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atio i quoted this recently it is still on my mind provided fiscal space remains ample countries should not run larger budget surpluses to bring down the debt but should instead allow growth to bring down debt to gdp ratios organically countries should let economic growth bring down debt to gdp ratios organically by organically i think they mean naturally here s what i think they mean economic growth is the natural way to bring down the debt to gdp ratio and that s what countries should do two guys from the international monetary fund imf wrote the thing i quoted they must know what they are talking about right you d think but when has economic growth ever been rapid enough to bring down the debt to gdp ratio and when has debt growth ever been slow enough to allow it once for about three years beginning in 2009 something like that benjamin friedman 1986 page 21 indeed a sufficient period of sustained rapid economic growth could readily shrink the economy s overall debt ratio back to its historical range not by reducing the numerator but by enlarging the denominator indeed it could but it doesn t when are we gonna learn ps economic policy encourages the accumulation of debt maybe if we turn that around at december 30 2021 no comments email this blogthis share to x share to facebook share to pinterest wednesday december 22 2021 i know it s like sacrilege just a minor change of wording let it be let it be let it be whisper words of wisdom let it be and when the broke and hungry people living in the world agree there will be an answer let it be for though they may be parted there is still a chance that they will see there will be an answer let it be let it be let it be let it be just a minor change otherwise let it be happy holidays at december 22 2021 no comments email this blogthis share to x share to facebook share to pinterest tuesday december 7 2021 economics by reflex out of context from the risks of high public debt despite a low interest rate environment after the 2008 global crisis the interest rate growth differential r g has turned negative in several economies and interest rates have remained low ever since teulings and baldwin 2014 these two conditions offer strong arguments to pursue fiscal expansions to spur growth as a negative long run r g implies a more sustainable public debt and countercyclical fiscal policy is arguably more effective in a low rate environment blanchard 2019 eggertsson and summers 2016 ubide 2016 the article warns of problems with the view they express which i refer to as reflex blanchard eggertsson summers and ubide could surely back up their reflex view my problem with it is that there must be something wrong with the thinking behind that view because that same thinking has been getting us in trouble since oh since the 70s look at the two strong arguments that are presented a negative long run r g implies a more sustainable public debt and countercyclical fiscal policy is arguably more effective in a low rate environment both of these are based on the assumption that fiscal expansions to spur growth are effective they are not after the financial crisis of 2007 08 economists paused to reflect and evaluate their thinking that s nice it seems they decided there was nothing wrong with their thinking that s a problem their revaluation became an opportunity for them to reafffirm their views take more entrenched positions and expand the political divide that stretches between those positions if a disaster like 2007 08 doesn t cause more of a change in economic thinking than we have seen there is little hope for improvement and by the way we are on the downhill slope we need more than just a little improvement if we want any actual improvement out of context from a future with high public debt low for long is not low forever provided fiscal space remains ample countries should not run larger budget surpluses to bring down the debt but should instead allow growth to bring down debt to gdp ratios organically yeah absolutely of course sure except that plan no longer works we don t get growth enough to bring down debt to gdp ratios fiscal expansion to spur growth is not effective graph 1 the red line is an exponential curve a growth curve based on data for the years 1946 to 1974 the red line after 1974 shows how big the federal debt would have been if the debt kept growing at that rate the blue line shows how big the federal debt actually got 2019 is the last year shown the debt is even bigger now the plan was working in the 1950s and 60s and the early 70s but by the mid 70s we needed more and more and more debt the plan became ineffective graph 2 the red line on the second graph is also an exponential curve it is based on real gdp data for the years 1946 to 1974 same period as the first graph the red line since 1975 shows how big real gdp would have been if it kept growing at the rapid pace of 1946 1974 but it didn t keep up that pace economic growth fell behind the blue line shows how big real gdp actually got it falls behind the trend in the mid 70s and it keeps falling farther and farther behind all the while the federal debt shown on graph 1 is gaining on its 1946 1974 trend now republicans tell you that the debt increase shown on graph 1 is the reason real gdp keeps falling behind the trend that s just bullshit they don t know the reason and their argument is that they could fix the problem but the other guys won t let them that s pathetic and the other guys tell you that the debt increase shown on graph 1 was insufficient and that we need the government to spend whatever it takes more to boost the economy bullshit that plan no longer works and they don t know the reason either in fact neither side is even looking for a reason they re just going with what they think they know a phrase comes to mind when the facts change i change my mind i hear that phrase repeated too often but nobody says it from the heart they all want the i who changes his mind to be the other guy i m not going to say i know because i ve not been to the future i ve not seen my plan enacted and successful instead of saying that let me just say this some of them think the problem is too much government debt the rest of them think the problem is too little government debt between them they consider only one thing government debt the problem however is excessive private debt at december 07 2021 2 comments email this blogthis share to x share to facebook share to pinterest monday december 6 2021 one more on krippner from the harvard university press in their page on krippner s 2012 book capitalizing on crisis in capitalizing on crisis greta krippner traces the longer term historical evolution that made the rise of finance possible arguing that this development rested on a broader transformation of the u s economy than is suggested by the current preoccupation with financial speculation krippner argues that state policies that created conditions conducive to financialization allowed the state to avoid a series of economic social and political dilemmas that confronted policymakers as postwar prosperity stalled beginning in the late 1960s and 1970s in this regard the financialization of the economy was not a deliberate outcome sought by policymakers but rather an inadvertent result of the state s attempts to solve other problems a broader transformation yes so de financialization will require more reversals of policy that anyone recognizes beginning in the late 1960s and 1970s sounds right to me except i think the slowing of prosperity in the late 1960s was itself a result of the expansion of finance in the 1950s and early 60s and maybe since the civil war though i m not ready to make that argument not a deliberate outcome sought by policymakers i ve not read the book but i agree with this conclusion these days everybody thinks of government as the bad guy god that s tiresome what i think is that policy was not effective and had unintended consequences per krippner because policymakers misunderstood and continue to misunderstand the problem vested interests interfere with understanding and skew outcomes in unsustainable directions at december 06 2021 no comments email this blogthis share to x share to facebook share to pinterest sunday december 5 2021 krippner s figure 6 source the financialization of the american economy by greta r krippner at december 05 2021 no comments email this blogthis share to x share to facebook share to pinterest saturday december 4 2021 krippner mistakes a period of high interest rates for a reorientation of nonfinancial corporations to financial profits one more time just quickly according to jw mason krippner mistakes a general rise in interest rates for a change in the activities of nonfinancial businesses so my question is does it look to you like the rise and the fall of interest rates explains the change in activities of nonfinancial business shown in blue on this graph graph 1 interest received as a of interest paid ncb and the 10 year treasury rate my answer hell no at december 04 2021 no comments email this blogthis share to x share to facebook share to pinterest thursday december 2 2021 krippner mason and nonfinancial corporate business in corporate cashflows 1960 2016 jw mason writes it is simply not the case that nonfinancial corporations in the aggregate have turned themselves into hedge funds have replaced profits from operations with income from financial assets the greta krippner article that seems to be the most influential version of this claim is a perfect example of the dangers of focusing on one piece of the cashflow picture in isolation she looks at financial income received by corporations but ignores financial payments made by corporations mostly interest in both cases so as shown in figure 3 she mistakes a general rise in interest rates for a change in the activities of nonfinancial businesses figure 3 because she focuses on the heavy black segment in isolation krippner mistakes a period of high interest rates for a reorientation of nonfinancial corporations to financial profits mason rejects the view that nonfinancial corporations replaced profits from operations with income from financial assets it troubles me that he does not address the slowdown of output growth that would result from such a change it irks me that he ignores the economic slowdown that occurred in the 1970s however my purpose here like his is to consider the financial side of the economy mason shows a graph comparing interest flows to interest rates and declares that krippner mistakes a period of high interest rates for a reorientation of nonfinancial corporations to financial profits that is not only a challenge to krippner it challenges the whole focus of my thinking so i looked at interest income relative to interest cost for nonfinancial business if the ratio increases that s financialization graph 1 interest received as a percent of interest paid for nonfinancial corporate business the ratio runs flat in the 1950s and shows just a little increase in the 60s in the 1970s there is a massive increase of interest income relative to interest cost after the 1970s slow increase again to 2006 this graph shows increasing financialization and let me suggest that the financial crisis was the economy s way of trying to solve the problem of excessive financialization interest rates trended downhill since 1981 neither my graph nor mason s supports his view that a general rise and fall in interest rates explains the flows of interest in the nonfinancial corporate business sector in a follow up post mason says it s true there is a rise in interest income from the 1960s through the 1980s but as discussed in the previous post this is outweighed by a rise in interest payments his figure 3 shows interest income and payments but does not show the one in comparison to the other the fred graph shows the comparison the fred graph shows that the rise in interest payments did not outweigh the rise in interest income it shows the opposite it shows that from 1970 to the financial crisis the increase of interest income far outweighed the increase in interest payments the fred graph shows financialization after 2006 the coincidentally financial crisis creates a sharp decline on both graphs on the fred graph the decline continues till 2016 after 2017 the ratio rises for two years and rises sharply even more sharply than in the 1970s i take this rapid increase to be financialization s recovery from the financial crisis a recovery interrupted by the pandemic of 2020 i do not explain the increase of the 1970s except to say it was not caused by rising interest rates my guess would be that there was a change in the tax code or some other policy perhaps in the late 60s which caused the increase the readiness of the ratio to increase after 2017 suggests that this policy was still in effect the decline after 2006 due to the financial crisis was temporary as i interpret it that 10 year decline was not a change in trend the decline was a reaction to the crisis and a temporary departure from the trend mason seems to see the comparable decline on figure 3 as the natural result of downtrending interest rates but the financial crisis was not a natural event it was the result of decades of bad policy mason references the integrated macroeconomic accounts in his post i went with fred i ll try it his way using the ima all tables in xlsx format file table s 5 a shows the nonfinancial corporate business data at annual frequency in millions 1960 to 2020 graph 2 data comparison ima and fred data funny how the two lines follow each other so closely except before 1970 funny how the ima data shows nothing before 1960 funny how fred shows the increase from near the 25 level to near 50 roughly a doubling in a decade ima though it runs a good deal higher shows only about half a doubling during that decade funny that the ima link brings you to bea which is also the source of the fred data ha ha mason says krippner mistakes a period of high interest rates for a reorientation of nonfinancial corporations to financial profits he is saying the increase that looks like financialization is really due to the increase of interest rates he apparently assumes that the interest cost increase and the interest income increase are similar in size they are not both fred and the ima show definite increase of interest income relative to interest cost in the 1970s and after this difference between income and cost has little or nothing to do with the change of interest rates far as i can see the fred data makes it easy to see the financialization of nonfinancial corporate business it is not as easy to see that the ima ratio shows it because the data starts late and goes downhill but there is the increase of the 1970s and the increase of the 1990s and the increase leading up to the financial crisis each increase peaks at a higher level than the one before and all of them ...