There is no evidence that countries like the United States face debt tipping points
Have you read the opinion section of any newspaper in the last three years? Yes? Then there is a better-than-even chance you have come across some impressive-sounding analyst predict that the United States is "turning into Greece."
Maybe it's been a while, so we'll recap. The short version of this story is that we'll spend ourselves into bankruptcy. The longer version says that too much public debt makes markets nervous. Nervous markets demand higher interest rates. Higher rates mean higher deficits and lower growth, both of which mean more burdensome debt. More burdensome debt makes markets even more nervous. And around and around we go in a vicious circle into insolvency.
As far as scare stories go, this is pretty damn scary. It's also just a story. Rates haven't risen as debt has the last few years; they have fallen to historic lows. Of course, that hasn't stopped the Greek chorus from predicting that the economy is going to Hades. But when? Is it when debt reaches 100 percent of GDP? Or 90 percent, as Carmen Reinhart and Kenneth Rogoff famously argued?
What about 80 percent?
That was the bright white line drawn in a recent paper by David Greenlaw, James Hamilton, Peter Hooper and Frederic Mishkin. Greenlaw & Co. ran regressions on 20 advanced economies from 2000 to 2011 to see if there's a relationship between a country's borrowing costs one year and its gross debt, net debt, and 5-year current account average the previous one. (Glossary Interlude: Gross debt refers to the total amount of debt, including debt the government owes to itself. Net debt is the amount held by the public, minus any government assets. Current account is the balance of trade, which includes both net exports and net income on foreign investments).
They found a link. By their calculations, the coefficients for gross and net debt were "both highly statistically significant", and increasing both debt levels by 1 percentage point of GDP would increase borrowing costs by 4.5 basis points (or 0.045 percentage points). The coefficient for the current account balance was also highly significant, and decreasing the balance by 1 percentage point of GDP would increase borrowing costs by 18 basis points.
This is a big deal. It's not that this regression equation has much predictive power (the authors admit it doesn't) or that the above 4.5 basis points are all that scary; it's the claim that there's a statistically significant relationship between debt and rates. After all, if Greenlaw & Co. are right about debt tipping points, then we are, technically-speaking, screwed. Our gross debt to GDP is already at 102 percent -- enough to send our borrowing costs soaring, as they predict below.
If they are right.
They almost certainly are not.
WHY WE'RE SPECIAL
[Things are about to get very wonky below, so my editor forced me to sum up things here. The two main conclusions are: (1) For countries that can borrow in their own currency, like the U.S., higher debt doesn't clearly lead to higher interest rates. (2) For countries that don't control their currencies, like Greece, it's borrowing too much from foreigners (NOT borrowing too much in general) that clearly leads to much higher borrowing costs. Okay, forward with the wonkiness... ]
Not all debt is created equal. Countries that borrow in a currency they control play under a different set of rules. They can never run out of money to pay back what they owe, since they can always print what they need as a last resort. That's not to say they actually do or should turn to the printing-press to finance themselves. But the option to do so calms markets. After all, inflation is a lot less bad than default for creditors. That's why it's no so easy for countries that don't borrow in a currency they control. They can default. And this is a case where thinking can make things so. Indeed, as Paul De Grauwe points out, countries that don't have their own central bank, like euro members, can fall victim to self-fulfilling panics that push them into bankruptcy. In other words, markets force up interest rates because they fear default -- which then pushes them into default. It's a bank-run on a country.
So we have to answer one big question. How much of Greenlaw & Co.'s results are driven by euro countries that have completely different debt dynamics than non-euro countries?
Well, as Paul Krugman points out, 12 of the 20 countries they look at are either part of the euro, or, in Denmark's case, pegged to it. The remaining ones show no signs of anything resembling debt tipping points. Often the reverse. That's simple enough to see if we break up their sample. The chart below looks at the pre-crisis years from their sample, and shows the non-euro countries in red, the core-euro countries in green, and the (later) troubled PIIGS countries in blue. Back then, at least, there wasn't any difference between -- except for Japan, which had far more debt, and far lower borrowing costs. Nor was there much of any discernible relationship between debt and interest rates.
But then Lehman failed, and the world changed. Debt went up and borrowing costs came down -- except for the PIIGS.
I decided to go back and see what kind of results I'd get if I looked at the non-euro countries and PIIGS separately. I started by trying to recreate the Greenlaw & Co. result for the entire 20-country sample over the 12 years -- which I was able to do, with some very slight differences due to slightly different data sources. (I couldn't find IMF data on long-term interest rates for every country, so I used OECD data to fill in the blanks). Next, I ran a regression with country and time-fixed effects on the non-euro countries -- Australia, Canada, Japan, Norway, Sweden, Switzerland, the U.K., and the U.S. -- from 2000 to 2011. I got coefficients of .00743, .00575, and -0.0695 for gross debt, net debt, and current account, respectively. None of them were statistically significant at the 95 percent level. (The P>t values were 0.13, 0.18, and 0.087).
To translate from stats-speak: our equation for non-euro countries tells us increasing debt by 1 percentage point of GDP only increases borrowing costs by 1.3 basis points. And that result isn't even statistically significant. In other words, there is no evidence of a debt tipping point for countries that borrow in money they can print.
But what about Europe's troubled economies? The Greenlaw & Co. results should hold up there, if nowhere else, right? Well, kind of. I ran another regression with country and time fixed effects on the PIIGS -- Portugal, Italy, Ireland, Greece, and Spain -- from 2000 to 2011, and I got coefficients of 0.0605, 0.0209, and -.8952 for gross debt, net debt, and current account. The coefficients for gross debt and the current account were statistically significant (the latter highly so), but not for net debt, since the PIIGS mostly have the same amount of gross and net debt. (The P>t values were 0.046, 0.342, and 0). I went back and ran the regression again, this time without net debt, and got coefficients of 0.0843 and -0.9157 for gross debt and the current account. Both were highly significant. (The P>t values were 0 for both).
Translated: our equation for the PIIGS tells us increasing debt by 1 percentage point of GDP increases borrowing costs by 8.4 basis points -- but increasing the current account deficit by 1 percentage point of GDP increases borrowing costs by 91 basis points! The PIIGS do have a serious problem, but that problem is borrowing too much from foreigners, not too much government borrowing, in general. Of course, this isn't exactly new information. Paul Krugman, among others, has been pointing out for years that the euro crisis is really a balance of payments crisis that just looks like a debt crisis because of the common currency.
Beware economists bearing regressions -- and journalists too. My sample sizes here are so ridiculously small that the results are hardly dispositive. So don't pay attention to the evidence. Pay attention to the lack of evidence.
There isn't any evidence that the U.S., or other countries that borrow in currencies they control, face some debt tipping point after which borrowing costs spiral out of control. There isn't even much evidence this is true of Europe's troubled economies. Borrowing costs fell for the PIIGS in 2012 (one year after Greenlaw & Co.'s sample ended), not because those countries reduced their debt burdens, but because the ECB promised to do "whatever it takes" to save the euro. A monetary backstop matters more than the amount of debt. Reducing debt isn't as empirically urgent as we hear.
Our Greek chorus are more Chicken Littles than Cassandras.
We built a fake web toaster, and it was compromised in an hour.
Last week, a massive chain of hacked computers simultaneously dropped what they were doing and blasted terabytes of junk data to a set of key servers, temporarily shutting down access to popular sites in the eastern U.S. and beyond. Unlike previous attacks, many of these compromised computers weren’t sitting on someone’s desk, or tucked away in a laptop case—they were instead the cheap processors soldered into web-connected devices, from security cameras to video recorders. A DVR could have helped bring down Twitter.
Great, I thought as I read the coverage last week. My DVR helped bring down Twitter. (Probably not, at least this time—the targeted products were older than what you’d find in most American homes, and less protected.) But the internet is huge! There are around a couple billion public IPv4 addresses out there; any one of those might have a server, a desktop computer, or a toaster plugged in at the other end. Even if the manufacturer of my gadget gave it a dumb and easily guessed password, wouldn’t it be safe in this sea of anonymity? How would the hackers find me?
This week highlighted all the ways in which it’s likely to follow Clinton—all the way back to Washington.
Amid a fired up sea of supporters chanting “Lock her up!” with renewed vigor, a freshly emboldened Donald Trump took to the campaign stump on Friday afternoon in New Hampshire, moments after the FBI announced it was reviewing new emails related to its investigation of Hillary Clinton’s email server. “This is worse than Watergate!” he bellowed. The crowd was in agreement.
James Comey announced in July “that no charges are appropriate in this case,” and there’s no reason, at this point, to believe that the new emails will alter that conclusion. But the toll this takes—and will continue to take—on Clinton’s ability to secure public trust is not to be discounted. Should she win the presidency on November 8th, (as polls suggest she will), the controversy is likely to follow her to the White House: This latest review may take time to complete, and this isn’t a cudgel Republicans are likely to give up anytime soon. After all, their entire strategy has been to erode trust: in public institutions and, lately, in elections. The president herself will be no different.
Just why was Tom Hanks dancing in a black-and-orange suit on Saturday Night Live so funny?
This weekend’s episode of Saturday Night Live offered a mini masterpiece: a gloriously silly Halloween-themed piece revolving around a “Haunted Elevator” ride and its unusual star attraction. Beck Bennett and Kate McKinnon played a couple looking for spooky thrills who instead found something far more bewildering: a pumpkin-suited man who would randomly appear alongside two cheerful skeletons and perform a dance routine. “Who are you?” asked a frustrated Bennett after the man (played by Tom Hanks) appeared for the second time. “I’m David Pumpkins!” came the reply.
McKinnon followed up: “Yeah, and David Pumpkins is … ?”
The agency is investigating more emails related to Hillary Clinton. Whether or not it finds something in the next 11 days, its announcement could affect the outcome on November 8.
The FBI has announced that it is investigating newly discovered messages related to Hillary Clinton’s use of a private email server. According to The New York Times, these emails were found in the course of the agency’s investigation of the former New York Congressman Anthony Weiner and the longtime Clinton aide Huma Abedin.
With just 11 days to go until November 8, FBI Director James Comey’s decision to disclose the investigation could affect the election. The timing raises two important questions: What was his legal obligation to provide the public with information on this investigation, if any, and what could happen to him as a result of his choice?
It’s possible Comey was partly motivated by fear. When he chose not to prosecute Clinton for her use of a private email server, he was brought before Congress to defend his decision; a hearing at the House Judiciary Committee in September lasted nearly four hours. If he failed to amend his testimony and inform Congress about new evidence potentially relevant to that case, he would almost certainly face more hearings—particularly if the agency discovered information about Clinton’s actions after November 8. “I have a suspicion that he didn’t just do it because he felt like doing it,” said Richard Painter, a law professor at the University of Minnesota who served as the chief ethics lawyer in the Bush administration from 2005 to 2007. “This close to the election, you have to get out with it. How many of these dang things are there?”
This is an item I wrote last night but was too busy to look over and check this morning, so I didn’t post it. Then I was in meetings all day. I’m posting it now with a new opening paragraph in the wake of today’s announcement from FBI director James Comey about “re-opening” the email investigation into Hillary Clinton. Otherwise I think the main point still stands.
New intro: Are these extra emails that James Comey has found, however many they are, likely to contain a criminal or national-security bombshell that was not present in the thousands of other emails the FBI has already reviewed? Anything is possible, but my guess is no. Is this announcement, which is so certain to roil the news through this weekend, likely to change the fundamentals in the election and give Trump the edge? Again, anything could happen, but again my guess is no.
Start-ups are proving more efficient than government in areas like transportation. Should some services be privatized?
Cities such as New York and San Francisco have extensive public-transportation systems that carry millions of residents by bus, train, boat, and light rail. But in recent years, there’s been an expanding fleet of private vehicles too: Lyft, Uber, Juno, Uber Pool, and the Google Bus, to name a few. These offerings give commuters more choices, but may also undermine the public services available. They raise fundamental questions about the future of how people will get around cities.
I used to think these services were just for the rich—a friend of mine who lived in New York insisted on taking an Uber Pool to work every day because he said it was a much better experience than public transit. But as the options increase, they carry an expanding array of people. This morning, for instance, I walked one block from my house to take a private van service called Chariot to my office in San Francisco. Before Chariot, this commute took at least 40 minutes and consisted of riding a bus to the subway to another bus. Chariot—a shared van service run by a private company—brought me directly from my house to my office in just over 20 minutes. And it cost roughly the same price as the lengthier public transit option.
Inferno is only the latest Hollywood product to insist that its lady-stars galavant around in infernal footwear.
There are several scenes, in the new movie Inferno, in which Sienna Brooks (Felicity Jones)—Robert Langdon’s latestlady-sidekick—runs around Florence in a pair of wedges. Not full-on stilettos, to be clear, like the ones in which Jones’s co-star, Sidse Babett Knudsen, will be forced to sprint later in the movie, but wedges that are, in Sienna’s case, multiple inches high, and made of patent leather.
It happens like this: Sienna begins Inferno as Langdon’s nurse, and the opening scenes find the pair suddenly fighting for their lives against baddies who have infiltrated the hospital where Langdon is recovering from a gunshot wound that was inflicted, ostensibly, by those same murdery baddies. The pair, having barely escaped the hospital, go back to her apartment to regroup. She changes from her scrubs into civilian clothes. At which point—knowing that her day from there will prooooobably involve more murdery-baddie-evading, and knowing as well that such evading often involves running—Sienna Brooks scans the contents of her wardrobe and decides, for reasons that are best left to the Illuminati and/or Dan Brown himself, to don not just a shirt of white silk, but also … those intensely impractical shoes.
The FBI has announced that it is reviewing new emails related to Hillary Clinton’s use of a private email system, after the messages turned up in an unrelated inquiry.
Here’s that October surprise. The FBI will investigate newly revealed emails from Hillary Clinton related to her use of a private email server and address while secretary of state, Director James Comey informed the chairs of relevant congressional committees on Friday.
In a letter, Comey wrote, “In connection with an unrelated case, the FBI has learned of the existence of emails that appear to be pertinent to the case.” He wrote that he had learned of the emails on Thursday and felt that the FBI should look into the new emails. But Comey added that the FBI “cannot yet assess whether or not this material may be significant, and I cannot predict how long it will take for us to complete this additional work.”
What is lost when disadvantaged students are forced to commodify their backgrounds for the sake of college admissions?
Shortly after moving to New York two years ago, I began volunteering as a writing mentor at Minds Matter, a large, multi-city nonprofit that helps prepare underserved high-school students for college. Just a few months earlier, I’d graduated from a liberal-arts college I’d attended after participating in a similar program, and I felt both obliged to pay my good fortune forward and uniquely qualified to do so. If my experience had taught me anything, it was the power of a compelling personal narrative.
By the time I’d decided, mid-way through high school, that I wanted to attend college—and not just any college, but a competitive one, filled with Gothic Revival buildings and storied histories—I had to contend with a spotty transcript, virtually no extracurriculars, and an SAT math score inferior to that of many middle schoolers. Then I heard about QuestBridge, a nonprofit that connects low-income youth with top schools.
Vehement Trump supporters abound on Twitter. That much is obvious to anyone who has used the service. Who exactly they are, and how broad a swath of society they represent, has been harder to pin down.
Are they largely Russian bots, as some reports have suggested? Are the angriest ones really just a handful of activists, racists, and anti-Semites, who through nonstop posting in multiple accounts exaggerate their true numbers? (Though even a very few would be enough.) Are they in any kind of coordinated activity, or mainly working as loners?
A social-media analytics firm called Demographics Pro has released an analysis of 10,000 Trump supporters who are active on Twitter, and 10,000 Hillary Clinton supporters. It then matched those accounts with a list of 10 active, major white-nationalist Twitter accounts. (The company describes the way in which it chose and classified such sites here.)