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.
Cultural anthropology can help explain why the downturn caught everyone by surprise: Experts around the world tend to focus on the same mathematical models, looking for patterns in the same limited number of places.
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.
Though it wasn’t pretty, Minaj was really teaching a lesson in civility.
Nicki Minaj didn’t, in the end, say much to Miley Cyrus at all. If you only read the comments that lit up the Internet at last night’s MTV Video Music Awards, you might think she was kidding, or got cut off, when she “called out” the former Disney star who was hosting: “And now, back to this bitch that had a lot to say about me the other day in the press. Miley, what’s good?”
To summarize: When Minaj’s “Anaconda” won the award for Best Hip-Hop Video, she took to the stage in a slow shuffle, shook her booty with presenter Rebel Wilson, and then gave an acceptance speech in which she switched vocal personas as amusingly as she does in her best raps—street-preacher-like when telling women “don’t you be out here depending on these little snotty-nosed boys”; sweetness and light when thanking her fans and pastor. Then a wave of nausea seemed to come over her, and she turned her gaze toward Cyrus. To me, the look on her face, not the words that she said, was the news of the night:
Why haven’t more challengers entered the race to defeat the Iraq War hawk, Patriot Act supporter, and close friend of big finance?
As Hillary Clinton loses ground to Bernie Sanders in Iowa, where her lead shrinks by the day, it’s worth noticing that she has never made particular sense as the Democratic Party’s nominee. She may be more electable than her social-democratic rival from Vermont, but plenty of Democrats are better positioned to represent the center-left coalition. Why have they let the former secretary of state keep them out of the race? If Clinton makes it to the general election, I understand why most Democrats will support her. She shares their views on issues as varied as preserving Obamacare, abortion rights, extending legal status to undocumented workers, strengthening labor unions, and imposing a carbon tax to slow climate change.
The NBC show isn’t casting its net wide enough when it comes to finding new players.
Since the departure of many of its biggest stars two years ago, Saturday Night Live has mostly avoided major cast changes. Yesterday, NBC announced the show would add only one new cast member for its 41st season—the near-unknown stand-up comic Jon Rudnitsky. SNL is, of course, a sketch-comedy show, but it keeps hiring mostly white stand-ups who have a markedly different skill set, with limited results. As critics and viewers keep calling out for greater diversity on the show, it’s hard to imagine the series’s reasoning in sticking to old habits.
As is unfortunately typical today, controversy has already arisen over some tasteless old jokes from Rudnitsky’s Twitter and Vine feeds, similar to the furore that greeted Trevor Noah’s hiring at The Daily Show this summer. But Rudnitsky was apparently hired on the back of his stand-up performances, not his Internet presence, similar to the other young stand-ups the show has hired in recent years: Pete Davidson, Brooks Wheelan (since fired), and Michael Che. It’s a peculiar route to the show, because SNL is 90 percent sketch acting, and unless you’re hosting Weekend Update (like Che), you’re not going to do a lot of stand-up material. So why hire Rudnitsky?
Beijing’s top five scapegoats, from journalists to hedge funds to the U.S. federal reserve
China’s stock markets continue to stumble, despite the massive stimulus that the government has unleashed to prop them up. The Shanghai benchmark index fell by 1.23 percent Tuesday, after closing down slightly Monday. The index has fallen by nearly 40 percent from its mid-June peak.
In some ways, the slide isn’t surprising—after all, Chinese stocks were trading at extremely rich valuations before they started to fall, even as signs emerged that China’s economy was slowing.
Many educators are introducing meditation into the classroom as a means of improving kids’ attention and emotional regulation.
A five-minute walk from the rickety, raised track that carries the 5 train through the Bronx, the English teacher Argos Gonzalez balanced a rounded metal bowl on an outstretched palm. His class—a mix of black and Hispanic students in their late teens, most of whom live in one of the poorest districts in New York City—by now were used to the sight of this unusual object: a Tibetan meditation bell.
“Today we’re going to talk about mindfulness of emotion,” Gonzalez said with a hint of a Venezuelan accent. “You guys remember what mindfulness is?” Met with quiet stares, Gonzalez gestured to one of the posters pasted at the back of the classroom, where the students a few weeks earlier had brainstormed terms describing the meaning of “mindfulness.” There were some tentative mumblings: “being focused,” “being aware of our surroundings.”
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.
After calling his intellectual opponents treasonous, and allegedly exaggerating his credentials, a controversial law professor resigns from the United States Military Academy.
On Monday, West Point law professor William C. Bradford resigned after The Guardianreported that he had allegedly inflated his academic credentials. Bradford made headlines last week, when the editors of the National Security Law Journaldenounced a controversial article by him in their own summer issue:
As the incoming Editorial Board, we want to address concerns regarding Mr. Bradford’s contention that some scholars in legal academia could be considered as constituting a fifth column in the war against terror; his interpretation is that those scholars could be targeted as unlawful combatants. The substance of Mr. Bradford’s article cannot fairly be considered apart from the egregious breach of professional decorum that it exhibits. We cannot “unpublish” it, of course, but we can and do acknowledge that the article was not presentable for publication when we published it, and that we therefore repudiate it with sincere apologies to our readers.
Meet the man behind a new effort to save documents and other artifacts before they disappear.
Jason Scott has something of a reputation. He’s a historian who works for the Internet Archive, and he’s known in some circles as the guy who can save bits of history right before they disappear.
So when he found out that a small store in Maryland that sold manuals for machinery was going out of business, and was going to get rid of its collection of nearly 200,000 obscure booklets in just a few days, Scott got to work.
He got to Maryland on a Friday to check out the stockpile at Manuals Plus. By Wednesday of the next week he had rallied over 70 volunteers to put together 1,600 boxes of manuals (nobody counted exactly how many booklets fill those boxes, but the guess is between 50,000 and 75,000) that now sit in three storage containers. The whole endeavor cost about $9,000, most of which was donated to the project.
If the Fourteenth Amendment means that the children of undocumented immigrants are not citizens, as Donald Trump suggests, then they are also not subject to American laws.
Imagine the moon rising majestically over the Tonto National Forest, highlighting the stark desert scenery along the Superstition Freeway just west of Morristown, Arizona. The sheriff of Maricopa County sips coffee from his thermos and checks that his radar gun is on the ready. A lot of lawmen wouldn’t have bothered to send officers out at night on such a lonely stretch of road, much less taken the night shift themselves. But America’s Toughest Sheriff sets a good example for his deputies. As long as he’s the sheriff, at least, the rule of law—and the original intent of the Constitution—will be enforced by the working end of a nightstick.
Suddenly a car rockets by, going 100 miles an hour by the gun. Siren ululating, the sheriff heads west after the speeder. The blue Corolla smoothly pulls over to the shoulder. The sheriff sees the driver’s side window roll down. Cautiously he approaches.