money.
Governments with deficits need to sell bonds, when nobody wants to buy, they end up paying a much bigger return (yield) on those bonds. That means money flows into the government that would otherwise be chasing the next big thing in industry. Industry can't pay enough to compete for that limited money supply * .
Growth as economists measure it, is the increase in the money supply (both originated by government busy work, and by industry commercial work). So if the government pulls back and cuts spending, then growth goes down, but it needs to happen for money to be freed up for industry. If Governments keep spending, then they create little government created pockets of industry that need constant government money flowing into them to keep them alive.
Governments want austerity, because the longer they run big deficits, the more money they draw from industry, the deeper they get into debt, and ultimately, it's just fake spending, creating industries that just depend on Govt handouts.
Basically, no pain no gain. In the long run, they have to cut their deficits, but in the short term it means pain because it makes the growth number go down. In that money supply number, fake government busy work, looks exactly the same as real work.
* To make matters more complicate, the Fed buys government bonds in order to force the yield down. It's a fake buyer in a mock auction. That practice is outlawed by Maastricht treaty, yet it is believed the Euro zone banks did the same with Greece. But hey, it lets them point to the bonds and pretend the market has trust in the currency because the bond yield is low, while ignoring the fact that their own central banks are forcing it low by printing money to buy the bonds.
Warren Buffet warned about the risk to the dollar:
http://www.cnbc.com/id/40233710
But then again, most economies (other than that of North Korea) are dynamic, and the amount of resource fluctuates
That depends on what you mean by "resources." An MBA Romney-style corporate raider considers "resources" to mean "cash and credit" while someone who isn't a rent-seeking parasite considers things like timber, ore, fuel, and available labor to be resources. The only real resources that fluctuate are labor and renewables.
Free Martian Whores!
http://en.wikipedia.org/wiki/Confirmation_bias
The researchers got the result they wanted, so they didn't bother to check if they were actually correct.
And actually, that's being kind.
These two numbers, 2.4 and -7.6 percent, are given equal weight in the final calculation, as they average the countries equally. Even though there are 19 times as many data points for the U.K."
Why should the UK be given more weight? There's only one such country, not 19 such countries. And the UK data in question is highly correlated (it all comes from the same debt over the same span of time, not 19 different points in the UK's history).
In addition, the rebuttal ignores two stretches of data:
RR examines three data samples: 20 advanced economies over 1946{2009; the same 20 economies over roughly 200 years; and 20 emerging market economies 1970{2009. We repli- cate the results only from the first sample as these are the most relevant to current U.S. and European policy debates, and they require the least splicing of data from multiple sources. We focus exclusively on their results regarding means because these have generated the most widespread attention. On their website, Reinhart and Rogo provide public access to coun- try historical data for public debt and GDP growth in spreadsheets with complete source documentation.3 However, the spreadsheets do not include guidance on the exact data series, years, and methods used in RR.
It's worth noting here that the rebuttal is willing to take data from the period just after the Second World War where a number of countries had high debt and were transitioning from a total war economy (that is, an economy totally focused on winning a particular war to exclusion of everything else, including economic growth) to a normal one - including the 19 year series of the UK mentioned above, and periods of excluded (excluded that is from the original study for unknown reasons) data from Australia, New Zealand, and Canada. All of these incidentally show high economic growth combined with high debt.
If we're excluding data series due to their irrelevance to current economies, why should these be counted? The US and Europe haven't been in a total war economy since the end of the Second World War. So it is to be expected that one would not see the economic gain (whether or not the debt is present) that one saw in the immediate post-war period.
The original research seems weak for a number of reasons, but I'm not willing to call it "fishy" on the basis of a rebuttal which makes its own "fishy" assumptions.
The only real resources that fluctuate are labor and renewables
I guess you are not in the high tech field
As one in the tech field since the 1970's, one very real resource that I count on is BRAIN-POWER, aka, ideas
Timber can cut into wood for burning, or could be turned into tables and chair by carpenters, or could be used for building a dormitory, or, in the hands of master crafter like Stradivarius, becomes his world famous violins
Muchas Gracias, Señor Edward Snowden !
It means less flexibility.
More liability.
Less freedom.
More waste.
Say what you will about this study, the governments of the western world are living beyond their means.
The US government for example is spending about 50k per US household.
The median income of US households is about 49k.
That alone should tell you there is a problem.
To paraphrase Emperor Augustus: "things that can't go on forever - don't."
These governments are spending well beyond their means and the only way they can presume to maintain it even for a time is through massive inflation. Which will harm the economy, raise interest rates, and generally transition any country that chooses this path into a second world country.
And even this won't be enough because having destroyed your credit and dealing with increasingly higher interest rates it will only be a matter of time before you can't inflate the currency fast enough to paper over your debt.
And when that happens... anarchy... blood... social collapse.
People need to stop deluding themselves that they can magic the debt away as if it won't exist if you don't believe in it.
It isn't a six year old's imaginary monster. It's our civilization's very real debt. And it will bring us low if we don't bring it under control.
I also love that they're whining about these austarity measures when many of these countries are still increasing the amount of debt they owe. In many cases, they're simply slowing down... not reversing course.
If a country can at least tread water without building additional net debt then it's got the situation under control.
But many do not. The US does not. We spend more every year and the tax recipes and economic growth are not remotely keeping up.
I know I'm going to get hate mail for this... It's what comes of having an open forum.
But you can't wish the numbers away through denial. It's like arguing with the Sun.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
Does £2,000 per household per year to pay for just interest on the debt (in UK in 2012) say that it's stifling economic growth?
The UK has had much higher debt ratios in the past. It equalled 30 years of tax revenue after the war with France and Spain in the early 19th century. It took most of the century to pay it off, when Britain had more than the US' current stature in the world and was plundering everybody else's resources. It also reached over 200% GDP after the Second World War. Thank goodness for favourable loans from the US to fund the debts from war, that were finally paid off in the last decade.
As everybody can see from the situation with Greece and the other European PIGS, excessive debt means you've surrendered control of your own destiny. You're forced to service those debts which is a distraction from promoting growth.
Before trying to reduce public debts...
1. Where did it come from? Between tax cuts since the 80's for the richest and the bank bailout, that's a lot of money lost for the government
2. What is the money being used for? Is it to fund important investments or to compensate for those tax cuts?
I didn't even bothered to read the submission, just posting this to tell everyone that after working 16 years with that piece of software, I need therapy
Professionals don't use excel for data analysis
An error with an Excel spreadsheet looses Belgium, and the corresponding warp in the data space plays with the world economy? The only logical explanation is someone in Heaven has hired Douglas Adams to make reality 'more interesting'.
I don't normally support Microsoft but in this case I think they're innocent. Excel might have a small error but why isn't the work being duplicated on other statistical programs like Libre Offices spread sheet or programmed using R. For the work to be valid it has to be reproducible across a wide variety of programs and measurement techniques. I call this one in the name of bad form, just switch programs and the problem could go away.
The loans from the USA to the UK after WWII where anything but favourable. They where under incredibly harsh terms that impeded economic growth and lead almost directly to the loss of empire.
.
Sounds a lot like the Passover requirement for the removal of all grains which are Chametz from one's household being performed over time in various ways: -- Bi'ur = burning one's chametz: actually searching for all chametz and actually destroying it (by fire, preferably)
-- Bittul = nullifying one's chametz: if there's any chametz left in this house, I renounce my ownership of it.
-- Mechirah = selling one's chametz. "Until five-twelfths of the way through Passover Eve one may sell or give ones chametz to a non-Jew, and it is no longer ones responsibility."
-- and an extra twist to Mechirah One who keeps the sold chametz in his or her household must seal it away so that it will not be visible during the holiday. After the holiday, the non-Jew generally sells the chametz back to the original owners, via the agent; however, he is under no obligation to do so.
This brilliant charade of observance is also carried out at the governmental level (see http://en.wikipedia.org/wiki/Chametz#Mechirah_practices ):
For chametz owned by the State of Israel, which includes its state companies, the prison service and the country's stock of emergency supplies, the Chief Rabbinate act as agent; since 1997, the Rabbinate has sold its chametz to Mr. Jaaber Hussein, a hotel manager residing in Abu Ghosh, who puts down a deposit of 20,000 shekels for chametz worth an estimated 150 million dollars.These may also be called legal acrobatics as phrased in the article in the independent entitled "The Muslim guardian of Israel's daily bread" : Through legal acrobatics, the forbidden goods belonging to the Israeli state are simply sold to Mr. Hussein for the duration of Passover and then revert back to the state once the holiday is over. Like the governmentâ(TM)s adherence to the Sabbath and to dietary laws, the ceremony sets Israel apart as a Jewish state that upholds religious traditions.
post-WWII data for countries that had a high debt load and high growth
It would be hard to not have had high growth after WWII for most of Europe. Given most of those economies had been pounded into next to nothing by the war. If you have a GDP of $1 in 1945 and $2 in 1946, why that is 100% year over year growth!
Next debt load and austerity are not the same thing. The UK had a high debt load post WWII and was also rationing food. So it had high debt AND austerity. Using debt to invest in critical infrastructure like roads and basic sanitation for example you don't have or is no longer workable, and perhaps providing minimal nutrition to the needy is an entirely different proposition than making sure every dope who masters long division gets to hang out for four years at University.
Public debt is not always bad when there is clear ROI on where the revenues for its issuance are being directed. Debt should not be used to fund blue sky efforts, nor should it be used to provide comfort. If 'austerity' today had any relationship what what it meant in the 1940s-1950s than I might be included to agree it would be going to far for the present situation to justify, but as its used today it might as well just be a synonym for 'waste'.
Repeal the 17th Amendment TODAY! Also Please Read http://www.gnu.org/philosophy/right-to-read.html
Employees are our greatest resource.
rewriting history since 2109
Would point out that the authorities lost the deep suspicion of interest-bearing loans is a least as old as Aristotle(who was Not A Fan)..
When they worked out to use fractional reverse banking to rob the system blind.
"La dette publique, on ne sait pas comment elle est arrivée, mais elle disparaîtra d'elle-même."
translation: Public debt, we don't know how it arrived, but it will disappear of itself.
He was called Guy Mathot. This genius died in 2005.
He was a member of the same political party than the late Michel Daerden who had a youtube hit with his drunk speech.
On a more serious note I think "5000 years of debt" from David Graeber is an interesting read. It just doesn't take away the general feeling that we got ripped by our government.
BZZZT! Wrong
Red to red, black to black. Switch it on, but stand well back.
The thing to remember when hearing about all this "austerity" in Europe is that no country in Europe has tried real austerity .*
Real austerity is cutting spending until outlays match receipts. As the linked chart shows, the overwhelming majority have raised taxes or continued deficit spending. Some have slightly reduced the ratio of deficit spending to GDP and called it "austerity." They're still digging a hole, they're just doing it more slowly.
Politicians are addicted to spending to prop up an unsustainable welfare state. They've seen what the future looks like in Greece and they still refuse to stop spending. And the current government of the United States is right there digging with them.
Austerity hasn't been tried and failed. It's been declared difficult and left untried.
(*with the possible exception of Estonia and one or two other small countries)
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
So the solution to my personal economic problem is to spend money I don't have in the hopes of becoming prosperous?
So I should NOT cut back on vacations, cable TV, restaurants, movies, driving, toys, booze, etc? Gotcha.
The Empire was never sustainable to begin with. Unfavorable loans didn't cause resentment to colonial leadership and a desire to stop sending young men all over the world to die so someone else can get rich.
I would hypothesize that the trend and YOY changes are a lot more important than the debt to GDP ratio. After WW2, the USA had a huge debt to GDP ratio. However, the government cut spending by 60% over the course of 2 years and successfully set themselves on a course to pay down the debt. This helped usher in a new era of economic prosperity.
Currently, the USA debt to GDP ratio is ~1 and the CBO projections indicate perpetual deficits over at least the next decade.
The economic prospects of a nation that is in debt which they are steadily reducing and a nation that is in debt while steadily accumulating more are very different.
That's just for the tourists.
No, see, put a dollar sign in front of it to make it an absolute range, just leave it alone if its supposed to be relative. You didn't email this to the president already did you?
Did you forget Portugal, which is now trying the severe brand of austerity that you seem to favor
Except it isn't.
"Portugal recorded a Government Budget deficit equal to 6.40 percent of the country's Gross Domestic Product in 2012.
Which part of "Real austerity is cutting spending until outlays match receipts" was unclear?
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
At some point the country with more debt has had more money than the other one. What matters is what the country is doing with that extra-resource. As a example, in June 1999, Google was 25 millions in debt, a considerably worst shape than my local kebab place.
Debt is just an indicator. That's what's wrong with the current austerity measure in Europe. It does not matter what a Country is doing with its money, Europe only cares about the yearly balance sheet and does not give a damn about the future of the country.
But "Is It Good For The COMPANY?"
So a user makes a mistake in using a piece of software, so the /. headline makes the impression that the problem is with the software and not the user. How typical
From Time Magazine:
Yes, they were harsh, no, they didn't impede growth,
What Greek, Cyprus and others teach us is that once you've surrendered your own money you lose control of your destiny. The practical result of Euro is that countries that are struggling can't let their currency devalue and result in natural rebalancing of imports and exports. It forces all the economies in Europe (well, those who joined it, anyway) to march in lockstep, but they're too different so it's going badly.
This attempt to build an unified Europe is coming to the same end all the previous ones have. The only question is: how chaotic will the collapse be?
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
More than that: according to his logic, an "investment" should only count as such it is is successful. I'll leave it as an exercise to the reader to determine how you can possibly decide that, and when.
In a business,
How: Profit/loss
When: Quarterly/Financial year
In Soviet Russia,
How: Regime collapse
When: 1991
Set your phasers on "funky"!
Awww...someone can't afford a house?
Want to blame it on others?
Your failure is your own fault.
I don't agree with that.
Problems started from before the switch to the single currency when they were already ignoring transgressions with budgets. Ten years ago both France and Germany were breaking the rules, and they should have been setting the tone for the smaller countries.
Further, there are plenty of countries where this works. The US has localised recessions and booms sure, but nobody's seriously arguing that New York City and California should have different currencies. China is more than twice the size of Europe.
Currency devaluing is just a technique for dealing with the symptoms in most of these cases, not the causes.
...then why not reduce all taxes to 0%, and fund government exclusively through deficit spending?
It seems the spin is "there was an error, therefore there is never a problem with debt" - this really seems to be missing the original point.
In the end, I suppose the fact of the matter is that eventually, as a debtor, governments using fiat currency will ameliorate their problem by devaluing the currency, and punishing savers while rewarding other borrowers like themselves. The economic harm that this does will be great, perhaps even devastating, but life will go on, just a little bit harder.
The vicious bite of a 2% interest rate strikes again.
. . . "In a nutshell, everything we got from America in World War II was free," says economic historian Professor Mark Harrison, of Warwick University.
"The loan was really to help Britain through the consequences of post-war adjustment, rather than the war itself. This position was different from World War I, where money was lent for the war effort itself." . . .
. . . the US had effectively donated equipment for the war effort, but anything left over in Britain at the end of hostilities and still needed would have to be paid for.
But the price would please a bargain hunter - the US only wanted one-tenth of the production cost of the equipment and would lend the money to pay for it. . . .
But the terms of the loan were extremely generous, with a fixed interest rate of 2% making it considerably less terrifying than a typical mortgage. . . . -- What's a little debt between friends?
much of left-wing thought is a kind of playing with fire by people who don't even know that fire is hot - George Orwell
The creation of the USA also had it's problems, because the states were so different. e.g. A civil war due to differences in economies in the south and the north, one symptom of which was the positive and negative views of slavery.
But would you be better off now if you'd remained independent states?
And what of the people who thought the collapse of the US was inevitable?
They did impede growth at first. The US didn't realise how close to bankruptcy that the UK was when they offered the deal. Sterling was forced to devalue which increased the cost of the loans.
In the long run though the 2% interest rates and the occasional suspension of repayment made the loans more favourable than borrowing from the markets.
Look at how much the UK did pay back to US and Canada compared with how much they borrowed. Tell me growth would have been unchanged if all that money were being invested in the UK economy, or not being taxed out of it in the first place.
As Paul Krugman points out..
"We need more stimulus!"
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
The UK has had much higher debt ratios in the past. It equalled 30 years of tax revenue after the war with France and Spain in the early 19th century. It took most of the century to pay it off
So? That was the UK's greatest period of growth and relative prosperity. It's often cited as an example of debt not impeding growth. Similarly the US had federal debt of 125%/GDP after WWII, and post-WWII was our greatest growth period. It helped that the debt was mostly internal (i.e. War Bonds were held by Americans, so paying off the debt meant paying Americans). AFAIK the same was true of the UK after the Napoleonic wars.
However, I'm not saying debt isn't important, just that it's not the only or the ultimate evil. Other things can be worse, and can justify increasing the debt.
The US has localised recessions and booms sure, but nobody's seriously arguing that New York City and California should have different currencies.
California is now part of the US? What idiots let that happen!?
Ok, accepting that past mistake, the difference is that NY and CA are both under the federal government. In other words there is a fiscal authority (government) at the same level as the monetary authority (central bank). The main criticism of the Euro is that that's not true. It has a monetary authority (ECB) without a corresponding fiscal authority. The EU is too weak to count as equivalent to the US federal government.
'Select the conclusion first, then choose the experiement and data". We see this a lot on both sides of the global warming debate.
This attempt to build an unified Europe is coming to the same end all the previous ones have. The only question is: how chaotic will the collapse be?
It won't be a collapse, it will be a war, actually a civil war similar to the mid-19th century civil war in the United States. The United States of Europe will go through the same thing. The wealthy productive states will impose more and more requirements on the indebted states, the indebted states rebel, the wealthy states resentful that their money would be used to bail out the states that spent more than they had, and it will come to a head.
So which are the wealthy states? Well, at the top is Germany. And many in Europe see Germany as attempting to implement the "Fourth Reich" to take over Europe through financial means. That may be a little over-the-top, but the political climate there is growing heated. Germany and the EU will use this crisis to press for greater central control, and in fact are already doing so. Countries that don't like giving up more sovereignty balk, and more financial pressure is applied. We can only hope it doesn't turn into a shooting war. Already a lot of street-level violence going on.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
Germany is strong economically, but not militarily.
And I really can't see the US stepping in on Germany's side against the UK et al.
To have a right to do a thing is not at all the same as to be right in doing it
There are two differences between the US and Europe with regards to suitability for a common currency: 1) fiscal policy cross-subsidizations, and 2) labor mobility
1) Automatic stabilizers such as unemployment insurance provide short term assistance to areas that have localized recessions, with money from areas that have localized booms. The US has many of these fiscal transfers, both automatic and ad hoc, while Europe has almost none.
2) Over the long run, if you have labor mobility, places that are depressed for a long period of time (e.g., rust belt) become depopulated as people seek better opportunities elsewhere (e.g. sun belt). When Silicon Valley took off, people from around the country relocated to share in the boom. As much as Americans joke about the different cultures within the US, it is much easier for someone from Chicago to relocate to Los Angeles than someone from Athens to permanently reside in Frankfurt.
"There are lies, damn lies, and Belgium." -Mark Twain
my, your, his/her/its, our, your, their
I'm, you're, he's/she's/it's, we're, you're, they're
High public debt drains away valuable resources faster than low public debt
How does it do that? Where do the resources go? Yes, in some cases countries (eg, Greece, Italy or Portugal) are losing huge proportions of their most qualified workers, but that's because of the recession rather than the debt itself. There's an argument that high debt causes high taxes which causes economic distortions which reduces activity, but the reduced activity isn't caused by resources being 'drained away', it's caused by those resources sitting there and not being used.
Given the same amount of initial resource, a country with high public debt will have smaller chances for recovery
That's an assertion. Do you have reasons? And why specifically public debt, and not total debt?
It may be better to distinguish between foreign debt (public and private) and domestic debt. Greece had a lot of public debt borrowed from foreigners. Spain had little public debt, but lots of private debt borrowed from foreigners. When that debt was building up there was more being consumed in those countries than was produced.....the borrowing of money from abroad allowed this to happen, because without it there'd have been no euros left in those countries, they'd have all been used to pay for imports. Now they have to pay back their debts, and to do that they need to reverse those flows: make more than they consume, receive an inflow of euros in exchange for them, and send them back out again to pay the debts. This isn't happening, but not because of a lack of resources, or because of any sort of draining away. They have lots of unused resources. It's working because the control system of their economy - markets, prices, contracts, banks, laws and so on - can't do the right thing to organize those resources in to productive use. And, of course, one reason for that is because there's no exchange rate there to create across-the-board price reductions for their domestic inputs and outputs.....
Nobody expects the ... Belgium to be included.
No, I'm pretty sure capital is included in valuation. Actually, I'm 100% sure.
Gamingmuseum.com: Give your 3D accelerator a rest.
The resources go to debt servicing. If you don't make payments on your debt, you go into default.
Gamingmuseum.com: Give your 3D accelerator a rest.
Money != resources. People's time, land, oil, capital (roads, factories), etc are resources. Money is not (and it doesn't get used up). Resources will, of course, be used to produce output which is sent abroad to bring in money which can be sent back out again to pay foreign creditors. But when people say 'recovery' they're not talking about domestic consumption. They're talking about domestic production - ie, GDP, jobs and growth.
The authors of the study have posted a response that refutes these criticisms.
http://www.huffingtonpost.com/mark-gongloff/reinhart-rogoff-research-response_b_3099185.html?utm_hp_ref=tw
The real issue here is not the data which seems to be holding up, but the deeper question as to whether correlation implies causation. It clearly does not - that is low economic growth could be causing high deficits just as likely as the reverse.
HOWEVER it does seem pretty unlikely that one can claim that high deficits cause higher economic growth. That is the real take away here.
I would call this error a "Rogoff & Reinhart", as they were the ones that fat-fingered in the first place.
Well.. The US was like that once...
Ireland which went through some severe austerity
Except it didn't. "Ireland recorded a Government Budget deficit equal to 7.70 percent of the country's Gross Domestic Product in 2012." And it was as high as 30.9% in 2010. Now, if you want to argue it was foolish to bail out Anglo-Irish Bank, that's a different argument.
Which part of "Real austerity is cutting spending until outlays match receipts" was unclear?
Lawrence Person (lawrencepersonh@gmailh.com (remove all "h"s to mail)
http://www.lawrenceperson.com/
Maybe under the Articles of Confederation, but not under the Constitution. That's exactly why the US was failing under the Articles of Confederation.
Rogoff has long been a member of that lobbyist group for the international ultra-rich, the Bretton Woods Committee (brettonwoods.org). In fact, here he is on their membership page:
http://www.brettonwoods.org/page/committee_members
I didn't realize people were still using the Pentium 60/66 to calculate their spreadsheets.
"austerity" is just another name for greedy politicians digging further into your pocket...
a civil war similar to the mid-19th century civil war in the United States. The United States of Europe will go through the same thing.
What the fuck are you talking about? How on earth are a bunch of cowboys with muskets (or slave owners with revolvers, whatever, fuck you) in a sticks and stones society on a recently sortof-civilized continent similar to millions of 9 to 5 schmucks in highly advanced societies where smartphones, computers and TVs pretty much rule life?
--
I am a crackpot
Never mind.
Comparing the US to countries in Europe is a fallacy. Belgium (from the article) is like a pilot fish and we are the whale. An individual fish might break off due to low or high debt, but most of them will have a surging or declining economy in accordance with how the global economy is doing.
How can you properly make debt/growth comparisons when our debt is several times greater than their entire GDP, or even net worth in some cases?
Figures don't lie, but liars and idiots with Excel figure.
Go figure.
Laugh, it's funny:
http://crookedtimber.org/2013/04/17/new-tools-for-reproducible-research/
CT is an academic site--you should see what the researchers over there are saying. Phrases like "doesn’t rise to the level of astrology" are seen.
The number of starving North Koreans is not static, it's dynamic and growing rapidly. Here's a great summary by Carlos Montaner:
In 1953, by the end of the Korean War, provoked by Kim Il Sung’s expansionist madness with the complicity of Mao’s China and Stalin’s Soviet Union, the two Koreas were destroyed. At that time, both countries had a per capita income lower than that of Honduras, then the poorest country in Latin America.
Today, 60 years later, South Korea’s per-capita income is $32,400 (twice that of Chile, Latin America’s richest country), while North Korea’s barely rises to $1,800 (half of Nicaragua’s, the poorest country in Latin America.)
Every year, South Korea produces 18 times the goods and services, per capita, that its neighbor to the north produces, although they both share the same ethnicity and culture and have similar levels of education. They are twin brothers made different by two antagonistic systems of organizing society.
With an economy based on the market, competition, private property, multiparty politics, democracy, commercial openness and respect for individual rights, South Korea has integrated into the First World, eradicated poverty and is one of the engines of the planet, with more patents and scientific articles published annually in specialized magazines than any Latin American country.
North Korea, which does the opposite, is the world’s worst and poorest tyranny. (It would be useful if the cheerleaders of 21st-Century Socialism made note of those differences.)
That that is is that that that that is not is not.
A thousand times this. If your study is based on an Excel spreadsheet (hint: how many rows can you have in an Excel spreadsheet), you're study probably isn't too rigorous.
No mismanagement of finite resources do
You might want to, you know, have a brief look at the summary. It contains such interesting tidbits as
Many politicians, especially in Europe, have used the idea that economic growth is impeded by debt levels above 90% of GDP to justify austerity measures
they did not drag down the cell ranges down properly, excluding Belgium
New Zealand has one year in their sample above 90 percent debt-to-GDP with a growth rate of -7.6.
(Emphasis mine)
Where is the US even mentioned? Since when is New Zealand in Europe? Which article contains the a pilot fish / whale comparison? Also, which parallel universe are you from?
The most disturbing thing is that government keep trying austerity when we see the results, whether it is in Europe, Latin America, Africa...
The headline makes it seem as if there is an error in Excel such as having 1900 a leap year because 1-2-3 had it.
It takes a certain amount of inputs to produce outputs. One of the inputs is capital (as in capital investment). Capital used to multiply the trade value of a resource (i.e., turning lumber into a table) is considered "productive", while capital used for other purposes is "consumptive". Theoretically, the more "productive" use of capital, the more robust the economy.
Sometimes it helps to remember that "Economics" and "Ecology" derived from the same root. The "Ecological balance of Economy" means that with right balance of inputs the individual economic crops grow, as analagous to having enough rain, soil and nutrients to grow the trees, which are turned into tables.... Debt is runoff; it falls on ground where nothing has been planted, and drains to other places where it may or may not be productive. Sovereign debt (public debt) diminishes the amount of inputs that can be use for economic crops, sometimes draining away to some other farmer's land.
You can only do two things with money: You can invest it or you can spend it. If you spend it, you provide jobs for the people who produce the things that you want. If you invest it, you are providing the reources to produce jobs and products that keep the economy moving. However, some investments are better than others, and if our debt gets invested in some other country, it diminishes what we can produce here. Since paying this debt depends on our economy being productive enough to provide for us and also provide a surplus, then very high sovereign debt, with interest driving the debt higher, may mean that the debt cannot be paid. You can ask the citizens of Iceland, Ireland and Cyprus if this has an effect on your daily life. Next time you will be able to ask the citizens of Greece, Italy, Portugal, Spain and France.
Rogoff and Cameron's book may have lost some of the predictive value due to this Excel error, but the logic of the cause and effect still has some value.
Michael Lewis wrote two interesting books that clearly describe the ruinous power of high debt, whether private or public: "The Big Short" http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393338827 and, "Boomerang" http://www.amazon.com/Boomerang-Travels-New-Third-World/dp/0393343448/ref=sr_1_1?s=books&ie=UTF8&qid=1366262251&sr=1-1&keywords=Boomerang . This is storytelling in the "New Journalism" style that is entertaining and informative at the same time. In "Boomerang" Lewis describes a meeting with Rogoff where he lays out the level of sovereign debt and asks about the consequences, and Rogoff replies, "I can't believe it is really this bad." See what happens when you don't leave your ivory tower?
"The mind works quicker than you think!"
Drains it to where? Banks? ;-)
Currently northern countries see southerners as a bunch of spoiled lazy bastards that don't do crap. The north has managed themselves very well financially helped the south and have high taxes, the south wasted the money they lent have low taxes and are parasites that need to be educated.
The southerners see the north as hypocrites that only lend money when they knew that part was returning to their companies and corporations. And the south also knows that in a year they tend to work more hours and receive less than half the paycheck. Also the south also has more taxes now than the northern ever had. And Europe pardoned Germany debt after WWII.
The main problem here is that the south was year after year compelled to spend European money in services and infrastructure and let the industry fall while corruption in baking and government went wild. Now the bubble blew up and the south realizes their economy is in bad shape and the people have to compensate for the banking and government spending while the industry is completely ruined so exports are not that good. Suddenly the north says to the south they have been living above their economic capacity, when in fact the ones that did that was the banks and government and the northern countries were fine with that because the south was buying of their products.
There's a huge stress with north and south, i doubt there will be a war but a rupture seems possible.
True, also Spain had really low debt levels (60% if i recall correctly) and a low deficit. And look at their state now. So yeah i doubt this is only a debt issue.
The US has had one, not counting the one where you broke away from them goddam limeys. Since then Europe's had ... how many? One Corsican midget started two on his own.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Those were when Europe was simply a continent. There was no union whatsoever. One of the purposes of the EU is to stop future wars in Europe. And it's been pretty successful - such conflicts as there have been have intra-national, and/or outside of the EU.
That sounds like where I work.
Free Martian Whores!
To be more specific, the EU was designed as a kind of MAD system: if the economy of any member nation collapses, so does that of others, thus making starting a war an economic suicide. Sure, it works, but it also means that when the amount of nations in the EU grows, the probability of at least one of them running into trouble approaches 1, thus the permanent EU-wide economic crisis.
This is all made worse by blind ideological adherence to austerity, which means that those of us who pay for the bailouts of bankrupt countries aren't even helping their people or economies, but rather ensuring that their debtors get paid. Profits are private but liabilities are public (at least as long as you're rich), that's the free market way.
Forget magic. Any technology distinguishable from divine power is insufficiently advanced.
Slashdotters are educated enough to apply the mean value theorem to convert this from a quesiton of "does it ..." to a question of "at what level ...", which changes it from an existence question to an at what level question. However, the real question is whether anyone with any political audience is doing these analyses while incorporating a strong demographics and growth component (of course there is, but is anyone listening DoD Systems 2020). It is one thing for a person to owe 4x their annual salary when they are buying a house at age 25, compared with a 60 yr old buying one at 1x annual salary. The 25yo has a major factor that works in their favor, which is that their income should (in theory) increase during the payoff period, making it ever easier to pay off that debt. The political equivalent to this is the growth-based economic model, which assumes that the economy will grow every year, forever. It is when this assumption fails that we suddenly get very uneasy about debt, just as you might be very uneasy extending "125% of value" mortgages to a 70yo (fair lending and FannieMae, FreddieMac aberrations not included). The Keynesian model sort of works in the exponential part of the economic growth curve, but it fails catastrophically in the Limits to Growth part of the economic universe. The Adam Smith model of economic growth does not fair much better in this region.
"There is no god but allah" - well, they got it half right.
The Mexicans.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Take a look at the malarkey for working around sabbath restrictions.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
It would be useful if the cheerleaders of 21st-Century Socialism made note of those differences.
...and more to... you know... facts.
Like that thing about North Korea not being a socialist country.
North Korea is for all intents and purposes a dictatorship ruled by Nazis.