tag:blogger.com,1999:blog-1740670447258719504.post4878085360223953365..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: I don't quite understand Nick Rowe's problem with Krugman on debt...Evanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-1740670447258719504.post-65645981611997990322011-12-31T11:23:53.447-05:002011-12-31T11:23:53.447-05:00sorry I should proof read:
"...more explicit...sorry I should proof read:<br /><br />"...more explicitly a liability for the federal government.Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-92074951805290098762011-12-31T11:17:04.295-05:002011-12-31T11:17:04.295-05:00I think you misunderstand my point.
Think of it...I think you misunderstand my point. <br /><br />Think of it like this. Assume we have one giant baby boomer (GBB) who paid into the SS. Also assume that instead of the SS trust fund holding the non-marketable security its given to this one giant baby boomer.<br /><br />When the GBB retires he will go to the SS office and hand them the non-marketable bond. Now, if SS was like normal insurance, SS would cash in whatever paper/real assets they had bought with the money they got from selling the bond to the GBB and give the proceeds from that asset sale to the GBB.<br /><br />However, because no assets were bought with the original bond issue, the government will have to borrow money from someone else(or tax the GBB kids) to pay back the GBB.<br /><br />What you seem to be arguing is that the SS trust fund is both a liability and an asset for the federal government. I'm arguing that it is more strictly a liability with no corresponding asset to back it up.<br /><br />In the real world the OASDI would be taking "off balance sheet" debt (i.e. money the gov owes itself) and bringing it onto the balance sheet (i.e. an increase in privately held debt). Which is to say that when the GBB retires the implicit liability of SS trust fund becomes more explicitly a liability.<br /><br />I'm not convinced that is a non-problematic inter-generational transfer.Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-72148886975533421642011-12-31T10:05:52.814-05:002011-12-31T10:05:52.814-05:00Andrew -
Right, but they're holding the debt ...Andrew - <br />Right, but they're holding the debt as an asset. They're not issuing debt to finance social security. If anything, that puts it an even better position, even further away from the problem scenario of deficit-financed consumption of the elderly.<br /><br />If you want to say OASDI and the federal government is the same thing, then this is just an interorganizational transfer. If you want to say they're different things, then social security actually holds an asset. Either, the point still stands.<br /><br />Human beings are not dumb. We've chosen to finance consumption by the elderly with taxes, not debt. That's a smart choice.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-11954533714269468952011-12-31T08:59:32.095-05:002011-12-31T08:59:32.095-05:00Andrew: "Also, I don't see why it would m...Andrew: "<i>Also, I don't see why it would matter if r were more than g occasionally so long as r is less than g over whatever time horizon is relevant.</i>"<br /><br />That's my thinking too. But I want to try to figure out exactly what "occasionally" should mean in this context, especially when we can't predict the future very well. And also how that "occasionally" ties in with the term structure of the national debt.<br /><br />There <i>ought</i> to be some way to do it with NGDP perpetuities. But I can't get my head straight on this.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-4848926209851294142011-12-31T08:33:18.581-05:002011-12-31T08:33:18.581-05:00Also, I don't see why it would matter if r wer...Also, I don't see why it would matter if r were more than g occasionally so long as r is less than g over whatever time horizon is relevant. That's at least very clear from looking at the massive post WWII debt and how the debt/GDP ratio melted away.<br /><br />I totally agree, though, you have to be pretty optimistic to think we will ever repeat the kind of r to g relationship we had in the 25-30 years after WWII.Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-80347835667066506952011-12-31T08:25:48.793-05:002011-12-31T08:25:48.793-05:00One nitpick with your social security example. We...One nitpick with your social security example. We actually will have to pay social security by issuing debt (or increasing taxes). As it stands now SS holds nomarketable treasury debt. It really is just the government owing itself money. However, when those securities have to be cashed in to pay back retirees they will have to be paid for with debt issued to the public (or increased taxes). The only thing the SS trust fund does is delay the privately held debt financing of SS and medicare.<br /><br />Truly "actuarially sound" SS financing would have been financing like, say, an actual insurance company where the SS trust fund was in turned back by assets that could be cashed in to pay back policy holders. Excess SS revenue was used for government consumption of various types (mostly it was just a back door regressive financing of tax cuts).Andrew Bossiehttps://www.blogger.com/profile/00353842153288646125noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-62018115937625249662011-12-31T07:41:54.560-05:002011-12-31T07:41:54.560-05:00What we should all be spending more time thinking ...What we should all be spending more time thinking about is whether or not the interest rate r is above of below the growth rate g.<br /><br />Because if r is <i>permanently</i> below g, we can deficit finance at zero cost to future taxpayers, because we can just rollover the debt plus interest forever, and never have to increase taxes. There really is a free lunch in that case, and the government ought to let us eat it.<br /><br />Empirically, it seems that r is sometimes less then g, for many countries (US especially). But can we be confident it will be that way forever?<br /><br />What I wish I could get my head around is the case where r is <i>sometimes</i> below g, or where we are uncertain whether r will be above or below g in future. There ought to be some way to eat this potential free lunch of deficit financing, but I can't figure it out.<br /><br />I'm playing around with the idea of NGDP bonds (indexed to NGDP) as a way to exploit this free lunch, in safety. But I just can't think straight on the issue.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-53994412153648957702011-12-31T07:26:24.814-05:002011-12-31T07:26:24.814-05:00test
I think that will work. Thanks. Now, can I r...<i>test</i><br /><br />I think that will work. Thanks. Now, can I <i>remember</i> it?Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-44234223803725270902011-12-31T02:05:46.066-05:002011-12-31T02:05:46.066-05:00Daniel, it should be mentioned that many sites sti...Daniel, it should be mentioned that many sites still use square brackets and capital letters instead of arrow brackets and lowercase letters (HTML vs BB). Essentially, most blogs go with the arrow bracket format while many forums and message boards go with the square bracket format. <br /><br />I usually don't do that fancy-shmancy stuff and just use regular punctuation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-49446611116215024522011-12-31T01:51:04.436-05:002011-12-31T01:51:04.436-05:00To italics put "<", "i", &q...To italics put "<", "i", ">" before the passage and "<", "/", "i", ">" after it (removing the commas and quotation marks, of course - I just have to do that so it will show).<br /><br />I like using it for emphasis. Inflection is so damn hard to communicate otherwise. When you start using it, throwing them in becomes second nature.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-14622172305043776692011-12-31T01:45:15.007-05:002011-12-31T01:45:15.007-05:00Prateek, you essentially took the concept of "...Prateek, you essentially took the concept of "tacit consent" to absurdity.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-83918476195717756552011-12-31T01:22:40.000-05:002011-12-31T01:22:40.000-05:00(How do you do those italics when you quote?? Neve...(How do you do those italics when you quote?? Never mind; I'm too old to figure it out.)<br /><br />"No - it has the government's name on it."<br /><br />Yes, but the government can't pay it by itself. It needs the taxes to pay it. So really it's some unknown future taxpayer's name on that government bond (again, assuming the NPC is satisfied).<br /><br />"You note that the burden is offset if the money is invested or if there is sufficient growth."<br /><br />OK. I misunderstood you. Sure, if the government borrows and uses the proceeds to invest in something that will make our kids richer, then that offsets the burden of higher taxes.<br /><br />(I thought you were talking about the argument that deficits crowd out current investment which reduces future GDP and makes our kids poorer.)<br /><br />I can't remember who Baker is and who the other guy he was criticising is. I know I'm stepping into some great big American political fight, but I don't really give a damn about that. I don't know who's who in US politics and I don't really care. There are other countries with deficits, not just the US. I'm just concentrating on what Paul Krugman said, and whether his economics is right. I ignored all the other guys he quoted.<br /><br />"As for your point about Ponzi schemes - agian that all has to do with a world where we're talking about intergenerational transfers. That seems very different from questions of public debt, doesn't it?"<br /><br />No. I think it's very much the same. Funnily, my co-blogger and colleague, Frances Woolley, who doesn't do macro, noticed in the first couple of comments the direct analogy between the national debt and a PAYGO government pension plan. (Very roughly, I think it's the same between US and Canada.) There are only two differences I can think of: the rate of return on your government pension plan is set by the government, while the rate of return on bonds is set my the market (Fed aside); your assets in the pension plan are not marketable (you can't cash your pension out whenever you want) but bonds are marketable. Neither affect the basic point that both can create an intergenerational transfer.<br /><br />(Oh it feels so good to have my exams graded, so I can argue this stuff!)Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-3409623857888897202011-12-31T00:43:41.285-05:002011-12-31T00:43:41.285-05:00Get ready to bash me and make fun of me, guys.
Le...Get ready to bash me and make fun of me, guys.<br /><br />Leaving debts to children is better than leaving debts to the current generation.<br /><br />Why?<br /><br />The next generation passes on the debt repayment burden to the next generation, which passes on the next generation and so on.<br /><br />The impact of government debt is spread out over several generations upon generations, thus thinning out further and further.<br /><br />However, leaving the impact of complete debt repayment on the current generation only will make the current generation much much poorer, and it will be many generations before the next generations catch up with modern standard of living.<br /><br />Trolling mode now off.Prateek Sanjaynoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-77348876588316473772011-12-31T00:32:02.779-05:002011-12-31T00:32:02.779-05:00re: "When the government borrows, the name on...re: <i>"When the government borrows, the name on the IOU is left blank. It is filled in at some future date when the government chooses to increase taxes to pay for the debt and accumulated interest."</i><br /><br />No - it has the government's name on it. What you're getting at is that the government has somewhat arbitrary and certainly coercive power to tax. That's certainly true. There are concerns about allocative efficiency of government action as a result of this. Certainly. But that has nothing to do with the debt relationship. That difference between public and private borrowing would exist even if we weren't talking about borrowing at all and were simply talking about taxing.<br /><br />re: <i>"Ummm. No I don't. I get the exact opposite conclusion. There *is* a burden on future generations, *even if* we abstract from distributional questions within one generation and incentive problems."</i><br /><br />Go back and read what I wrote that you left in the "..."s. When you relaxed <i>the investment and growth assumptions</i> that you made your conclusion doesn't necessarily hold (but presumably you might have distributional or incentive problems left to talk about). You note that the burden is offset if the money is invested or if there is sufficient growth. You said that in your post.<br /><br />re: <i>"Which is exactly what those who say "we owe it to ourselves" say is theoretically impossible."</i><br /><br />As I noted on your blog, I'm happy to concede the point about "impossible". Those were Baker's words. If you're concerne with that point, fine - I'm with you on that. Krugman seemed more concerned with people who say that the government is like a family and good public finance should mirror good personal finance. That seems like a much more important question to me than Dean Baker's word choice - but if you want to talk about Baker's word choice, I agree with you on that one.<br /><br />As for your point about Ponzi schemes - agian that all has to do with a world where we're talking about intergenerational transfers. That seems very different from questions of public debt, doesn't it? Our Social Security trust fund takes in taxes (it does not issue bonds) and then buys bonds with those taxes (I'm not sure how it works in Canada). I'm trusting OASDI to keep that Ponzi scheme sustainable one way or another. This all seems quite different from public debt.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-83350053946247591202011-12-31T00:24:10.473-05:002011-12-31T00:24:10.473-05:00Look. Paul Krugman is a very very good economist. ...Look. Paul Krugman is a very very good economist. Much better than me (obviously). But nobody is infallible.<br /><br />Check the paper by Ball and Mankiw (just posted on Greg Mankiw's blog) if you want a second opinion on whether there can be a burden of the debt on future generations (for reasons over and above lower investment, distorting taxes, and foreign debt).<br /><br />Abba Lerner's "we owe it to ourselves" view just doesn't work when you start thinking through OLG economies.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-79917529241913033532011-12-31T00:13:31.220-05:002011-12-31T00:13:31.220-05:00Daniel: "...and gets.. well... he pretty much...Daniel: "...and gets.. well... he pretty much gets Krugman's point about no inherent burden but potential distributional and incentive problems)."<br /><br />Ummm. No I don't. I get the exact opposite conclusion. There *is* a burden on future generations, *even if* we abstract from distributional questions within one generation and incentive problems.<br /><br />"It seems that if (1.) the economy doesn't grow, and (2.) old people borrow from young people so they can simply consume more, it is trivially true that debt can be burdensome to future generations."<br /><br />Which is exactly what those who say "we owe it to ourselves" say is theoretically impossible.<br /><br />"This is true for any kind of debt - public or private."<br /><br />Nope. When I borrow, the IOU has my name on it. I must repay what I borrowed.<br /><br />When the government borrows, the name on the IOU is left blank. It is filled in at some future date when the government chooses to increase taxes to pay for the debt and accumulated interest.<br /><br />It's not the same.<br /><br />"Well when we think about debt, we need to think about it in a world where the economy is growing and people borrow either as a result of time preference (they'll pay a premium to consume sooner) or expectations of a rate of return exceeding the interest rate. Under both of those more realistic assumptions, Nick's concerns about the necessesity of a burdensome debt break down (and Nick even admits this!)..."<br /><br />Nope again. Go back and read my post. It is (as is well-understood) only when the growth rate exceeds the rate of interest, and so Ponzi schemes are sustainable, and future taxes never need be increased, that there is no future burden. But that is exactly the case that Paul Krugman has set aside, when he acknowledges that a bigger deficit now will mean future taxes will be higher.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-73249469246948395692011-12-31T00:07:01.951-05:002011-12-31T00:07:01.951-05:00Wow, this Rowe fellow's blog is much more inte...Wow, this Rowe fellow's blog is much more interesting than yours. See ya.Lord Vaderhttp://lordvader.empire.sith.jedisuck.comnoreply@blogger.com