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.
How the election looks to backers of the Republican nominee
Perhaps the hardest thing to do in contemporary American politics is to imagine how the world looks from the other side. I’ve made no secret of why, as a Republican, I oppose Donald Trump and what he stands for. But I’ve also been talking to his supporters and advisors, trying to understand how they see and hear the same things that I do, and draw such very different conclusions. What follows isn’t a transcription—it’s a synthesis of the conversations I’ve had, and the insights I’ve gleaned, presented in the voice of an imagined Trump supporter.
“You people in the Acela corridor aren’t getting it. Again. You think Donald Trump is screwing up because he keeps saying things that you find offensive or off-the-wall. But he’s not talking to you. You’re not his audience, you never were, and you never will be. He’s playing this game in a different way from anybody you’ve ever seen. And he’s winning too, in a different way from anybody you’ve ever seen.
Learning how to bond with my daughter, who found comfort in the familiarity of being alone, has come through understanding reactive attachment disorder.
My hands hover over the computer keyboard. They are trembling. I hold down the shift key and type the words with intention, saying each letter aloud: “R-e-a-c-t-i-v-e A-t-t-a-c-h-m-e-n-t D-i-s-o-r-d-e-r.” The words “reactive attachment disorder” are memory beads I gather into a pile and attempt to string along on a necklace.
I think back to when Judith, my neighbor who is a psychiatrist, offhandedly threw out the term the first time she met Julia. We were talking about babies who start their lives in orphanages, and she mentioned the disorder. She wasn't suggesting that my daughter Julia showed any signs, but she’d said it was a well-known problem with children who’d been adopted from Romanian orphanages in the '80s and '90s. I remember nodding my head and thinking, Shut up, Judith. We got Julia young. It shouldn't be an issue.
Last night, in her overall very successful acceptance speech, Hillary Clinton said with ruthless precision about her opponent:
Ask yourself: Does Donald Trump have the temperament to be Commander-in-Chief?
Donald Trump can't even handle the rough-and-tumble of a presidential campaign.
He loses his cool at the slightest provocation. When he's gotten a tough question from a reporter. When he's challenged in a debate. When he sees a protestor at a rally.
Emphasis added, as it was in her delivery:
Imagine—if you dare, imagine—imagine him in the Oval Office facing a real crisis. A man you can bait with a tweet is not a man we can trust with nuclear weapons.
I can’t put it any better than Jackie Kennedy did after the Cuban Missile Crisis. She said that what worried President Kennedy during that very dangerous time was that a war might be started—not by big men with self-control and restraint, but by little men—the ones moved by fear and pride.
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
A federal appeals court finds the impact of the state’s voting law can only be explained by “discriminatory intent.”
Updated on July 29 at 9:30 p.m.
DURHAM, N.C.—The Fourth Circuit Court of Appeals struck down key portions of North Carolina’s strict 2013 voting law on Friday, delivering a stern rebuke to the state’s Republican General Assembly and Governor Pat McCrory. The three-judge panel in Richmond, Virginia, unanimously concluded that the law was racially discriminatory, and it blocked a requirement that voters show photo identification to vote and restored same-day voter registration, a week of early voting, pre-registration for teenagers, and out-of-precinct voting.
“In what comes as close to a smoking gun as we are likely to see in modern times, the State’s very justification for a challenged statute hinges explicitly on race—specifically its concern that African Americans, who had overwhelmingly voted for Democrats, had too much access to the franchise,” wrote Judge Diana Gribbon Motz.
Psychologists have long debated how flexible someone’s “true” self is.
Almost everyone has something they want to change about their personality. In 2014, a study that traced people’s goals for personality change found that the vast majority of its subjects wanted to be more extraverted, agreeable, emotionally stable, and open to new experiences. A whopping 97 percent said they wished they were more conscientious.
These desires appeared to be rooted in dissatisfaction. People wanted to become more extraverted if they weren’t happy with their sex lives, hobbies, or friendships. They wanted to become more conscientious if they were displeased with their finances or schoolwork. The findings reflect the social psychologist Roy Baumeister’s notion of “crystallization of discontent”: Once people begin to recognize larger patterns of shortcomings in their lives, he contends, they may reshuffle their core values and priorities to justify improving things.
Physicists can’t agree on whether the flow of future to past is real or a mental construct.
Einstein once described his friend Michele Besso as “the best sounding board in Europe” for scientific ideas. They attended university together in Zurich; later they were colleagues at the patent office in Bern. When Besso died in the spring of 1955, Einstein—knowing that his own time was also running out—wrote a now-famous letter to Besso’s family. “Now he has departed this strange world a little ahead of me,” Einstein wrote of his friend’s passing. “That signifies nothing. For us believing physicists, the distinction between past, present, and future is only a stubbornly persistent illusion.”
Einstein’s statement was not merely an attempt at consolation. Many physicists argue that Einstein’s position is implied by the two pillars of modern physics: Einstein’s masterpiece, the general theory of relativity, and the Standard Model of particle physics. The laws that underlie these theories are time-symmetric—that is, the physics they describe is the same, regardless of whether the variable called “time” increases or decreases. Moreover, they say nothing at all about the point we call “now”—a special moment (or so it appears) for us, but seemingly undefined when we talk about the universe at large. The resulting timeless cosmos is sometimes called a “block universe”—a static block of space-time in which any flow of time, or passage through it, must presumably be a mental construct or other illusion.
A church facing setbacks elsewhere finds an unlikely foothold.
At the end of 2013, in the low-slung, industrial Taiwanese city of Kaohsiung, a bevy of officials came to attend the ribbon cutting of a huge former hotel that had undergone a top-to-bottom, multimillion-dollar renovation. Speaking before the throngs of celebrants who blocked the flow of traffic, Taiwan’s deputy director of the Ministry of the Interior praised the group that funded the renovation and presented them, for the 10th year straight, with the national “Excellent Religious Group” award.
“For years you have dedicated your time and lives to anti-drug work and human- rights dissemination,” said the director, echoing praise offered by the mayor’s office and the president’s national-policy adviser.
The comparatively less flashy, less spirited former First Kid managed to show her mom’s softer side at the DNC on Thursday.
Yes, yes, yes. Chelsea Clinton is not the most charismatic orator—as the Twittersphere was happy to point out during her brief address on Thursday night. She is like her mother that way. There’s something not quite natural about her self-presentation. She’s not stilted, exactly. But she can come across as too cautious, too reserved, too conscious of other people’s eyes upon her.
But, let’s face it, as the lead-in to Hillary’s big nominating speech, a little bit of boring was called for. Unlike some of this convention’s high-wattage speakers, there was zero chance Chelsea was going to upstage Hillary with a barnburner or tear-jerker. Chelsea wasn’t there to pump up the crowd. Her role was to comfort, to explain, to cajole, with an eye toward giving Americans a glimpse of her mother’s softer side.
It’s a staple in American homes, but at what environmental cost?
As Hurricane Katrina raged through New Orleans in 2005, neighborhood after neighborhood collapsed from flooding. Of the houses that stood, many still had to be bulldozed due to mold within the walls. But one building, a plantation-home-turned-museum on Moss Street built two centuries before the disaster, was left almost entirely unscathed.
“The Pitot house was built the old way, with plaster walls,” says Steve Mouzon, an architect who helped rebuild the city after the hurricane. “When the flood came, the museum moved the furniture upstairs. Afterwards, they simply hosed the walls—no harm done.”
The other houses weren’t built the old way. “All the homes around the Pitot house were lost because they were built with drywall,” says Mouzon.