Long-term debt isn't a short-term crisis, no matter what Beltway insiders say
Joe Scarborough, a man comically ill at ease with numbers, Powerpoint, or any analysis that doesn't involve polling Beltway insiders, thinks Paul Krugman is crazy for worrying more about unemployment than the long-term debt right now.
In other words, Scarborough can't believe Krugman says we can wait until Medicare spending is a problem before doing more about it. Of course, the arithmophobic Scarborough can't explain why Krugman is wrong -- aside from saying everybody he talks to thinks so too -- which is why Scarborough outsourced the job to the senior economist at the RAND corporation. But, unfortunately for Scarborough, he seems to have found an economist who doesn't know much about the subject -- at least judging from the freshman-level errors throughout. Here are the lowlights from this piece, ostensibly arguing that long-term debt is our gravest short-term economic problem. (Note: Excerpts are italicized).
1) From the beginning of 2002, when U.S. government debt was at its most recent minimum as a share of GDP, to the end of 2012, the dollar lost 25 percent of its value, in price-adjusted terms, against a basket of the currencies of major trading partners. This may have been because investors fear that the only way out of the current debt problems will be future inflation.
It wasn't. Inflation was low, and investors didn't expect that to change, over the last decade. Core PCE inflation averaged 1.9 percent over this period, while 10-year breakevens, which tell us market expectations of future inflation (going back to 2003), averaged 2.18 percent. Now, the financial crisis depressed both inflation and inflation expectations, but, as you can see in the chart below, the latter mostly leveled off around a healthy 2.5 percent for most of the last 10 years. If markets feared future inflation in the face of mounting debt, they sure had a funny way of showing it.
This persistently low inflation, and expectations thereof, meant the Fed could, and did, keep interest rates low -- and lower rates tend to cause a lower dollar. In other words, this wasn't a story about debt. Indeed, as you can see in the chart below, the big decline in the dollar happened between 2002 and 2007, when debt levels were relatively low, while the dollar is actually higher today than it was in 2008, despite the big debt run-up.
2) More troubling for the future is that private domestic investment--the fuel for future economic growth--shows a strong negative correlation with government debt levels over several business cycles dating back to the late 1950s. Continuing high debt does not bode well in this regard.
This is a correlation masquerading as a legitimate point. Recessions happen when private investment falls, and recessions increase deficits and debt due to lower revenues and higher safety net spending. In other words, deficits and debt rise because investment has fallen, not vice versa. Now, it's true that too-big deficits can crowd out private investment during a boom -- that's the legitimate point -- but we know that's not a problem now since interest rates are still so low.
3) But the economics profession is beginning to understand that high levels of public debt can slow economic growth, especially when gross general government debt rises above 85 or 90 percent of GDP.
As Mike Konczal of the Roosevelt Institute points out, the idea that growth slows down when debt hits 90 percent of GDP has not been proven. It's just a correlation. And, again, it probably gets the causation backwards -- low growth causes high deficits and debt, not vice versa.
4) The U.S. share of global economic output has been falling since 1999--by nearly 5 percentage points as of 2011. As America's GDP share declined, so did its share of world trade, which may reduce U.S. influence in setting the rules for international trade.
It's not clear what cutting Medicare would do about China's rapid rise. Poorer countries tend to grow faster than richer ones -- that is, they converge -- and that won't change regardless of whether we raise the eligibility age for Medicare or not. And besides, a richer China (and India, and Brazil, and ...) is good for us, if not our power, since it means more markets for our goods. It's odd that the same people who argue against progressive taxation because growth isn't zero-sum take a decidedly different view when it comes to international growth.
This entire debate is a bit surreal. Nobody disputes that healthcare spending, including Medicare, is on an unsustainable trajectory. It's a matter of what to do to "bend the curve" and when to do it. Scarborough wants to increase the eligibility age, and he doesn't think it can wait, because ... well, it's not clear why. He's not saying anything bond investors don't already know, and yet the inflation-adjusted yield on the 30-year bond is only 0.61 percent. If Scarborough is right and bond investors are wrong, then there's a tremendous money-making opportunity in shorting long-term bonds. I wonder if he has the courage of this particular conviction.
But there's another reason, quiescent bond vigilantes aside, for waiting to deal with our long-term debt. We need more time to figure out how to do it. If we knew how to slow healthcare inflation, we would have slowed healthcare inflation. But we don't. Now, Obamacare introduced payment reforms and death panels IPAB to try to restrain spending, but we don't know if or how much they'll work, though there are some hopeful signs. The CBO just reported that healthcare spending has slowed so much the past few years that it's revised down projected federal healthcare spending by $200 billion over the rest of the decade -- or $50 billion more than raising the eligibility age from 65 to 67 would save. In other words, the things we know how to do won't save that much, and the things we don't know how to do might save much more. That's why we should play for more time.
Our elites are good at manufacturing crises, if nothing else, but Scarborough can't manufacture a debt crisis today. Markets won't cooperate -- and with good reason. They're more concerned about growth than debt, because they've done the math and realize the former is the only solution to the latter.
Don't tell anyone, but Powerpoint might have been involved.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
Some conservatives are defying expectation and backing the Vermont senator.
When Tarie MacMillan switched on her television in August to watch the first Republican presidential debate, she expected to decide which candidate to support.
But MacMillan, a 65-year-old Florida resident, was disappointed. “I looked at the stage and there was nobody out there who I really liked. It just seemed like a showcase for Trump and his ridiculous comments,” she recalled. “It was laughable, and scary, and a real turning point.”
So she decided to back Bernie Sanders, the self-described “Democratic socialist” challenging Hillary Clinton. MacMillan was a lifelong Republican voter until a few weeks ago when she switched her party affiliation to support the Vermont senator in the primary. It will be the first time she’s ever voted for a Democrat.
Prosecutors indict a Chicago police officer for first-degree murder, and release a “deeply disturbing” video of the shooting.
Updated at 7:54 p.m.
The city of Chicago released the dashcam footage of Laquan McDonald's final moments Tuesday evening, one day earlier than they had originally announced. City officials gave journalists a link to a third-party site where they would have a one-hour window to download the six-minute and fifty-three-second video clip. (City officials bizarrely cited “limited bandwidth” as the reason for for the time limit.) The website crashed almost immediately, but DNAinfo Chicago uploaded the entire video to YouTube.
The clip begins with a 45-second disclaimer then shows the police vehicle on which the dashboard camera was mounted travel to the scene. Five minutes and fifteen seconds pass before McDonald first appears, walking in the middle of a mostly empty city street near two other police vehicles. McDonald is walking at a brisk pace while carrying something in his left hand. (Police reports say it was a knife.)
If you want to annoy a scientist, say that science isn’t so different from religion. When Ben Carson was challenged about his claim that Darwin was encouraged by the devil, he replied, “I’m not going to denigrate you because of your faith, and you shouldn’t denigrate me for mine.” When the literary theorist Stanley Fish chastised atheists such as Richard Dawkins, he wrote, “Science requires faith too before it can have reasons,” and described those who don't accept evolution as belonging to “a different faith community.”
Scientists are annoyed by these statements because they suggest that science and religion share a certain epistemological status. And, indeed, many humanists and theologians insist that there are multiple ways of knowing, and that religious narratives exist alongside scientific ones, and can even supersede them.
The Speaker’s reformist ambitions fall victim to his need to manage the media cycle.
Before taking the speakership last month, Paul Ryan made a promise to fix a “broken” House of Representatives and return the chamber to “regular order.” Eschewing the centralized authority of his predecessor, John Boehner, Ryan promised to put legislative power back in the hands of rank-and-file members—something key House constituencies had been clamoring for.
Under regular order, House bills go through an often-lengthy process from subcommittee to the floor; they are vetted, debated, and amended before receiving a final up-or-down vote. A return to regular order is one of the few areas with serioussupport from both ultraconservative Freedom Caucus members and progressive reformers in the House. After all, legislators on both sides of the aisle want a chance to be heard, offer amendments, and share expertise. Ryan concurred: “The committees should retake the lead in drafting all major legislation. When we rush to pass bills, a lot of us do not understand, we are not doing our job.”
Why are so many kids with bright prospects killing themselves in Palo Alto?
The air shrieks, and life stops. First, from far away, comes a high whine like angry insects swarming, and then a trampling, like a herd moving through. The kids on their bikes who pass by the Caltrain crossing are eager to get home from school, but they know the drill. Brake. Wait for the train to pass. Five cars, double-decker, tearing past at 50 miles an hour. Too fast to see the faces of the Silicon Valley commuters on board, only a long silver thing with black teeth. A Caltrain coming into a station slows, invites you in. But a Caltrain at a crossing registers more like an ambulance, warning you fiercely out of its way.
The kids wait until the passing train forces a gust you can feel on your skin. The alarms ring and the red lights flash for a few seconds more, just in case. Then the gate lifts up, signaling that it’s safe to cross. All at once life revives: a rush of bikes, skateboards, helmets, backpacks, basketball shorts, boisterous conversation. “Ew, how old is that gum?” “The quiz is next week, dipshit.” On the road, a minivan makes a left a little too fast—nothing ominous, just a mom late for pickup. The air is again still, like it usually is in spring in Palo Alto. A woodpecker does its work nearby. A bee goes in search of jasmine, stinging no one.
Nobody’s focused on winning the peace. That’s a big problem.
In August 1941, Winston Churchill and Franklin Roosevelt met off the coast of Newfoundland to outline a shared vision for the post-World War II era. The British prime minister was so thrilled to see the American president that, in the words of one official, “You’d have thought he was being carried up into the heavens to meet God.” The two countries issued the Atlantic Charter, which sought “a better future for the world” through the principles of self-determination, collective security, and free trade. The United States hadn’t even entered the war yet, but it was already focused on winning the peace. The endgame was not just the defeat of the Axis powers, but also the creation of a stable global order, in which World War II would be the last world war.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
The ambitious effort that could transform the institution and inform how other campuses respond to student protests.
Every university responds to student protests in its own way.
Earlier this month, scores of Brown undergraduates formed a circle on a quad and listened as black classmates expressed pain, anger, and frustration with campus life, following the example set by their analogues at the University of Missouri and elsewhere. Kate Talerico of The Brown Daily Herald recorded several powerful speakers and a diverse crowd that listened attentively and occasionally snapped to signal their agreement.*
Here are some of their words:
Candice Ellis, the first student to appear in the video, declared, “We begged this university to hear our stories about how racism, sexism, and a whole host of other problems prevail … and prevent us from being safe, from being at peace, from being whole and from being well. They invite us to meetings in the president’s office and the faculty club. They say they listen. They say they hear us. They do nothing.”
One thing I’ve learned during my Obamacare pregnancy: Sometimes the only way to get quality information in the American health-care system is to be a nuisance.
Being on Obamacare has, for me, been a first-rate education. Before I chose my own plan off of my state’s exchange, I had always been fortunate enough to receive quality health care through my employers, insurance that came with neither deductibles nor drama, and as a consequence I knew remarkably little about the realities of the health-care industry. I lived in a state of comfortable innocence when it came to real costs.
Much of the political inertia on health care in this country came from exactly that state of comfortable innocence. If a person likes his plan and his doctor, and if he himself has not yet been forced into bankruptcy because of ever-escalating bills, why then should that person believe the system at large needed work? And yet a system can be terrific for an individual and terrible for a country overall.