STOCK MARKET WATCH -- Friday, 12 July 2013

[jtuck004]

7. I wonder if those chortling over the budget surplus would laugh at hungry children too?

We have a budget surplus because we are not investing in people, because we are letting schools be closed down, government employees be laid off, letting useful buildings and roads crumble into dust.

But because some think so highly of the Republican goals they want to celebrate it as a success. It's like thinking of George Zimmerman as a crime fighter.

Economists looked even closer at Reinhart and Rogoff’s data—and the results might surprise you - Here:

In order to predict the future, the ancient Romans would often sacrifice an animal, open up its guts and look closely at its entrails. Since the discovery of an Excel spreadsheet error in Carmen Reinhart and Ken Rogoff’s analysis of debt and growth by University of Massachusetts at Amherst graduate student Thomas Herndon and his professors Michael Ash and Robert Pollin, many economists have taken a cue from the Romans with the Reinhart and Rogoff data to see if there is any hint of an effect of high levels of national debt on economic growth. The two of us gave our first take in analyzing the Reinhart and Rogoff data in our May 29, 2013 column. We wrote that “…we could not find even a shred of evidence in the Reinhart and Rogoff data for a negative effect of government debt on growth.”
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Understanding all of this matters because, as Mark Gongloff of Huffington Post writes:

Reinhart and Rogoff’s 2010 paper, “Growth in a Time of Debt,” … has been used to justify austerity programs around the world. In that paper, and in many other papers, op-ed pieces and congressional testimony over the years, Reinhart and Rogoff have warned that high debt slows down growth, making it a huge problem to be dealt with immediately. The human costs of this error have been enormous.

Even though there are many effective ways to stimulate economies without adding much to their national debt, the primary remedies for sluggish economies that are actually on the table politically are those that do increase national debt, so it matters whether people think debt is damning or think debt is just debt. It is painful enough that debt has to be paid back (with some combination of interest and principal), and high levels of debt may help cause debt crises like those we have seen for Ireland and Greece. But the bottom line from our examination of the entrails is that the omens and portents in the Reinhart and Rogoff data do not back up the argument that debt has a negative effect on economic growth.

That cartoon is interesting, maybe prophetic. Because we are certainly on the glide path toward a no-growth future, and we most assuredly coming in with our nose too high.