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.
The revolutionary ideals of Black Panther’s profound and complex villain have been twisted into a desire for hegemony.
The following article contains major spoilers.
Black Panther is a love letter to people of African descent all over the world. Its actors, its costume design, its music, and countless other facets of the film are drawn from all over the continent and its diaspora, in a science-fiction celebration of the imaginary country of Wakanda, a high-tech utopia that is a fictive manifestation of African potential unfettered by slavery and colonialism.
But it is first and foremost an African American love letter, and as such it is consumed with The Void, the psychic and cultural wound caused by the Trans-Atlantic slave trade, the loss of life, culture, language, and history that could never be restored. It is the attempt to penetrate The Void that brought us Alex Haley’s Roots, that draws thousands of African Americans across the ocean to visit West Africa every year, that left me crumpled on the rocks outside the Door of No Return at Gorée Island’s slave house as I stared out over a horizon that my ancestors might have traversed once and forever. Because all they have was lost to The Void, I can never know who they were, and neither can anyone else.
In Cyprus, Estonia, the United Arab Emirates, and elsewhere, passports can now be bought and sold.
“If you believe you are a citizen of the world, you are a citizen of nowhere. You don’t understand what citizenship means,” the British prime minister, Theresa May, declared in October 2016. Not long after, at his first postelection rally, Donald Trump asserted, “There is no global anthem. No global currency. No certificate of global citizenship. We pledge allegiance to one flag and that flag is the American flag.” And in Hungary, Prime Minister Viktor Orbán has increased his national-conservative party’s popularity with statements like “all the terrorists are basically migrants” and “the best migrant is the migrant who does not come.”
Citizenship and its varying legal definition has become one of the key battlegrounds of the 21st century, as nations attempt to stake out their power in a G-Zero, globalized world, one increasingly defined by transnational, borderless trade and liquid, virtual finance. In a climate of pervasive nationalism, jingoism, xenophobia, and ever-building resentment toward those who move, it’s tempting to think that doing so would become more difficult. But alongside the rise of populist, identitarian movements across the globe, identity itself is being virtualized, too. It no longer needs to be tied to place or nation to function in the global marketplace.
Is a lack of meaning really worse than a lack of freedom?
A man named François is a professor in Paris. He is a scholar of Joris-Karl Huysmans, an obscure 19th-century author who, in his later years, converted to Catholicism in an epiphany. François is the hero, or rather anti-hero, of French novelist Michel Houellebecq’s Submission. François is listless—even his attitude toward sex is uninspired, as if it’s an activity like any other, perhaps like playing tennis on a Sunday, but probably with less excitement. There is too much freedom and too many choices, and sometimes he’d rather just die.
The world around him, though, is changing. It is 2022. After a charismatic Islamist wins the second round of the French presidential elections against the right-wing Marine Le Pen (after gaining the support of the Socialists), a Muslim professor, himself a convert, attempts to persuade François to make the declaration of faith. “It’s submission,” the professor tells him. “The shocking and simple idea, which had never been so forcefully expressed, that the summit of human happiness resides in the most absolute submission.”
The path to its revival lies in self-sacrifice, and in placing collective interests ahead of the narrowly personal.
The death of liberalism constitutes the publishing world’s biggest mass funeral since the death of God half a century ago. Some authors, like conservative philosopher Patrick Deneen, of Why Liberalism Failed, have come to bury yesterday’s dogma. Others, like Edward Luce (The Retreat of Western Liberalism), Mark Lilla (The Once and Future Liberal), and Steven Levitsky and Daniel Ziblatt (How Democracies Die) come rather to praise. I’m in the latter group; the title-in-my-head of the book I’m now writing is What Was Liberalism.
But perhaps, like God, liberalism has been buried prematurely. Maybe the question that we should be asking is not what killed liberalism, but rather, what can we learn from liberalism’s long story of persistence—and how can we apply those insights in order to help liberalism write a new story for our own time.
Here are some readers with extra elements on this discussion—political, cultural, international. First, an American reader on the interaction of current concepts of masculinity and the nearly all-male population of mass gun murderers:
A week after 17 people were murdered in a mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida, teenagers across South Florida, in areas near Washington, D.C., and in other parts of the United States walked out of their classrooms to stage protests against the horror of school shootings and to advocate for gun law reforms.
A week after 17 people were murdered in a mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida, teenagers across South Florida, in areas near Washington, D.C., and in other parts of the United States walked out of their classrooms to stage protests against the horror of school shootings and to advocate for gun law reforms. Student survivors of the attack at Marjory Stoneman Douglas High School traveled to their state Capitol to attend a rally, meet with legislators, and urge them to do anything they can to make their lives safer. These teenagers are speaking clearly for themselves on social media, speaking loudly to the media, and they are speaking straight to those in power—challenging lawmakers to end the bloodshed with their “#NeverAgain” movement.
New evidence challenges one of the most celebrated ideas in network science.
A paper posted online last month has reignited a debate about one of the oldest, most startling claims in the modern era of network science: the proposition that most complex networks in the real world—from the World Wide Web to interacting proteins in a cell—are “scale-free.” Roughly speaking, that means that a few of their nodes should have many more connections than others, following a mathematical formula called a power law, so that there’s no one scale that characterizes the network.
Purely random networks do not obey power laws, so when the early proponents of the scale-free paradigm started seeing power laws in real-world networks in the late 1990s, they viewed them as evidence of a universal organizing principle underlying the formation of these diverse networks. The architecture of scale-freeness, researchers argued, could provide insight into fundamental questions such as how likely a virus is to cause an epidemic, or how easily hackers can disable a network.
A new study explores a strange paradox: In countries that empower women, they are less likely to choose math and science professions.
Though their numbers are growing, only 27 percent of all students taking the AP Computer Science exam in the United States are female. The gender gap only grows worse from there: Just 18 percent of American computer-science college degrees go to women. This is in the United States, where many college men proudly describe themselves as “male feminists” and girls are taught they can be anything they want to be.
Meanwhile, in Algeria, 41 percent of college graduates in the fields of science, technology, engineering, and math—or “STEM,” as it’s known—are female. There, employment discrimination against women is rife and women are often pressured to make amends with their abusive husbands.
According to a report I covered a few years ago, Jordan, Qatar, and the United Arab Emirates were the only three countries in which boys are significantly less likely to feel comfortable working on math problems than girls are. In all of the other nations surveyed, girls were more likely to say they feel “helpless while performing a math problem.”
Deputy Attorney General Ron Rosenstein flew to Seattle for a press conference at which he announced little, but may have said a great deal.
Back in the fall of 2001, exactly one month after the 9/11 attacks, a lawyer in Seattle named Tom Wales was murdered as he worked alone at his home computer at night. Someone walked into the yard of Wales’s house in the Queen Anne Hill neighborhood of Seattle, careful to avoid sensors that would have set off flood lights in the yard, and fired several times through a basement window, hitting Wales as he sat at his desk. Wales survived long enough to make a call to 911 and died soon afterwards. He was 49, divorced, with two children in their 20s.
The crime was huge and dismaying news in Seattle, where Wales was a prominent, respected, and widely liked figure. As a young lawyer in the early 1980s he had left a potentially lucrative path with a New York law firm to come to Seattle and work as an assistant U.S. attorney, or federal prosecutor. That role, which he was still performing at the time of his death, mainly involved prosecuting fraud cases. In his off-duty hours, Wales had become a prominent gun-control advocate. From the time of his death onward, the circumstances of the killing—deliberate, planned, nothing like a robbery or a random tragedy—and the prominence of his official crime-fighting record and unofficial advocacy role led to widespread assumption that his death was a retaliatory “hit.” The Justice Department considers him the first and only U.S. prosecutor to have been killed in the line of duty.