Austerity nonsense debunked... Twice.

[Link]

Looks like it happened again to Reinhart and Rogoff.  Unbelievably two more graduate students have uncovered more errors in their pro austerity model.

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http://www.economonitor.com/lrwray/2013/04/30/the-absolutely-final-and-definitive-destruction-of-reinhart-and-rogoff/

I wish I had a better source but I think this just hit the internet today.  We will see whether is is picked up by better known sources.

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http://www.bloomberg.com/news/2013-04-16/reinhart-rogoff-paper-cited-by-ryan-faulted-for-serious-errors-.html

Looks like we dodged a bullet in November.  Once the non-Fox media started asking Ryan some real numbers questions he really failed to impress.  This guy is advocating reckless policy based on made up numbers.

[Torie]

This is all quite interesting, and idea that 90% was some magic fixed percentage with universal sweep, like the speed of light, never impressed me, because nations are all different. What worries me more, is loss of confidence in the US currency at some point, because of concern about ability to repay the debt. I don't know what that percentage to GDP number is, but one thing I do know, is that the percentage will be lower if and when interest rates go up from negative real rates to positive real rates, say from 1% to 4%, and the cost of debt carry quadruples.  So the issue is not so much having chronic emphysema, where everything slows down on the growth front, and more about a major artery to the heart suddenly bursting, and it all falls apart at warp speed, circa the Lehman Bros affair.

In short, folks grabbing onto the exposure of the flaws in this study as some sort of get out of jail free card, and we can just keep doing what we are doing, what me worry, are doing the equivalent of getting into a life boat that leaks, because the seams in its hull are coming apart.

Just the opinion of a dessicated old lawyer of course. Folks would probably be happier just to put me on ignore.

[Link]

In short, folks grabbing onto the exposure of the flaws in this study as some sort of get out of jail free card, and we can just keep doing what we are doing, what me worry, are doing the equivalent of getting into a life boat that leaks, because the seams in its hull are coming apart.

I don't think there are too many serious people that are doing that.  I have argued for raising taxes, particularly on the rich, and slashing military spending on multiple occasions.  It's just that all my life from the time of trickle down economics I've heard these phoney doctrines spouted as reasons for doing really reckless and I might add callous things.

[pbrower2a]

This is all quite interesting, and idea that 90% was some magic fixed percentage with universal sweep, like the speed of light, never impressed me, because nations are all different. What worries me more, is loss of confidence in the US currency at some point, because of concern about ability to repay the debt. I don't know what that percentage to GDP number is, but one thing I do know, is that the percentage will be lower if and when interest rates go up from negative real rates to positive real rates, say from 1% to 4%, and the cost of debt carry quadruples.  So the issue is not so much having chronic emphysema, where everything slows down on the growth front, and more about a major artery to the heart suddenly bursting, and it all falls apart at warp speed, circa the Lehman Bros affair.

In short, folks grabbing onto the exposure of the flaws in this study as some sort of get out of jail free card, and we can just keep doing what we are doing, what me worry, are doing the equivalent of getting into a life boat that leaks, because the seams in its hull are coming apart.

Just the opinion of a dessicated old lawyer of course. Folks would probably be happier just to put me on ignore.

Austerity depends upon  the assumption that shrinking the overall economy to pay off public debt solves the problem of public debt more than it hurts the economy. Debt is not a bad thing in itself if it creates or brings countervailing assets or allows one to generate more income. All giant enterprises are huge borrowers, and until they fail due to incompetence or obsolescence of their product they get away with it. An entity that can borrow a billion dollars at 3% and get a rate of return of 7% is adding 40 million dollars to its pre-tax profit.

Of course the federal government does not simply get an overt return on its expenditure. But it can fund the building of highways and tax the increased net savings on fuel, vehicle degradation, and labor costs. It can crack down on crime and save millions to insurers.   

At what point does spending get troublesome? If the quality of the expenditures are inappropriate, then deficits soar and tax revenue shrinks. Such would apply to public corruption that, nobody can deny, squeezes out the private sector or allows monopolists to squeeze out competitors. If it builds public investment or human capital then one does not have such a problem.

Could there be a maximal level of expenditure with a declining rate of return on investment? Sure. We would get few good effects from sending people with IQs around 90 to grad school or building a bridge across any of the Great Lakes. But determining where the optimal level of government spending is difficult. Too many people have ideological axes to grind.