Limbaugh and Teller

Originally posted by PinkFloyd
Sadly, we'll never know if us Libertarians were right or wrong. Since Obsama decided that some companies are too important to fail, while others can just fall to pieces, we'll never know whether or not the world would have kept right on turning, and another company or companies would have moved in and filled the gap left by the demise of those, oh so impo il" enterprises. (Well, SOME of us know what would have happened; we just can't prove it.)

This is a problem for a lot of political ideologies. If a policy is so radical that no one in government can be persuaded to enact it, there's no way to ever conclusively prove the policy would "work".

It would have been interesting from a scientific viewpoint to have just let all the banks and other big companies fail, and see what actually happened. The results would have dealt a severe blow to somebody's theories, while strongly supporting other theories.

But from a real-world viewpoint, letting everything fail was just too big of a risk. So we'll never get to find out what would've happened.

Originally posted by telerion
I agree, except that I would say that Penn is much more than just "libertarian-leaning.". He's hardcore Libertarian (stress on the capitalization). The sort of "free markets never fail, but if one should fail a new market will arise to solve the problem, if the government would just get the hell out of the way, of course" Libertarian that drives me up the ...[text shortened]... ow feels qualified to solve all the world's problems (much like Rush in this last regard).

but is he not more correct for the current levels of government debt & spending than the big-government spending people, and as a left-leaning economist yourself, what are the exceptions that the government should not be slowing spending on over the next 25 years?

you and palynka may both have a few to throw in on this one.

EDIT: although this one may call for a whole new thread.

Originally posted by Melanerpes
This is a problem for a lot of political ideologies. If a policy is so radical that no one in government can be persuaded to enact it, there's no way to ever conclusively prove the policy would "work".

It would have been interesting from a scientific viewpoint to have just let all the banks and other big companies fail, and see what actually happened. ng fail was just too big of a risk. So we'll never get to find out what would've happened.

One problem with this Austrian school (from which these uber-Libertarians come) is that it puts dogma ahead of data. Even if we had ignored all our evidence from past financial panics about the dangers of not intervening and simply let our financial sector collapse, in the aftermath when it became obvious that it was a bad decision the Austrian school would simply make up an excuse for why this event was an exception and that nothing needs to change about their philosophy (I won't deign to call it a "theory" ).

Originally posted by telerion
[b]One problem with this Austrian school (from which these uber-Libertarians come) is that it puts dogma ahead of data.

Perhaps they need President Obama to address the school children.

Originally posted by telerion
One problem with this Austrian school (from which these uber-Libertarians come) is that it puts dogma ahead of data. Even if we had ignored all our evidence from past financial panics about the dangers of not intervening and simply let our financial sector collapse, in the aftermath when it became obvious that it was a bad decision the Austrian school woul ...[text shortened]... d that nothing needs to change about their philosophy (I won't deign to call it a "theory" ).

I'm generally suspicious of any kind of theory that gets a whole "school" named for it. All I can think of is that it's a big "school" of fish - they all look alike and swim in the same direction.

But I'm very curious as to what exactly would have happened had there been no bailouts. I'm sure a lot of things could have been learned from it (by people who attend real schools). Unfortunately, there's no ethical way to risk an economic meltdown just for the sake of science.

Originally posted by eljefejesus
but is he not more correct for the current levels of government debt & spending than the big-government spending people, and as a left-leaning economist yourself, what are the exceptions that the government should not be slowing spending on over the next 25 years?

you and palynka may both have a few to throw in on this one.

EDIT: although this one may call for a whole new thread.

Long-term fiscal respinsibilty is a very important issue to be sure. I'm not certain what exactly the claim is that is being purported to be more correct. I can't really give my judgement until I know what is being compared. Finally, I'm a little uneasy with the description "liberal economist." Likely most Americans would characterize me as liberal on social issues, but on issues many would first call economic (e.g., trade, unions, tax policy, immigration, healthcare reform) I fall back on my training and the models that I understand as guides (these lie squarely in the mainstream of modern economics). If the result is an opinion that some find liberal or conservative then so be it.

But back to deficits and debt. I am concerned about the long-run debt problem. One the hand, near term deficits contribute to that problem. On the hand, it is typical to run deficits during recessions. Income falls and thus so does tax revenue (under the same tax scheme). Social benefit payments increase because more people claim unemployment, go on food stamps, or other gov't aid programs. We should not be surprised by the '08, '09, or even '10 deficits. Furthermore we should not chalk up the entirety of these deficits to either Bush or Obama.

Evidence from the Great Depression suggests that fiscal contractions are a bad idea during downturns. Also our current theories about monetary and fiscal policy lead us to believe that government spending can be very effective when the nominal interest rate is at zero (as it basically is now). This explosion in spending was likely a good thing. That said politicians in the next few years need to start making hard decisions about raising taxes, cutting spensing, and paying down the debt.

Originally posted by Melanerpes
I was watching Keith Olbermann at one point last night. And he had Penn Gillette (of Penn and Teller) on as a guest. They were discussing Tom DeLay's performance on Dancing with the Stars (Gillette was on the show some time previously). And I'll have to admit, DeLay performed surprisingly well. Nothing fancy, but I liked it.

Anyway, I then realized tha ...[text shortened]... nly difference is that I can't think of anything that he and Rush would agree on politically.

I'm just surprised someone actually watches Olbermann.

Originally posted by telerion
Long-term fiscal respinsibilty is a very important issue to be sure. I'm not certain what exactly the claim is that is being purported to be more correct. I can't really give my judgement until I know what is being compared. Finally, I'm a little uneasy with the description "liberal economist." Likely most Americans would characterize me as liberal on s ...[text shortened]... making hard decisions about raising taxes, cutting spensing, and paying down the debt.

Telerion,

The problem with the debate on the national debt is that it's always about a hazy "hugeness" of the debt. I agree that if the debt continues to rise, there will eventually be a crisis point -- but when exactly will this occur?

Looking at the long-term national debt picture, it seems that the important number is the debt:GDP ratio.

In your opinion, at what point does the debt:GDP ratio get so high that it becomes an immediate concern? What other signs should we be looking for that would indicate that the debt levels are becoming truly unmanageable?

Originally posted by Melanerpes
Telerion,

The problem with the debate on the national debt is that it's always about a hazy "hugeness" of the debt. I agree that if the debt continues to rise, there will eventually be a crisis point -- but when exactly will this occur?

Looking at the long-term national debt picture, it seems that the important number is the debt:GDP ratio.

In y ...[text shortened]... d we be looking for that would indicate that the debt levels are becoming truly unmanageable?

Roughly speaking, anything below 60% is fine, at 100% you need to take immediate action. But higher levels of debt can be sustained, Japan has a public debt of 200% of GDP and is managing, though the debt has probably contributed significantly to the stagnation of the last two decades.

Originally posted by Melanerpes
I'm generally suspicious of any kind of theory that gets a whole "school" named for it. All I can think of is that it's a big "school" of fish - they all look alike and swim in the same direction.

But I'm very curious as to what exactly would have happened had there been no bailouts. I'm sure a lot of things could have been learned from it (by people ...[text shortened]... tely, there's no ethical way to risk an economic meltdown just for the sake of science.

Well we did let Lehman fail. The result was absolute panic on Wall Street. Financial institutions became frightened to lend to one another (for fear that they might be bad as well). This extreme tightening of credit hurt pretty much everybody. But first it started with other firms who relied short-term credit to finance long-term arrangements. They suddenly could not get money to cover there immediate obligations. Around this time the Fed and later the Treasury stepped in to add liquidity to the market and remove a lot of the bad assets that were causing the uncertainty and mistrust. Remember, that the Fed tried to find buyers for Lehman but nobody would do it. There was just way to much risk. We know that AIG, Citibank, and BofA were all going under without goverent intervention. We also know that Goldman Sachs was in line as well. Letting all those enormously central firms fail within a short period would send massive shock through the rest of the financial system. Unfortunately it wouldn't stop there. As financial markets crumble credit for consumers and businesses would dry up. That means payrolls don't go out. Consumers drastically cut spending, firms shrink production, investors pull money out if the market and put it into something super safe like US govt securities. What you up with basically another Great Depression.

Now what can we do then to better understand financial crises without instigating them in the real world? Well what economists besides trying to mathematically extract information from past experiences is buil models of the economy that we hope capture the most important features for analyzing a particular problem. Once we have a model that can reproduce facts that we care about we use it as a laboratory to test out ideas on fake consumers. Naturally this model has assumptions built into it and ignores some facets of reality (you can't model everything at once nor would you want to). For this reason economists try out a variety of models with different assumptions and details. They meet to discuss and critique their models (often in a very non-sympathetic manner) in hopes of teasing what if anything should learned from the model and on what ways future models could improve upon it. In the end it's not perfect but it may be about the best we can do.

Originally posted by KazetNagorra
Roughly speaking, anything below 60% is fine, at 100% you need to take immediate action. But higher levels of debt can be sustained, Japan has a public debt of 200% of GDP and is managing, though the debt has probably contributed significantly to the stagnation of the last two decades.

I believe that is the IMF's basic guideline at least for external debt.

Originally posted by Melanerpes
Telerion,

The problem with the debate on the national debt is that it's always about a hazy "hugeness" of the debt. I agree that if the debt continues to rise, there will eventually be a crisis point -- but when exactly will this occur?

Looking at the long-term national debt picture, it seems that the important number is the debt:GDP ratio.

In y ...[text shortened]... d we be looking for that would indicate that the debt levels are becoming truly unmanageable?

Yes, debt/GDP is a much better measure than just debt. When debt is tossed around in absolute terms, then it can still be meaningful if it's understood to be in the context of a certain country (and thus a specific GDP).

In regards to your question about how much is too much, that is very hard to say. In terms of debt held by the public (the most meaningful component of total debt) the answer pretty much depends upon the lenders. Eventually, as the debt grows large relative to GDP, concerns that a government may monetize its debt grows. This presents a risk (specifically, inflation risk) to the lender who will demand a higher return to purchase US securities at auction. So in one sense you will know that we've begun reaching dangerous levels when you see the spread on these securities rising relative to say the Fed Funds Rate (reflecting the increase inflation risk). An economist with more of a monetary background would be able to tell you the exact rates to look at better than I can. For instance Japan has an unbelievable debt/GDP ratio (about 2), but rates on it's securities are low and the spread between their lowest interest rate and their securities is smaller than it is for the US and frankly I'm not sure why.

Other things can happen too. The rating of the security could be downgraded.

Originally posted by telerion
Long-term fiscal respinsibilty is a very important issue to be sure. I'm not certain what exactly the claim is that is being purported to be more correct. I can't really give my judgement until I know what is being compared. Finally, I'm a little uneasy with the description "liberal economist." Likely most Americans would characterize me as liberal on s making hard decisions about raising taxes, cutting spensing, and paying down the debt.

Agreed on the importance of fiscal responsibility, and I admit I was influenced in use of the phrase liberal-leaning by some posts that I don't remember necessarily being economic-related. Come to think about it, I think you chose a republican senator at that, from new england, hm, makes sense. I would say that fiscal responsibility at this point is considered fiscally conservative by most. Considering that we have been growing deficits for decades, I think this is more of a politician tendency than a republican/democrat, but still not very fiscally conservative. Most politicians find it hard to please their constituents and the legislature without borrowing a little more from future taxpayers... at least since around the 60's.

Yes, depressions may normally excuse expansionary fiscal policies for social goals, but the flip side of the equation to avoid growing problems, even keynesians would have to admit that growth years call for reducing debt by cutting spending back down.

I think the politicians cut the gutted the wrong banking regulations and sought to expand credit during growth years (bad mistake, especially given the low interest rate period and growing housing bubble). For that I blame just about every politicians who left a bigger deficit than they found when they came into office, including Bush and Obama, which is already highly likely for Obama.

Obama has thrown spending into global warming to help an immediate crisis???
Bush cut taxes during war time???
(Edit: and supposedtly, ) Now is the time to expand healthcare benefits... give more benefits to more people now???

You know what I mean?

Originally posted by telerion
Yes, debt/GDP is a much better measure than just debt. When debt is tossed around in absolute terms, then it can still be meaningful if it's understood to be in the context of a certain country (and thus a specific GDP).

In regards to your question about how much is too much, that is very hard to say. In terms of debt held by the public (the most mea t sure why.

Other things can happen too. The rating of the security could be downgraded.

the key thing may be the willingness of lenders to continue lending to a debtor. Japan's interest rates and spread probably remain low because lenders are still extremely confident that Japan will meet it's obligations.

Government doesn't have to worry about "printing money" to manage it's debts as long as there are enough lenders willing to provide the money. So high debt levels need not lead to inflation until lenders start pulling back.

In theory, a nation could levy no taxes at all and fund everything by borrowing - as long as enough lenders had faith in such an arrangement and kept providing the needed funds.

The big concern might be that something happens that causes lenders to suddenly become less willing to lend -- and nations that have high debt:GDP ratios would be especially vulnerable. A lender-nation like China might use this threat as a way to wield power in the future.

Originally posted by Wulebgr
Actually, we do know.

Actually, we don't.