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The Economy

blog.samaltman.com

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Re: The Economy

#101

Post by pingburg »

yahelc wrote: post #46
tdees40 wrote: post #24

I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…

Agreed. Further, there's little evidence that Debt-to-GDP over 100% (despite "feeling" meaningful, because, 100%!) has any kind of predictive value for the long term direction of an economy, particularly one that has unusually low interest rates. If Debt-to-GDP were a problem for the US, you'd expect higher interest rates, not lower ones, as investors would be demanding higher returns on US debt. The fact that intere…

> The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term.

With respect, I don't think it's accurate that the fact that bond rates remain low correlates to evidence that there's no major macroeconomic problem. Just take a look at the Federal Reserve's balance sheet that was relatively stable for many years has quadrupled in 5 years.

Reference: Chart: http://research.stlouisfed.org/fred2/series/RSBKCRNS

Reference: Balance Sheet: http://www.federalreserve.gov/releases/h41/Current/

Re: The Economy

#102

Post by dageshi »

dnautics wrote: post #89
dageshi wrote: post #57

Earlier quoted context omitted.

My view on Keynesianism is that it's basically been bastardised to the point where it's unworkable. I say that because my understanding is that Keynes originally proposed a system where the government ran a surplus during the "good times" and then ramped up borrowing and spending during the "bad times". This actually makes a great deal of sense because during a recession investors are usually falling over themselves…

But no modern government seems capable of running a surplus for any length of time. Can you name any government, ever, that was capable of running a surplus indefinitely (say, until it was brought down by plague or war)?

Most likely not. I don't actually think it's possible. A government needs to borrow and it needs the facility all the time because you obviously can't predict the kind of disaster that might require it. And inevitably politicians will get into bidding wars in order to get elected which ends up ramping up national debt.

Symbolically though, if government ran a surplus for x years during a particular ten year period, that would be sufficient to say "look, we've mostly balanced the books, we have been running surpluses during some years".

Again it's about public perception more than anything else. When national debt is climbing towards heights only previously reached during WW2 and government has shown zero ability to run a surplus in over a decade (I think Clinton ran surpluses?) then people will simply not trust politicians with the authority to borrow the necessary amount for Keynesianism to work.

Re: The Economy

#103

Post by roc »

gautambay wrote: post #43
sama wrote: post #22

Earlier quoted context omitted.

oops, i accidentally published an earlier draft. i added a bit more of my thinking here--my sense is that it would probably lead to less waste than current systems. i'm also not sure it's the right approach, but i haven't heard any better ideas yet.

i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income. with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term. of course, what constitutes "essential services" can be the subject of a lengthy debate.

> "i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income."

If we believe in the market's ability to efficiently find the path forward, identifying "essential services", even if it were possible, is wasteful at best and more likely counter-productive over time.

Twenty years ago we'd have locked in home phone service and missed internet. 10 years ago we might have locked in cell service, but missed mobile data. We'd have propped up "bad" products, at massive profits for the benefactors, for years beyond their relevance, instead of allowing the market to evaluate and react to changing conditions.

And while we might agree that it's logically possible for efficient and effective government to correct mistakes like those, the "money is speech" reality in the US gives such outsized power to lobbying interests that even an optimist has to rate effective "steering" of any definition of "essential services" as "unlikely".

Never mind the basic question of whether it's at all desirable to force a youth from an underprivileged family to "buy" government-guaranteed education, instead of allowing him to spend even a fraction of the equivalent on a laptop, smartphone and developer tools -- or a 3d printer and amazon hosting services. Or even allowing him to look outside the box of lobbiest-approved education providers, and allowing him to "spend" his assistance on developer conferences or workshops or online learning or just moving to another town that has a better local program.

Would some people inevitably spend a guaranteed income poorly? Of course they would. They also sell food stamps for cash -- at 50% of their face value -- to make their bad decisions regardless of what we might prefer.

It isn't worth the cost to try to enforce "essential services" spending at the micro level. It's too rich a target for corporate lobbyists to define approved services at the macro level. And at the economic level, there's little reason to believe it will give us better outcomes.

Re: The Economy

#104

Post by argumentum »

tdees40 wrote: post #24

I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…

A recession is two consecutive quarters of negative gdp growth. So if the economy shrinks this quarter we are, by definition, in a recession.

Re: The Economy

#105

Post by danielweber »

mathattack wrote: post #81
tdees40 wrote: post #24

I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…

The issues of debt relate to a Minsky Moment. http://en.wikipedia.org/wiki/Minsky_moment It happens when the assets can't pay their interest payments any more. For now interest rates are low, so the government can pay it's billed. Unfortunately, we hold a lot of short denominated debt. We should lock in these rates while the going is good. If interest rates spike up, the government will have to cut programs, borrow a…

The US can't just "lock in" rates by deciding to do so. Most of the world treats debt very different than the US consumer is used to on credit-card and mortgage loans.

The US issues debt and the market bids on what it will pay, nearly always charging higher rates for longer terms. And the US can't pay it down early; it has those rates for the entire term of the loan.

If I read http://www.bankrate.com/rates/interest-rates/treasury.aspx?e... right, the US can borrow for 3 months at 0.025%, but for 10 years at 2.63%.

One reason the US does so much short-term borrowing, among other reasons, is that it's so cheap to do so.

Re: The Economy

#106

Post by [deleted] »

enjo wrote: post #62
gautambay wrote: post #43

Earlier quoted context omitted.

i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income. with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term. of course, what constitutes "essential services" can be the subject of a lengthy debate.

There are a couple ways to view this. By covering "essential services" you really are just guaranteeing a lot of inflation in those sectors (they are now on a fixed minimum income as a group). Some would argue that many of the same cost run-ups we've seen in university education (with government loans and other programs) will affect those essential service sectors in the same way. One of the benefits of a basic incom…

[deleted]

Re: The Economy

#107

Post by gautambay »

ef4 wrote: post #85
gautambay wrote: post #43

Earlier quoted context omitted.

i prefer universal essential services (healthcare, education, etc.) over a guaranteed basic income. with basic income, you run the risk that the receivers spend it on shiny objects (especially in an economy like ours with rampant consumerism) instead of things that benefit them and their families long-term. of course, what constitutes "essential services" can be the subject of a lengthy debate.

Ah, the classic paternalistic argument. It's deeply appealing to many people's preconceptions. But a growing body of experimental results call it into question. When you actually conduct the experiment -- a randomized controlled trial where you give some poor people cash and others in-kind services, the cash group outperforms.

Very interesting (and certainly plausible)! Could you link to any of the experiments?

Re: The Economy

#108

Post by crazy1van »

dnautics wrote: post #89
dageshi wrote: post #57

Earlier quoted context omitted.

My view on Keynesianism is that it's basically been bastardised to the point where it's unworkable. I say that because my understanding is that Keynes originally proposed a system where the government ran a surplus during the "good times" and then ramped up borrowing and spending during the "bad times". This actually makes a great deal of sense because during a recession investors are usually falling over themselves…

But no modern government seems capable of running a surplus for any length of time. Can you name any government, ever, that was capable of running a surplus indefinitely (say, until it was brought down by plague or war)?

I think he means that it is very rare to find a government that runs a surplus for even a very short amount of time, let alone the amount of time Keynes's original theory intended.

Re: The Economy

#109

Post by anigbrowl »

moblahbl4hblah wrote: post #9
doyoulikeworms wrote: post #8

Earlier quoted context omitted.

I thought that they were called entitlements precisely because we pay for them.

They are called entitlements to make people think that some undeserving class is getting over...they think they are "entitled"...is the way that is put. It was done on purpose by conservatives. Its a dog whistle.

You're partially right about the dog whistle, but the literal meaning of 'entitlement' is that you have title to something, ie a legal right of ownership and it is the correct technical term for these payments, notwithstanding the secondary political meaning (of false entitlement) that has been attached to it.

Re: The Economy

#110

Post by pkaler »

Almost any argument that relies on GDP numbers to back up its claim is specious at best.

For example, you could have a tornado destroy a town and the disaster recovery spending would increase GDP. You could build a teleportation device that puts all delivery drivers out of work. GDP would decrease but there would be an overall increase in wealth and quality of life.

Thinking about economics through the lens of GDP is just the wrong way to think about the economy.

Here's a great Planet Money podcast on the invention of "The Economy" and on GDP: http://www.npr.org/blogs/money/2014/02/28/283477546/the-inve...

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