Austerians have had their worst week since the last time GDP numbers came out for a country that's tried austerity.
But this time is, well, different. It's not "just" that southern Europe is stuck in a depression and Britain is stuck in a no-growth trap. It's that the very intellectual foundations of austerity are unraveling. In other words, economists are finding out that austerity doesn't work in practice or in theory.
What a difference an Excel coding error makes.
Austerity has been a policy in search of a justification ever since it began in 2010. Back then, policymakers decided it was time for policy to go back to "normal" even though the economy hadn't, because deficits just felt too big. The only thing they needed was a theory telling them why what they were doing made sense. Of course, this wasn't easy when unemployment was still high, and interest rates couldn't go any lower. Alberto Alesina and Silvia Ardagna took the first stab at it, arguing that reducing deficits would increase confidence and growth in the short-run. But this had the defect of being demonstrably untrue (in addition to being based off a naïve reading of the data). Countries that tried to aggressively cut their deficits amidst their slumps didn't recover; they fell into even deeper slumps.
Enter Carmen Reinhart and Ken Rogoff. They gave austerity a new raison d'être by shifting the debate from the short-to-the-long-run. Reinhart and Rogoff acknowledged austerity would hurt today, but said it would help tomorrow -- if it keeps governments from racking up debt of 90 percent of GDP, at which point growth supposedly slows dramatically. Now, this result was never more than just a correlation -- slow growth more likely causes high debt than the reverse -- but that didn't stop policymakers from imputing totemic significance to it. That is, it became a "fact" that everybody who mattered knew was true.
Except it wasn't. Reinhart and Rogoff goofed. They accidentally excluded some data in one case, and used some wrong data in another; the former because of an Excel snafu. If you correct for these very basic errors, their correlation gets even weaker, and the growth tipping point at 90 percent of GDP disappears. In other words, there's no there there anymore.
Austerity is back to being a policy without a justification. Not only that, but, as Paul Krugman points out, Reinhart and Rogoff's spreadsheet misadventure has been a kind of the-austerians-have-no-clothes moment. It's been enough that even some rather unusual suspects have turned against cutting deficits now. For one, Stanford professor John Taylor claims L'affaire Excel is why the G20, the birthplace of the global austerity movement in 2010, was more muted on fiscal targets recently.
The discovery of errors in the Reinhart-Rogoff paper on the growth-debt nexus is already impacting policy. A participant in last Friday's G20 meetings told me that the error was a factor in the decision to omit specific deficit or debt-to-GDP targets in the G20 communique.
The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not. You've got to spend money.Bond investors want growth much like equity investors, and to the extent that too much austerity leads to recession or stagnation then credit spreads widen out -- even if a country can print its own currency and write its own checks. In the long term it is important to be fiscal and austere. It is important to have a relatively average or low rate of debt to GDP. The question in terms of the long term and the short term is how quickly to do it.
Growth vigilantes are the new bond vigilantes. Gross thinks the boom, not the slump, is the time for austerity -- which sounds an awful lot like you-know-who.
The austerity fever has even broken in Europe. At least a bit. Now, eurocrats can't say that austerity has been anything other than the best of all economic policies, but they can loosen the fiscal noose. And that's what they might be doing, by giving countries more time and latitude to hit their deficit targets. Here's how European Commission president José Manuel Barroso framed the issue on Monday:
While [austerity] is fundamentally right, I think it has reached its limits in many aspects. A policy to be successful not only has to be properly designed. It has to have the minimum of political and social support.
That's not much, but it's still much better than the growth-through-austerity plan Eurogroup president Jeroen Dijsselbloem was peddling on ... Saturday.
Now, Reinhart and Rogoff's Excel imbroglio hasn't exactly set off a new Keynesian moment. Governments aren't going to suddenly take advantage of zero interest rates to start spending more to put people back to work. Stimulus is still a four-letter word. Indeed, the euro zone, Britain, and, to a lesser extent, the United States, are still focussed on reducing deficits above all else. But there's a greater recognition that trying to cut deficits isn't enough to cut debt burdens. You need growth too. In other words, people are remembering that there's a denominator in the debt-to-GDP ratio.
But austerity doesn't just have a math problem. It has an image problem too. Just a week ago, Reinhart and Rogoff's work was the one commandment of austerity: Thou shall not run up debt in excess of 90 percent of GDP. Wisdom didn't get more conventional. What did this matter? Well, as Keynes famously observed, it's better for reputation to fail conventionally than to succeed unconventionally. In other words, elites were happy to pursue obviously failed policies as long as they were the right failed policies.
But now austerity doesn't look so conventional. It looks like the punchline of a bad joke about Excel destroying the global economy. Maybe, just maybe, that will be enough to free us from some defunct economics.
The star has been accused of having a “large blind spot” on issues of race—but testing the boundaries of jokes is part of the process of stand-up.
There’s a fine line in comedy between subversive and offensive, and with every meteoric rise from stand-up to film and television stardom these days, there tends to be controversy over whether or not that line has ever been crossed. Amy Schumer, whose Comedy Central sketch show Inside Amy Schumer has been dominating the Internet on a weekly basis since its third season debuted in April, and who stars in the upcoming Judd Apatow comedy Trainwreck, is the latest figure to experience the pitfalls of being under such sharp scrutiny. A recent profile of Schumer in The Guardian by Monica Heisey, although largely positive, criticizes the comedian for having a “shockingly large blind spot” on race—and cites some clunky jokes she’s made about Latinos as examples.
People labeled “smart” at a young age don’t deal well with being wrong. Life grows stagnant.
ASPEN, Colo.—At whatever agesmart people develop the idea that they are smart, they also tend to develop vulnerability around relinquishing that label. So the difference between telling a kid “You did a great job” and “You are smart” isn’t subtle. That is, at least, according to one growing movement in education and parenting that advocates for retirement of “the S word.”
The idea is that when we praise kids for being smart, those kids think: Oh good, I'm smart. And then later, when those kids mess up, which they will, they think: Oh no, I'm not smart after all. People will think I’m not smart after all. And that’s the worst. That’s a risk to avoid, they learn.“Smart” kids stand to become especially averse to making mistakes, which are critical to learning and succeeding.
The social network learns more about its users than they might realize.
Facebook, you may have noticed, turned into a rainbow-drenched spectacle following the Supreme Court’s decision Friday that same-sex marriage is a Constitutional right.
By overlaying their profile photos with a rainbow filter, Facebook users began celebrating in a way we haven't seen since March 2013, when 3 million peoplechanged their profile images to a red equals sign—the logo of the Human Rights Campaign—as a way to support marriage equality. This time, Facebook provided a simple way to turn profile photos rainbow-colored. More than 1 million people changed their profile in the first few hours, according to the Facebook spokesperson William Nevius, and the number continues to grow.
“This is probably a Facebook experiment!” joked the MIT network scientist Cesar Hidalgo on Facebook yesterday. “This is one Facebook study I want to be included in!” wrote Stacy Blasiola, a communications Ph.D. candidate at the University of Illinois, when she changed her profile.
The country's inability to pay it's debt or reach a deal makes it the largest nation in history to be in arrears to the IMF.
It's midnight in Brussels: Greece has officially defaulted.
Fitch Ratings Agency has downgraded Greece one level to ‘CC’ as the country nears their midnight deadline. In a release, the agency cited ongoing political and economic turmoil that has kept the country from making a deal to avoid defaulting on its debts as the reasoning behind the downgrade.
With less than one hour left until midnight, it is a virtual certainty that the country will not receive an extension on loans owed to its creditors. In an interview, Eurogroup President Jeroen Dijsselbloem said, “The facts are that the program will expire tonight, and Greece will be in default tomorrow. That is something that I don’t think we can stop between now and tomorrow morning.”
The question is at the center of the Greek crisis.
In 1961, the economist Robert Mundell published a paper laying out, per the title, “A Theory of Optimum Currency Areas.” In it, he inquired about the appropriate geographic extent of a shared unit of money. Was it the world? A country? Part of a country? A border-spanning region of, say, the western parts of the United States and Canada, with a separate currency circulating in the eastern parts of the two countries?
“It might seem at first that the question is purely academic,” he wrote, “since it hardly seems within the realm of political feasibility that national currencies would ever be abandoned in favor of any other arrangement.” But it was worth considering anyway, in part because “certain parts of the world are undergoing processes of economic integration and disintegration,” and an idea of what an “optimum currency area” would look like could help “clarify the meaning of these experiments.”
For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving. Could that be a good thing?
1. Youngstown, U.S.A.
The end of work is still just a futuristic concept for most of the United States, but it is something like a moment in history for Youngstown, Ohio, one its residents can cite with precision: September 19, 1977.
For much of the 20th century, Youngstown’s steel mills delivered such great prosperity that the city was a model of the American dream, boasting a median income and a homeownership rate that were among the nation’s highest. But as manufacturing shifted abroad after World War II, Youngstown steel suffered, and on that gray September afternoon in 1977, Youngstown Sheet and Tube announced the shuttering of its Campbell Works mill. Within five years, the city lost 50,000 jobs and $1.3 billion in manufacturing wages. The effect was so severe that a term was coined to describe the fallout: regional depression.
The second episode of the new season was a slow burner with a dramatic twist.
Let’s start at the beginning, with Frank in bed with his wife, Jordan, discussing water stains on the ceiling and childhood entombments. I don’t know about you guys, but I found this whole bit slack and familiar. Maybe there was a two-minute scene in there, but five? Maybe a more charismatic actor could have pulled off that lengthy monologue. But Vince Vaughn is no Robert Shaw, and his childhood basement is no U.S.S. Indianapolis.
Over the last two weeks, Republican presidential candidates have repeatedly missed opportunities to demonstrate that they care about communities outside of their traditional base.
After Mitt Romney’s defeat in 2012, the Republican National Committee published an “autopsy.” “When it comes to social issues,” the autopsy declared, “the Party must in fact and deed be inclusive and welcoming. If we are not, we will limit our ability to attract young people.” The autopsy also added that, “we need to go to communities where Republicans do not normally go to listen and make our case. We need to campaign among Hispanic, black, Asian, and gay Americans and demonstrate we care about them, too.”
The last two weeks, more than any since Romney’s defeat, illustrate how miserably the GOP has failed.
Start with June 17, when Dylann Roof, a young white man enamored of the Confederate flag, murdered nine African Americans in church. Within three days, Romney had called for the Confederate flag’s removal from South Carolina’s capitol. Four days later, the state’s Republican governor and senators called for its removal too. But during that entire week—even as it became obvious that the politics of the flag were shifting—not a single GOP presidential candidate forthrightly called for it to be taken down. Instead, they mostly called it a state decision, a transparent dodge politicians deploy when they don’t want to make a difficult call.
New Jersey Governor Chris Christie was once seen as a frontrunner. As he starts off his campaign now, he’s near the back of the pack.
Did Chris Christie already miss his chance to be president? Back in 2012, the New Jersey governor was wildly popular at home, Republicans were clamoring for him to enter the presidential race, and donors were lined up to write checks.
When he jumped into the race Tuesday, he did so as a beleaguered insurgent. He’s among the last entrants to a crowded field, he has much ground to cover in fundraising, and his political fortunes are in tatters. Just three in 10 New Jerseyans approve of his handling of his job, and Christie’s favorability is deeply underwater among Republican primary voters.
Clearly, it’s been a rough three years for Christie. One might peg the start as Christie’s speech at the 2012 Republican National Convention, panned by party insiders as self-serving; or perhaps it was his embrace of President Obama on an airstrip after Hurricane Sandy. Then there was “Bridgegate,” the controversy over lane closures on the George Washington Bridge. While Christie himself has escaped legal trouble so far, two former top aides have been charged with crimes and a third has pled guilty. The scandal is particularly damaging for Christie, who says he was unaware of the apparently politically punitive closures, since his case for office rests on credibility and competence. While it’s gotten less national attention, Christie’s stateside struggles have a lot to do with the Garden State economy. Atlantic City is shutting down. (Maybe everything that dies someday comes back, but not soon enough for Christie’s campaign.) The state’s debt rating has been cut nine times during the Christie governorship. A judge also ruled that a Christie plan to cut pension payments was illegal.
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.