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.
When President Obama left, I stayed on at the National Security Council in order to serve my country. I lasted eight days.
In 2011, I was hired, straight out of college, to work at the White House and eventually the National Security Council. My job there was to promote and protect the best of what my country stands for. I am a hijab-wearing Muslim woman––I was the only hijabi in the West Wing––and the Obama administration always made me feel welcome and included.
Like most of my fellow American Muslims, I spent much of 2016 watching with consternation as Donald Trump vilified our community. Despite this––or because of it––I thought I should try to stay on the NSC staff during the Trump Administration, in order to give the new president and his aides a more nuanced view of Islam, and of America's Muslim citizens.
Passengers on a domestic flight deplaning in New York were asked to present ID by Customs and Border Protection agents—a likely unenforceable demand that nevertheless diminishes freedom.
American citizens had their introduction to the Trump-era immigration machine Wednesday, when Customs and Border Protection agents met an airliner that had just landed at New York’s JFK airport after a flight from San Francisco. According to passenger accounts, a flight attendant announced that all passengers would have to show their “documents” as they deplaned, and they did. The reason for the search, Homeland Security officials said, was to assist Immigration and Customs Enforcement in a search for a specific immigrant who had received a deportation order after multiple criminal convictions. The target was not on the flight.
After days of research, I can find no legal authority for ICE or CBP to require passengers to show identification on an entirely domestic fight. The ICE authorizing statute, 8 U.S.C. § 1357, provides that agents can conduct warrantless searches of “any person seeking admission to the United States”—if, that is, the officer has “reasonable cause to suspect” that the individual searched may be deportable. CBP’s statute, 19 U.S.C. § 1467, grants search authority “whenever a vessel from a foreign port or place or from a port or place in any Territory or possession of the United States arrives at a port or place in the United States.” CBP regulations, set out at 19 C.F.R. § 162.6, allow agents to search “persons, baggage, and merchandise arriving in the Customs territory of the United States from places outside thereof.”
The president has long toyed with the media, but the stakes are much higher now.
American presidents have often clashed with the press. But for a long time, the chief executive had little choice but to interact with journalists anyway.
This was as much a logistical matter as it was a begrudging commitment to the underpinnings of Democracy: News organizations were the nation’s watchdogs, yes, but also stewards of the complex editorial and technological infrastructure necessary to reach the rest of the people. They had the printing presses, then the steel-latticed radio towers, and, eventually, the satellite TV trucks. The internet changed everything. Now, when Donald Trump wants to say something to the masses, he types a few lines onto his pocket-sized computer-phone and broadcasts it to an audience of 26 million people (and bots) with the tap of a button.
Long after research contradicts common medical practices, patients continue to demand them and physicians continue to deliver. The result is an epidemic of unnecessary and unhelpful treatments.
First, listen to the story with the happy ending: At 61, the executive was in excellent health. His blood pressure was a bit high, but everything else looked good, and he exercised regularly. Then he had a scare. He went for a brisk post-lunch walk on a cool winter day, and his chest began to hurt. Back inside his office, he sat down, and the pain disappeared as quickly as it had come.
That night, he thought more about it: middle-aged man, high blood pressure, stressful job, chest discomfort. The next day, he went to a local emergency department. Doctors determined that the man had not suffered a heart attack and that the electrical activity of his heart was completely normal. All signs suggested that the executive had stable angina—chest pain that occurs when the heart muscle is getting less blood-borne oxygen than it needs, often because an artery is partially blocked.
John Krakaeur, a neuroscientist at Johns Hopkins Hospital, has been asked to BRAIN Initiative meetings before, and describes it like “Maleficent being invited to Sleeping Beauty’s birthday.” That’s because he and four like-minded friends have become increasingly disenchanted by their colleagues’ obsession with their toys. And in a new paper that’s part philosophical treatise and part shot across the bow, they argue that this technological fetish is leading the field astray. “People think technology + big data + machine learning = science,” says Krakauer. “And it’s not.”
Former Labor Secretary Tom Perez may be as progressive as Representative Keith Ellison, but the race for DNC chair was about the reactions each evokes—not the policies they’d pursue.
During an unusually charged race for leader of the Democratic Party, analysts and liberal commentators argued that former Labor Secretary Tom Perez, who won, was basicallyjust as progressive as Representative Keith Ellison, who was backed by progressive standard-bearers Senators Elizabeth Warren and Bernie Sanders. But they missed the point. The race for DNC chair wasn’t about policy or, for that matter, facts. It was about ideas, ideology, and symbolism—the very things that mainstream liberals are (still) uncomfortable talking about.
As Mother Jones’s Kevin Drum has argued, the very fact that the race had become so charged was “ridiculous,” since Perez and Ellison are “about equally progressive.” Or as his colleague David Corn wrote: “There’s truly not much ideological distance between the two. They are both grassroots-minded progressives.”
Two of the world’s three richest people extol the virtue, and relevance, of optimism in the age of Trump—and predict a comeback for fact-based discourse.
Bill Gates, the world’s richest man, and Warren Buffett, the third richest, are—not entirely coincidentally—two of the most unremittingly optimistic men on the planet. So when I met the two of them in New York recently to talk about the state of humankind, and about the future of American democracy, I had a clear understanding of my mission, which was to pressure-test their sanguinity at every turn.
I tried, and failed, though not completely. Both men appear to doubt some of President Trump’s innovations in rhetoric and policy. Both men have warm feelings about immigrants, and also about facts, and so are predisposed to react skeptically to recent developments in the capital. When I asked whether they believed America needed to be made great again, Buffett nearly jumped out of his chair: “We are great! We are great!” And when I asked about the Trump Administration’s problematic relationship with empiricism, Gates said, “I predict a comeback for the truth.” He went on to say, “To the degree that certain solutions are created not based on facts, I believe these won’t be as successful as those that are based on facts. Democracy is a self-correcting thing.”
“No… it’s a magic potty,” my daughter used to lament, age 3 or so, before refusing to use a public restroom stall with an automatic-flush toilet. As a small person, she was accustomed to the infrared sensor detecting erratic motion at the top of her head and violently flushing beneath her. Better, in her mind, just to delay relief than to subject herself to the magic potty’s dark dealings.
It’s hardly just a problem for small people. What adult hasn’t suffered the pneumatic public toilet’s whirlwind underneath them? Or again when attempting to exit the stall? So many ordinary objects and experiences have become technologized—made dependent on computers, sensors, and other apparatuses meant to improve them—that they have also ceased to work in their usual manner. It’s common to think of such defects as matters of bad design. That’s true, in part. But technology is also more precarious than it once was. Unstable, and unpredictable. At least from the perspective of human users. From the vantage point of technology, if it can be said to have a vantage point, it's evolving separately from human use.
Each new incident assumes added significance for Muslims and Jews who see them as part of a broader pattern.
Tarek El-Messidi had been planning to leave Philadelphia to visit family on Sunday night. But when he heard that Mount Carmel Jewish Cemetery had been desecrated, he cancelled his flight. El-Messidi is Muslim, but he felt it was important to be with his hometown Jewish community at that moment, he said. “Both communities in America are being targeted right now. There’s a rise in Islamophobia and anti-Semitism,” he said. “That could have just as easily been a Muslim cemetery.”
Just one week after a Jewish cemetery in Missouri was vandalized, Philadelphia police reported that roughly 100 headstones have been toppled or damaged in the Mount Carmel cemetery. These are not easy monuments to knock down, El-Messidi said: He saw several toppled stones that were three or four feet wide at the base. El-Messidi and the local rabbis who showed up on Sunday night said their group observed far more extensive damage than police reported, with more than 500 headstones affected throughout the cemetery. It’s not clear when that damage happened, though, or whether it was all intentional.