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  • Efficient Markets Versus Ben Bernanke [View article]
    I'm not an economist, but I have taught principles in college.

    In simple terms, economists believe deflation is more dangerous than inflation because the straightforward cure for inflation is raising interest rates. It may cause a recession, but it works (e.g. Paul Volcker).

    For deflation, the cure would be lowering rates, but obviously, there's a zero lower bound below which interest rates cannot be lowered and central banks must then resort to more costly and much less effective measures, such as QE.
    Jun 30 03:39 PM | Likes Like |Link to Comment
  • Efficient Markets Versus Ben Bernanke [View article]
    "Not that I will ever meet Bernanke, but if I did, I would point him to the Efficient Markets Hypothesis [EMH]. He probably believes it."

    Could be, but I sure hope not. According to the EMH, asset bubbles cannot occur.

    In my view, it is a simplifying assumption useful to economists only because it makes their modeling easier, much like the rational actor hypothesis.
    Jun 22 01:08 AM | Likes Like |Link to Comment
  • Reinhart-Rogoff And Krugman Square Off Again, But Are They Arguing About The Right Issues? [View article]
    PR damage control akin to R-R claiming HAP's result didn't change their conclusion.

    Repudiating debt has its own set of consequences in regards to future borrowing ability (although note that R-R *now* say they would have been in favor of a variety of policies that include debt forgiveness), it actually enables a country to avoid austerity (aka what the textbooks still correctly teach as contractionary fiscal policy).
    Jun 22 12:58 AM | Likes Like |Link to Comment
  • Reinhart-Rogoff And Krugman Square Off Again, But Are They Arguing About The Right Issues? [View article]
    True... but only because the IMF was influenced by R-R.

    http://bit.ly/1azQMQi

    "In an internal document marked 'strictly confidential,' the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greece's economy, which has been mired in recession for the last six years."
    Jun 21 11:17 AM | Likes Like |Link to Comment
  • Reinhart-Rogoff And Krugman Square Off Again, But Are They Arguing About The Right Issues? [View article]
    Like I said, your description is very reasonable, but a rather stretched interpretation of their words. If they had merely said that they found a correlation instead of a cliff, I seriously doubt we would be having this conversation right now. After all, it's well known that low growth increases debt by lowering revenues. But yes, a marker would be useful, and something the profession might want to decide upon.

    Indeed, there are many important variables in macroeconomics, such as unemployment and the labor force participation rate. Of particular interest right now is long-term unemployment, which tracks workers being unemployed for 6 months or longer.

    Being out-of-work for 6 months is bad for workers because the typical recommendation for emergency savings is 3-6 months of expenses, and it's difficult to even get an interview if you've been out of work that long. It's also bad for the economy because long-term unemployment causes human capital to atrophy, which reduces productivity and thus creates a drag on economic growth.

    Historically, the percentage of unemployment that is long-term tends to fluctuate between 5 and 20% or so. Right now we're around 40%.

    http://bit.ly/16z9gBa

    Would that be a good number or a bad number?
    Jun 1 01:35 PM | Likes Like |Link to Comment
  • Reinhart-Rogoff And Krugman Square Off Again, But Are They Arguing About The Right Issues? [View article]
    Cyniconomics: "And economists shouldn’t have expected to see a discontinuity at 90% debt/GDP."

    No, they shouldn't. As I've mentioned to you before, discontinuities are extremely unusual, and indeed, RR finding one should have prompted them to double-check the Excel sheet, because the error was located right at one.

    Cyniconomics: "Doctors don’t expect to see a discontinuity in heart disease risk at a cholesterol reading of 200 mg/dL , even though the American Heart Association advises people to keep their cholesterol below this threshold."

    That's a rather stretched interpretation of what RR were saying. From their Bloomberg op-ed:

    http://bloom.bg/pHxEUM

    "Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP."

    And from said research: "From the figure, it is evident that there is no obvious link between debt and growth until public debt reaches a threshold of 90 percent."

    Clearly, they are not talking about correlation (for which reverse-causality is the obvious counterargument). Instead, they are talking about a discontinuity, or a cliff.
    May 31 07:37 PM | Likes Like |Link to Comment
  • Why Reinhart And Rogoff Still Matter [View article]
    No, lower growth and recessions will increase debt regardless. Trying to extract more tax revenues out of falling incomes from a workforce that has fewer jobs is like trying to squeeze blood out of stone.

    Stop confusing correlation with causality.
    May 14 12:00 PM | Likes Like |Link to Comment
  • Why Reinhart And Rogoff Still Matter [View article]
    If Arin Dube is too wonky for you, Felix Salmon has a distilled version:

    http://reut.rs/10ygg9f

    Basically, if high debt causes low growth, you would expect high debt to be more closely correlated with low growth in subsequent years than with low growth in previous years, but Dube found that the opposite was true.

    It's well understood that lower growth reduces incomes and thus tax revenues and worsens debt positions. The typical explanation by which high debt is supposed to lower growth is that government borrowing increases the demand for loanable funds, and thus the cost of borrowing -- interest rates. In other words, crowding out.

    Of course, the whole reason that expansionary monetary policy is ineffective right now is because interest rates are at the zero bound.
    May 10 08:21 PM | Likes Like |Link to Comment
  • Repercussions Of The Reinhart, Rogoff Flawed Analysis [View article]
    Where's the tipping point where long-term unemployment becomes permanent unemployment?
    May 7 01:46 AM | Likes Like |Link to Comment
  • Corporate Profits As A Percentage Of GDP Hits All-Time High [View article]
    Hopefully, that GDP will rise to bring this back to trend.
    May 7 01:44 AM | Likes Like |Link to Comment
  • More Reasons To Call Off The Reinhart-Rogoff Witch Hunt [View article]
    I agreed that the spreadsheet error was small. My issue was that it was located right at the location that a researcher spotting a discontinuity would look.

    A bigger source of the discrepancy was that RR's result was not robust to the weighting method chosen, and that this was not disclosed.
    May 1 04:13 PM | Likes Like |Link to Comment
  • More Reasons To Call Off The Reinhart-Rogoff Witch Hunt [View article]
    Didn't change the conclusion? Their claimed discontinuity (or "cliff" or "tipping point") disappeared.

    Yes, we all make mistakes. I myself have made that very same spreadsheet error in company budgets. The last time it happened, I caught it within hours because things just didn't add up right -- which is exactly how researchers typically react when they find discontinuities.
    May 1 01:47 PM | Likes Like |Link to Comment
  • More Reasons To Call Off The Reinhart-Rogoff Witch Hunt [View article]
    By the way, when I say, "I can think of no better explanation of how they missed a spreadsheet error located right at the discontinuity that they were talking about," this is an invitation for you to supply your explanation so I can be made aware of other ways to interpret this information.
    May 1 11:13 AM | Likes Like |Link to Comment
  • More Reasons To Call Off The Reinhart-Rogoff Witch Hunt [View article]
    I didn't say all of it is corrupt, but that there are corrupting incentives. Note, this tendency is specific to macroeconomics, which is the main subfield that produces research that politicians can use as ammunition. Secondly, a good economist is hyper-aware of incentives, particularly upon themselves, and would independently take steps to make sure it doesn't affect their work (for example, avoiding research topics in which that they have strong priors).

    But relying upon individuals to defy perverse incentives is hardly a good check on corruption. Incentives matter.
    May 1 11:12 AM | Likes Like |Link to Comment
  • Repercussions Of The Reinhart, Rogoff Flawed Analysis [View article]
    Decent article overall, but I do quibble with the following:

    "Furthermore, QE, which is often incorrectly understood as increasing money supply, actually decreases it. By removing interest bearing securities from the market, the Fed has de facto moved investor's money from a savings account into a checking account."

    As I understand it, the Fed does not simply remove the securities from the market, for which there would undoubtedly be howls of protest. Instead, they purchase them, and similar to their more typical open-market purchases of shorter-term Treasuries, this increases the money supply because newly-created dollars are sent out into circulation to purchase them.

    The main difference is that the Fed is typically targeting the federal funds rate with open-market purchases. The Fed resorted to QE because this rate was effectively zero, so it was then seeking to lower longer-term interest rates.
    May 1 01:57 AM | Likes Like |Link to Comment
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