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.
Sullivan: Now we’re getting somewhere. And I’m not just referring to all of the potential wars that so many of our Game of Thrones characters are trying to either stave off or set aflame. We’ll get to those in a moment. No, I’m talking about the long-simmering question that should be on every fan’s mind, the one that showrunners David Benioff and D.B. Weiss had to answer before George R. R. Martin would hand over his series so they could bring it to television
Every week for the seventh and final season of AMC's hit period-drama Mad Men, Sophie Gilbert, David Sims, and Lenika Cruz will discuss the possible fates facing Don Draper and those in his orbit.
Sims: At the end of a rather spellbindingly strange episode of Mad Men, Don Draper drove off into the American unknown (well, St. Paul), having picked up a hitchhiker, in search of … it’s hard to know what, exactly. It was a powerful image, but wherever Don is going, it might be one of the show’s least interesting story threads as it approaches its conclusion. Don’s listlessness has been pointing toward this hobo journey for months now, but “Lost Horizon” wrung far more fascinating material from Joan and Peggy’s transitions to McCann Erickson. Perhaps we won’t even see Don in next week’s penultimate episode. Would that be so bad?
Mary Hamm was in pain, though it was hard to tell. She bustled around the Starbucks, pouring drinks, restocking pastries, and greeting customers with an unshakable gaze perfected during 25 years of working in hospitality. Her smile said, How can I help you? Her eyes said, I know you’re going to order a caramel Frappuccino, so let’s do this.
Occupying prime space in a Fredericksburg, Virginia, strip mall, beside a Dixie Bones BBQ Post, this Starbucks pulls in about $40,000 a week. Hamm, 49, had been managing Starbucks stores for 12 years. The problem was her feet. After two decades in the food-service business, they had started to wear out. She had two metal plates in the right one, installed over the course of five surgeries. Now her left foot needed surgery too. She doesn’t like to complain, but when I asked her how often she was in pain, she smiled and said quietly, “All the time.”
Journalism is, at its core, a public service. This is why several days ago the reporters at Action 7 News in Albuquerque, New Mexico, decided to investigate just what, exactly, teems within the beards of the polity. They swabbed the whiskers of a handful of local men and took the results to Quest Diagnostics.
The results were the kind that medical labs don't leave on your answering machine:
Several of the beards that were tested contained a lot of normal bacteria, but some were comparable to toilets.
“Those are the types of things you'd find in (fecal matter),” Golobic said, referring to the tests.
Even though some of the bacteria won’t lead to illness, Golobic said it’s still a little concerning.
LOS ANGELES—Over the weekend, TheNew York Times published an amusing article about New Yorkers discovering Los Angeles anew. It seems that for a long time they harbored a lot of facile prejudices about us but have lately realized that L.A. is delightful. For some, this apparently began while they were looking at Instagram. "Last fall," the article begins, "Christina Turner, a fashion stylist in Brooklyn, was dreading another New York winter in her cramped, lightless Greenpoint, Brooklyn, apartment while gazing longingly at the succulent gardens and festive backyard dinner parties posted on social media by her friends in Los Angeles."
So she moved here. I only wish that I could've gotten word to her sooner. I've always known that New Yorkers are inwardly focused. When there's a municipal election there they don't even realize we're not all picking a mayor of America together. But I would've sworn that everyone already knew about our good weather.
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.
The question that most people ask themselves as they walk into their boss's office to negotiate their salaries is likely some variant of "What am I going to say?" But according to hostage negotiator Chris Voss, that might be the least important thing to keep in mind when negotiating.
Voss, now an adjunct professor at Georgetown University's McDonough School of Business, spent 24 years at the FBI. It was as an FBI agent that he started to get interested in hostage negotiations. At the time, a supervisor told him to start by volunteering at a suicide hotline to gain the set of listening abilities that a hostage negotiator needs. By 1992, he was training at the FBI's school for negotiators, and from 2004 to 2007, he was the FBI's lead international hostage negotiator. After retirement, Voss founded The Black Swan Group to bring negotiation know-how to the business world.
People say they want more bipartisanship. In poll after poll after poll, they decry the polarized atmosphere in Washington and say they want their leaders to work together.
To which the people of New York and New Jersey might reply: seriously?
It's indictment-and-arrest season in the tri-state region. Monday morning, New York State Senate Leader Dean Skelos, a Republican, and his son Adam were arrested on federal charges of extortion, fraud, and soliciting bribes. It's been just three months since State Assembly Speaker Sheldon Silver, a Democrat, was himself arrested on federal corruption charges. Meanwhile, across the Hudson River in New Jersey, Bridget Anne Kelly and Bill Baroni, two former top allies of Governor Chris Christie, pleaded not guilty to nine counts apiece including wire fraud and conspiracy in the George Washington Bridge Scandal. On Friday, David Wildstein, a Christie appointee, pleaded guilty to two conspiracy charges in the same scandal.
Every candidate in the 2016 race so far is an experienced politician. That changes Monday with the addition of two new candidates with little electoral experience: neurosurgeon Ben Carson and former executive Carly Fiorina. Both chose Monday to announce their presidential campaigns, and both face an uphill battle against the GOP establishment.
Carson has confirmed his run with reporters, but the big kickoff will be a rally in Detroit, his hometown, Monday afternoon. Fiorina, meanwhile, is eschewing a big launch in favor of an online rollout, and announced her campaign with a tweet early Monday morning.
The field is expected to grow again on Tuesday when Mike Huckabee—the former Arkansas governor who made a strong showing in 2008, placing third in the Republican primary—makes his decision about a run formal.
Ben Carson is one of the nation's most famous neurosurgeons. He's never run for office.
Carly Fiorina was once the CEO of Hewlett-Packard, and she ran for office once—in 2010, in a Republican wave year, when she was trounced by Democratic Senator Barbara Boxer.
Now both of them are running for the highest office in the land, the leadership of the free world. It takes an impressive amount of confidence and a certain amount of detachment from reality for even the most seasoned politicians to undertake presidential campaigns, but that's especially true of long-shot candidates like Carson and Fiorina, whose odds of becoming president are practically nil.
Both of them are trying to turn that very distance from the establishment into a rationale for their candidacies. "I'm not a politician," Carson said at his launch event in Detroit on Monday. "I don't want to be a politician because politicians do what is politically expedient. I want to do what's right." And Fiorina, in her announcement video, said: "Our founders never intended for there to be a professional political class."