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healthcare includes medicare medicaid social security and interest on the national debt are areas of mandatory spending must be carried out regardless whether the govt has the money or not some would say that defense should be in that category as well the safety net contains unemployment compensation food assistance and other income support programs this is considered for the most part a mandatory part of the budget too the mandatory items mentioned above are the biggies in terms of serious budget issues but are smalls in terms of political emphasis the powers that be are feasting on the everything else in the budget in which each item represents a tiny part of the whole source christian science monitor so of the six categories shown as many as five everything except everything else are mandatory that leaves 20 cents on the dollar from which to make cuts that can t be good if we are trying to cut spending and balance the budget i followed gene s link to the christian science monitor where peter grier writes there s a lot of talk about cutting the us deficit but very little actual cutting of deficit one reason there s not much easy to cut oh sure you know generally that social security is expensive and the pentagon isn t cheap and so on but despite what you may hear on cable news shout shows there is no magic fount of wasteful spending the elimination of which will put the us budget in the black lazy bureaucrats too few foreign aid too small military bands please where s the fbi where s the epa the interior department and so on what about scientific research that comes under the miscellaneous category known as stuff we haven t mentioned so far because it s not very big relatively speaking all together it accounts for the last 20 percent of us spending that s why it s hard to reduce the deficit by cutting nondefense bureaucracy you can t balance the budget by squeezing only one fifth it almost sounds like the csm wants to call defense spending discretionary rather than mandatory that would double the cut able part of the budget to two fifths i don t have a political or military opinion on cutting defense just an economic one i think if you want to cut the military you should want it out of some sense of what s right and wrong not just because we can t afford it and that gets me to my post title short as it is according to gene we can t cut 80 of the budget and the 20 we can cut includes the fbi and the epa and stuff like that which probably should be bigger not smaller this need we have to cut government spending is a real problem you know people say it all the time there are no easy answers so to the people who think we need to make those cuts to you i say this second thoughts anyone maybe the economy is trying to tell us something maybe we re going about this all wrong maybe austerity in government budgets is not the solution it is cracked up to be that sounds like i think the government should spend more that s not what i think me myself i like to say we have to stop spending so much time focused on the solution and spend lots more time on analysis of the problem we have to figure out what the problem really is and we have to be careful in our figuring there has been none of that as long as i have been watching here s my analysis we don t have the debt and deficits because the government is spending too much we have the debt and deficits because we use credit for money when you use credit for money it becomes literally impossible to reduce debt literally impossible to reduce debt not because of how much we spend but because of what we use for money posted by the arthurian at 4 00 am 0 comments tuesday june 19 2012 the misery index nice graph from inflationdata com except for brief spikes early on the misery index before 1970 was low also it reached a low around 1998 but the low was not sustained posted by the arthurian at 4 00 am 3 comments monday june 18 2012 some are happy with the status quo from a recent post at asymptosis recessions are nature s way of keeping the little guy down here s a picture the well off have done fine in the greatest economic downturn in eighty years their median net worth went up that red line there the one that goes up that shows income of the top 10 reminds me of my definition of recession a recession is a time when fewer people do well posted by the arthurian at 4 00 am 3 comments sunday june 17 2012 real flatulence following up on this morning s post i refigured real debt using the formula i figured out some weeks back which allows for the fact that debt is a stock not a flow using these corrected debt numbers this morning s graph now looks like this graph 1 inflation adjusted debt relative to nominal gdp i suppose it just shows that prices are higher than they used to be the google docs spreadsheet posted by the arthurian at 12 00 pm 0 comments fisher dynamics and brain farts well this is weird graph 1 real debt relative to nominal gdp it runs flat except during the great inflation even more weird the mind goes where it will responding to comments i looked at maybe half a dozen fred graphs stopped when i got to the one above because i thought it interesting wrote the first part of this post easily and looked at it on my test blog as usual then i realized what i had done i used the standard inflation adjustment calculation i am still in the middle of arguing that the standard inflation adjustment calculation works correctly for a flow like gdp but gives incorrect results for a stock like accumulated debt but i didn t even think about that when i did this graph posted by the arthurian at 4 00 am 0 comments labels debt and inflation saturday june 16 2012 the hollow men in mine of the 12th i quoted from a pdf by three guys from the bank of international settlements debt is a two edged sword used wisely and in moderation it clearly improves welfare but when it is used imprudently and in excess the result can be disaster for individual households and firms overborrowing leads to bankruptcy and financial ruin for a country too much debt impairs the government s ability to deliver essential services to its citizens doesn t this imply that the overborrowing is a recent phenomenon it is not for me the cost of excessive credit use was already a problem by the latter 1960s in the 1970s it was creating cost push pressures those cost pressures created our productivity slump caused our loss of competitive advantage and led to the major changes in policy that we still think of as reaganomics the problem goes a long way back data bear out these concerns and suggest a need to look comprehensively at all forms of non financial debt household and corporate as well as government over the past 30 years summing these three sectors together the ratio of debt to gdp in advanced economies has risen relentlessly from 167 in 1980 to 314 today or by an average of more than 5 percentage points of gdp per year over the last three decades yes and over the past 30 years debt has grown much more rapidly than before perhaps you think this is the cause of the problem let me remind you that reaganomics was a solution apparently reagan s people thought that accumulating debt even faster would solve our economic problems what this tells me is that we didn t really think of accumulating debt as a problem and what that tells me is when the problem arose in the 1960s and became pressing in the 1970s we did not think accumulating debt was the cause of the problem from the abstract of that bis paper when does debt go from good to bad for government debt the threshold is around 85 of gdp when corporate debt goes beyond 90 of gdp it becomes a drag on growth and for household debt we report a threshold around 85 of gdp now doesn t this imply that the overborrowing is a recent phenomenon taking the us federal debt as the gross federal debt fygfd the federal debt reached 85 of gdp in 2009 but one year earlier this debt was only 70 of gdp did the bis think it a problem then household debt fred has a time series on that hdtgpdusq163n but it only goes back to 2009 so i used the household sector debt from the tcmdo series and looked at that relative to gdp not a perfect match but fair anyway household debt went above 85 of gdp in 2004 apparently maybe a couple years earlier if we imagine the blue line running parallel to the red one on this fred graph finally setting financial debt aside as bis does i looked at nonfinancial corporate business debt as a percent of gdp this peaks below 55 and according to the pdf must be no part of the problem for the hell of it then i looked at total credit market debt owed by domestic financial sectors as a percent of gdp this one reaches 85 already by the 2001 recession and peaks at 120 during the crisis i should point out however that the bis pdf does not identify a problem level for financial debt the earliest of these trouble points appears before 2004 but not much before still if debt is accumulating if it is heading for a benchmark shouldn t we be able to say there are prior benchmarks at lower levels that ought to have been taken as some sort of warning that might not take the bis guys all the way back to the 1960s but it would point them in the right direction but i don t think they re going that way the question they ask is when does debt go from good to bad they want to know how long they can wait before calling debt a problem they want to know how close they can get to the edge because when a bank steps back from the edge it makes less money this is not how the problem gets solved this is the way the world ends posted by the arthurian at 4 00 am 0 comments labels 1966 places i go no 1 in a series perhaps it s the early hour but this made me laugh out loud what s the difference between eligible employees and employees eligible to participate only an unnecessary sort of zeal as if those who cannot participate are strictly forbidden to try from michael leddy s how to improve writing no 1 in a series posted by the arthurian at 3 00 am 0 comments friday june 15 2012 chasing down nordhaus wanted to confirm that there is a nordhaus at yale who is the source of that macromath pdf i used in my 4am today there is a william nordhaus at yale and i m satisfied he s the source of that pdf here s his home page this is kinda neat he has this g econ project going the g econ research project is devoted to developing a geophysically based data set on economic activity for the world the basic metric is the regional equivalent of gross domestic product gross cell product gcp is measured at a 1 degree longitude by 1 degree latitude resolution at a global scale he shows the globe but ignores national boundaries instead he divides the surface of the earth into small squares and shows an output stack in each square representing the gdp or gcp of that small region four globes are available on his sidebar i started with the large pixeled contour globe wow hey thanks for the macromath pdf professor posted by the arthurian at 4 00 pm 0 comments for example not sure who i have to thank for this i googled graph of us real output since 1800 and turned up macromath_v2 pdf the url includes the words nordhaus and yale edu so professor nordhaus maybe let s graph us real gdp since 1800 using an arithmetic scale and a logarithmic scale also show a constant growth curve in the log scale which is more useful arithmetic graph log graph from this example you can see why economists like to put log x t on the vertical axis for output prices and other trended variables because a series with a constant growth rate is a straight line because a series with a constant growth rate is a straight line yesterday i said it is always an unwavering path a straight line on a log chart this straight line path is the universal fundamental assumption whether we think it exists or not the straight line is the wrong picture the long term trend looks like a sine curve it looks like a business cycle only longer than the normal business cycle longer than a kondratieff wave longer than david hackett fischer s great wave i m looking at a really long business cycle what we normally think of as civilization the rise and fall of civilization the log graph above shows the straight line that economists always assume but the logged data shows a curve that relative to the straight line is high in the center and low at the ends it is some kind of curve a sine curve maybe the graph runs 200 years from 1800 to 2000 that is one tenth of a 2000 year cycle no i don t call this evidence but i do call it interesting posted by the arthurian at 4 00 am 0 comments thursday june 14 2012 the unit root thing arcane unit root no i don t understand wikipedia says in time series models in econometrics the application of statistical methods to economics a unit root is a feature of processes that evolve through time that can cause problems in statistical inference if it is not adequately dealt with if a linear stochastic process has a unit root the process is non stationary otherwise it is stationary something like that based on the wikipedia article apparently it is something that can be calculated sometimes maybe this rang a bell from the same article the diagram above depicts an example of a potential unit root the red line represents an observed drop in output green shows the path of recovery if the series has a unit root blue shows the recovery if there is no unit root and the series is trend stationary the blue line returns to meet and follow the dashed trend line while the green line remains permanently below the trend the unit root hypothesis also holds that a spike in output will lead to levels of output higher than the past trend okay the dotted line is potential gdp the red line is actual gdp the blue and green lines are two possible post crisis paths we seem to be on the green path this is exactly what james bullard was talking about what john taylor worked out and john cochrane showed what david andolfatto presented and what i reviewed a few months back see especially cochrane s presentation of taylor s graphs i was totally fascinated by bullard s approach i didn t know it had all this backstory among the ending thoughts of the wikipedia article the issue is particularly popular in the literature on business cycles research on the subject began with nelson and plosser whose paper on gnp and other output aggregates failed to reject the unit root hypothesis for these series since then a debate entwined with technical disputes on statistical methods has ensued while the literature on the unit root hypothesis may consist of arcane debate on statistical methods the implications of the hypothesis can have concrete implications for economic forecasts and policies arcane debate indeed paul krugman the wikipedia article links to him provides a relevant example which i ve highlighted march 3 2009 9 06 pm roots of evil wonkish as brad delong says sigh greg mankiw challenge...
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